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When is the best time to think about purchasing a disability policy?
The earlier you begin the process, the better, since you can only obtain a policy if you are healthy. Also, premiums are based on your age so disability insurance is less expensive if you are younger. Once you start earning an income, it is important to consider protecting it.
What does a policy typically cost?
Depending on your age, gender, amount of group coverage, riders on the policy, and amount of benefit purchased, it will generally cost between 1-4 percent of your annual income.
How do I compare one policy with another?
It can be difficult to compare policies as most policies have different definitions. Look for a company with high third-party ratings, look for an own-occupation policy, and make sure you do your research and ask a lot of questions.
How long does the underwriting process take?
Typically three to six weeks. It can be delayed if there is a request for attending physician statements from your doctor.
How do I know I am getting a policy with a good company?
Look at the company's third-party ratings (A.M. Best, Standard & Poor's). Make sure the company has a strong foundation and track record.
Will policies get any better in the future?
Probably not. Companies have actually retracted on offering better policies and they will probably not offer anything better than what is offered today.
How long will I need a disability policy?
As long as you are dependent on your income, you will need to keep your policy. Once you are financially independent or retired, you may not need the coverage anymore.
What is Own-Occupation definition of disability? Why is it so important?
Own-occupation covers you in your occupation or specialty EVEN IF you are working in another occupation or specialty. This is the most liberal definition. There is no penalty or offsetting benefit amount if you decide to work in another occupation when you are on claim.
What determines if I'm disabled?
The definition of disability in your policy is what is used to determine if you will qualify for benefits.
What are residual benefits?
If you have a residual definition or rider on your policy, the policy will pay you a benefit if you have a loss of earnings, usually 20 percent. You do not have to be totally disabled.
If I'm disabled, can I see my own doctor?
Most companies will allow you to see your own doctor if you are disabled. The company usually requires that you are seeing an appropriate doctor for your condition.
What are common policy exclusions to look out for?
Common exclusions are:
- Mental/Nervous Disorder (sometimes companies will restrict how long they will pay for this)
- Act of war
- HIV
- Pregnancy
- Active Military Duty
- Foreign Travel
Are disability insurance benefits taxable?
If you pay your premiums with personal money (after tax dollars), your benefit is tax-free. If you deduct the premiums or your employer pays the premiums, the benefit may be taxable to you at the time of claim.
Can I have my employer pay for my coverage?
Your employer can pay for your disability insurance coverage but it may cause the benefit to be taxable to you at the time of claim.
How do I determine the best waiting period?
This decision is based on what premiums you can afford and how much you have in savings. (The waiting period is the amount of time that must elapse after you become disabled before you start receiving benefits.)
Which are the common riders that I can put on my policy?
Residual Benefit
Cost of Living Rider
Future Increase Option Riders
Lifetime Extension Riders
See your policy to see what other riders are available or may be suitable for you.
Can I get coverage through my association?
There may be discounts available to you through your association. However, don't assume that just because your association is endorsing the product that it is the best available. You'll still want to make sure that it has the best definitions for you.
What if I have medical problems?
It is important that you disclose this to your agent before you begin the process. It may save you time or there may be a different recommended plan for you.
What if I change jobs or occupations?
If your policy is noncancelable or guaranteed renewable, the insurance company can't change your contract if you change jobs or occupations. As long as you continue to pay your premiums, they must cover you in the occupation/job you were doing just before your claim.
What if I'm pregnant or thinking about becoming pregnant?
Pregnancy can be covered under a disability insurance policy. If you are pregnant, you will need to wait until you have delivered your baby and have returned to work to obtain disability insurance. If you are considering getting pregnant, it may make sense to buy a policy prior to conception. Check the policy to see if complications of pregnancy are covered.
What is my potential income?
See Who Needs It page. You may be surprised when you realize how much income you are expected to earn over your lifetime.
Are there any discounts available?
Some insurance companies will offer discounts if there are two or more people purchasing a disability insurance policy at the same employer. They can offer a group discount (usually 10 percent). Under this arrangement, the insurance company may also offer unisex rates, which can save females up to 35% on premiums.
How long will it take to get a policy?
Usually 3-6 weeks
What if I already have a group disability policy?
If you have a group policy, you will probably still be eligible to supplement the income provided with the group policy. Group policies are limited in the amount of benefit they can offer, the benefit is usually taxable since the employer pays the premiums, and you usually can't take the policy with you if you leave the employer. See Who Needs It.
What if I start a business and/or my income decreases in the future?
If your policy is noncancelable, guaranteed renewable, as long as you pay your premiums, the policy will pay you at the rate of benefit you are at now, even if you had a decrease in pay.
If I have an elective surgery and have complications, is it covered?
Some policies have a feature that will still pay benefits even if you are sick due to complications of elective cosmetic or transplant surgery.
Am I covered on active military duty?
Some policies won't cover you at all. Some policies will only pay up to six months. Check your policy definitions.
What if I leave the country?
Depending on the policy, some policies will cover foreign travel. Some policies will suspend the contract while you are abroad. Check your policy.
If I get injured at work, do I get a disability insurance benefit?
Most policies will pay you over and above any worker's compensation benefits paid.
What about Social Security benefits?
Some policies will offset any Social Security benefits while others will not. If you have this rider on the policy, the company will only pay the benefit if Social Security denies payment.
What if I am severely injured but still working in my job?
Some policies have a presumptive total disability feature. It will pay you your full benefit amount if you lose a limb or eyesight, for example (there is a list of injuries in this category in the policy), even if you are still working in your job.
Can the company ever raise my premiums?
If your policy is noncanceleable, the insurance company can never increase your premiums, typically to age 65.
Can the company ever cancel my policy?
If your policy is guaranteed renewable, it can't ever be cancelled your policy.
What happens to my policy when I'm ready to retire?
Most policies are noncanceleable, guaranteed renewable to age 65. At that time, the company wants to make sure