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What To Look For In A Disability Insurance Policy

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What You Need To Know About Disability Insurance

Own Occupation Long-Term Disability Insurance Policies Explained

By;;on May 17, 2019

If you had a life-changing accident or were diagnosed with a critical illness tomorrow, would you and your family be able to cope?

Ten years ago, Janet Freedman was rushing out the door of her home for work. Her arms loaded with tax returns, she missed a step on the stairs on her front porch and fell, hitting her head on the concrete. When her neighbours found her, she was barely conscious, with her head trapped between her own front steps and those of the house next door.

Paralyzed, with a partially severed spinal cord, it took more than six months of hospitalization and two years of intensive physiotherapy for Freedman to resume her life. She was unable to work and had no one to support her. Thank goodness I had a good private disability insurance plan, says Freedman, a certified financial planner and author of Hit by an Iceberg: Coping with Disability in Mid-Career. Those payments allowed me to concentrate on my rehabilitation and to live my life without worrying about where the money was coming from for daily living expenses. That made a big difference to me and my recovery.

Regular pay if you cant work

When calculating your coverage, keep in mind that payments from private disability insurance are tax-free, while the payout from most corporate plans is taxable.

A single payout if you get sick

Which type should you get?

What does the * mean?

What You Should Look For In A Disability Insurance Policy

One very key thing to note is that there are a variety of policies with policy provisions known as riders which can be amended and factored in the disability insurance. They have two distinct protection features that you can pick depending on your preference; Non-Cancelable and Guaranteed Renewable.

The policy benefits vary significantly offering the client an array of options to pick from;

  • Partial or Residual disability rider- Youll be able to exercise the opportunity to get back to work and receive partial disability payments.

  • Benefits Coordination – This option offers you the chance to specify the target amount youll receive from all your policies combined.

  • Premium Refunds – If there are no claims made after a specific time youll be able to get a refund of your premiums.

  • Adjusted to cost of living – Though it may cost a bit higher– just as the policy suggests youll receive increased benefits proportional to the cost of living.

  • Premium Waivers – This allows you to forfeit insurance payments in case of a 90 day disability period.

  • ;Additional purchases – For this option, you have the leeway to buy additional insurance later on.

The Different Kinds Of Disability Insurance Policies And What Theyre For

All disability insurance policies are designed to give you money if you become disabled. But not all types of disability are the same. There are different policies you can get:

  • Short-term disability insurance

Also called STD, this policy is for temporary disabilities and is designed to replace 60-80 percent of your income for a short period of time: typically 3-6 months , or until you can get back to work.

  • Long-term disability insurance

Also called LTD, this type of policy is designed to last for many years through retirement if needed replacing 50-67 percent ;of your income for an individual policy and about 40-60 percent under group long term disability if something happens and you can no longer work.

  • Social Security Disability Insurance

Also called SSDI, this is coverage that comes as part of your Social Security benefits. However, it is usually much harder to qualify for than a disability policy purchased individually or through work. SSDI applicants have a higher chance of rejection and the benefits are typically lower than with a private disability policy, so experts say you shouldnt rely on SSDI alone for income protection.

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Consider Optional Policy Add

Your insurance company may offer optional policy features, called riders, that allow you to customize your coverage. Some riders come standard at no additional cost, while others will increase your monthly premiums.

Common standard riders include:

  • Automatic increase benefit: Allows you to increase your monthly benefit annually for a limited period, to mimic pay increases.Â;

  • Guaranteed renewable: Means that your insurer canât cancel your policy as long as you keep up with premium payments.

  • Waiver of premium: Waives your premiums if you become disabled and canât work.

Popular riders include:

  • Future purchase option: Allows you to increase your coverage at any point in the future, regardless of any changes in your health.

  • Non-cancelable: Means that your insurer canât cancel your policy, increase your premiums, or change your benefits as long as you keep paying your premiums.

  • Own-occupation: Makes it easier to qualify for benefitsâyouâll qualify if you canât perform the duties of your occupation, as opposed to the duties of any occupation.

  • Residual or partial disability benefit: Pays a benefit if youâre still able to work in your own occupation while disabled, but are losing some income due to reduced hours or productivity.

The Definition Of Disability

Disability Insurance Infographic

There are many different ways to define disability there are more than five in most dictionaries! So be sure you fully understand the definition used by your insurance provider. Most policies have a two-tiered definition of disability.

Initially, the disability standard will be defined as the insured worker being unable to perform the duties of their Own Occupation. This refers to the job they were performing at the time they became disabled.

After a defined period of time, usually 24 months, the standard of disability will shift to a more difficult standard. This is defined as the insured worker being unable to perform Any Occupation. In other words, the Any Occupation standard means the worker has to prove they are unable to work at any job.

Under the Any Occupation standard of some policies, the worker must still be able to earn some percentage of their former salary. Usually the percentage is 60 to 80 percent. Do not purchase a long term disability plan that does not contain this provision. Better yet, try to find a policy that uses the Any Occupation definition exclusively.

Confusing, right? Thats why it is best to learn the definition of disability first, before delving any further into the fine print.

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What Is Disability Insurance

Disability insurance is aimed at covering you in case of an injury or illness that may render you incapable of performing duties that necessitate your income. Though there are several definitions of disability in respect to the policy you buy, normally ailments like cancer, heart attack, or physical injuries are covered.

How Much Does Disability Insurance Cost

Disability insurance costs for both short-term and long-term coverage can range from 1% to 3% of your annual income. So if you make $50,000 a year, thats $60 to $125 monthly. But youll pay less if youre get a long-term policy with a longer elimination period. If you can, get a non-cancellable insurance policy that, you guessed it, cant be cancelled by the insurance company even if your health changes.

Other things that affect how much you pay in premiums every month are your age, if you smoke, what you do for a living, and how much money you make. ;

And since insurance companies arent known for making things easy, another thing that impacts disability insurance cost is their definition of disability. If you want a policy that covers your job as a chimney sweep specifically, your premium would cost more compared to a policy that covers you at an office job.

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Disability Insurance: What It Is And Why You Need It

One of the most important assets you have is the ability to work and earn an income. But what happens if you lose your ability to work even temporarily? The possibility is by no means remote. In fact, the Social Security Administration estimates one in four 20-year-olds will experience a disability for 90 days or more before they reach 67.1

Disability insurance also known as disability income insurance can give you income to live on if you become temporarily or permanently disabled.

Best Disability Insurance Of 2021

How much disability insurance coverage do I need?

Accidents happen to everyone. Should you be unable to perform the functions of your job due to injury or sickness, a disability insurance policy pays some of or all your salary while you are laid up. We compare the best disability insurance carriers in the country today.

  • Short-term disability income insurance for ages 18 to 55
  • Premiums starting around $10 per month
  • Coverage limits from $500 to $5000
  • 3-, 6-, and 12-month benefit periods
  • Apply and start a claim 100% online
  • Policies issued by Massachusetts Mutual Life Insurance Company , a company rated A++ by A.M. Best
  • A+ rated by the Better Business Bureau
  • 100% online application with fully-automated underwriting technology, meaning no doctor;visits
  • Affordable options for many different occupations, including the self-employed
  • Get an online quote in seconds and coverage online in as little as 15 minutes
  • Eight riders add flexibility to policy
  • Choose your waiting period
  • Benefit terms ranging from one year to until you’re 67
  • Underwriting partner is rated Excellent by A.M. Best
  • Works exclusively with doctors and other healthcare professionals
  • Partners with top disability insurers nationwide
  • Quickly compare rates from multiple insurers
  • Flexible policies with several riders available
  • Get help choosing the right policy for you
  • Group short;and long-term disability insurance policies
  • Customized plans with;multiple elimination and benefit periods;
  • Total and partial disability coverage
  • Waiver of Premium Benefit;

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Go Through The Underwriting Process

If youâre familiar with life insurance underwriting, the process is similar for disability insurance. There are three main steps in the disability underwriting process:

  • A medical exam to verify your health information. This exam is similar to a standard physical. The insurance company will schedule a time to take the exam and can send a technician to your home or office for your convenience.

  • Income verification through pay stubs or the previous yearâs tax returns to make sure the amount of protection youâre applying for is appropriate.

  • An attending physicianâs statement request, which is a statement of your health history from your doctorâs point of view.

  • Some insurance companies offer simplified underwriting which waives the medical exam and income verification requirements, speeding up the approval process considerably. However, these policies often come with age or coverage restrictions.

    You May Not Think You Need Disability Insurance But Statistics Say Otherwise Heres What You Need To Know Before Purchasing A Policy

    Many people are not aware of the sobering statistics on the likelihood of becoming disabled. According to the Social Security Administration, more than one in four of todays 20 year-olds will become disabled before reaching retirement age.1 And the 2010 Census found that 21.4 million people aged 16 to 64 in the U.S. have a severe disability that limits or prevents them from working.2

    This article provides an overview of income protection insurance, including the distinctions between short-term and long-term coverages.

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    Watch Out For The Definition Of Disability

    The definition of disability in a policy is extremely important. It tells you under what circumstances you will qualify to receive benefits.

    Own-occupation coverage pays benefits if you cant work at your chosen fielde.g., attorney or teacher. Own-occupation policies are the most expensive type of disability coverage because they provide the broadest coverage.

    Any-occupation coverage pays benefits if you cant work at any occupation for which your education level and training has prepared you. Thus, if you can no longer perform the duties of a nuclear physicist, but you can teach physics at college level, you will not receive benefits.

    Income-replacement policies, which are less expensive than own-occupation or any-occupation, replace whatever portion of your income you are no longer able to earn.

    Can You Keep Your Disability Insurance If You Change Jobs

    What to Look for in a Disability Insurance Policy

    Yes, it stays with you even if you change jobs.


    Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America , New York, or provided by Guardian. Product provisions and availability may vary by state.;Optional riders are available for an additional premium.;

    This website is provided for informational purposes only and should not be considered tax or legal advice. Please contact your tax or legal advisor regarding the tax treatment of the policy and policy benefits. You should consult with your own independent tax and legal advisors regarding your particular set of facts and circumstances. The information provided is not intended or written to be used, and cannot be relied upon, to avoid penalties imposed under the Internal Revenue Code or state and local tax law provisions.

    This material is intended for general public use.;By providing this material, Guardian is not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity.;Please contact a financial professional for guidance and information specific to your individual situation.


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    Types Of Disability Insurance

    There are two main types of disability insurance; short-term and long-term coverage. Both replace a portion of your monthly base salary up to a cap, such as $10,000, during disability. Some long-term policies pay for additional services, such as training to return to the workforce.

    Short term vs. long-term

    Typically replaces 60% to 70% of base salary

    Typically replaces 40% to 60% of base salary

    Pays out for a few months to one year, depending on the policy

    Benefits end when the disability ends. If the disability continues, benefits end after a certain number of years or at retirement age.

    May have a short waiting period, such as two weeks, after you become disabled and before benefits are paid

    A common waiting period is 90 days after disability before benefits are paid

    Disability policies vary in how they define disabled. Some policies pay out only if you cant work any job for which youre qualified. Others pay out if you cant perform a job in your occupation. Some policies cover partial disability, which means they pay a portion of the benefit if you can work part time. Others pay only if you cant work at all.

    Regular Or Own Occupation

    The definition of “regular or own occupation” plan means you’ll receive benefits if you’re unable to perform the main duties of the job you had at the time the disability started.

    You’ll still receive benefits even if you can work in a different job from the one you had before your disability, based on your training, experience and education. Some policies don’t allow you to get benefits, or may reduce your benefits, if you begin working in a different job.

    In group policies, it’s common that policies have regular or own occupation plans for a specified period of time. At the end of the specified period of time, usually after the first 2 or 5 years, the disability policy will often change to the any occupation definition.

    Own occupation plans that never change in definition are often purchased individually and usually cost more than any occupation plans.

    You may want to consider an own occupation plan if you have a specialized occupation that would require you to take a significant pay cut in order to work in another field.

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    How Disability Policies Are Offered

    Disability insurance can be purchased on an individual or group basis.

    Individual insurance plans are typically purchased through a local insurance agent and,;in some cases, can now be purchased over the phone or through a companys website. Most insurance companies will issue disability insurance coverage equal to approximately 60% of earned income.

    Group insurance is usually provided by an employer or purchased individually through a sponsoring professional association. An individual whose employer makes group;long-term disability insurance;available, or who is changing employers, may have the opportunity to supplement individual disability insurance coverage. Once purchased, an individual policy would not be affected by subsequently enrolling in a group LTD plan. If, however, an individual policy is not already at its maximum benefit level, this strategy might prohibit the insured from further increasing an individual policy.

    Disability insurance policy benefits may be taxable or tax-free, depending on who paid the premiums.

    Is Disability Insurance Worth It

    How Do I Qualify for Disability Insurance Benefits?

    Do you need disability insurance? If you depend on a paycheck to cover for your living expenses, the simple answer is yes. This article will provide answers to three other questions people commonly have about disability insurance:

    • What are the different kinds of disability insurance?
    • How do disability insurance policies work and what should I look for?
    • How do I get the disability insurance I need?

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    What Does Disability Insurance Cost

    As with any insurance policy, the cost for disability insurance policies will vary widely based on the type of coverage purchased, benefits selected, your age, your income, your occupational risk class, and even the elimination period chosen.

    In our research, we found that $5,000 in monthly disability insurance coverage for a 35-year-old female could run anywhere from $95 to $290 per month. Your own experiencebased on your own preferences and personal detailsmay differ.

    How Does Disability Insurance Work

    Disability income insurance is an agreement made between insurance companies and policyholders. In exchange for the monthly payments you make, the insurance company agrees to pay you a monthly benefit amount if you suffer a disability that affects your ability to work.

    Disability insurance is designed to replace a percentage of the income you lose due to your inability to earn a paycheck. Having disability insurance means being able to meet your financial obligations â paying bills, covering household expenses, providing for your family â while youâre unable to work.

    A disability insurance policy will spell out:

    • How much you will pay in premium. Just like any other type of insurance, this is the payment you must make each month to keep your coverage in force.
    • How the policy defines disability. Some policies will pay out a monthly benefit if an injury prevents you from working at your normal job, but allows you to do other types of work that will nonetheless reduce your income. Other policies will not pay benefits if you are able to work in another type of profession, even if you earn less money.
    • How much you will receive in benefits. In most cases, your benefit amount will be a percentage of your income. Policies typically pay 60 to 80 percent of what you earned before your disability.
    • How long your benefits will last. The benefit period may be a certain number of months or years, or up to a certain age.

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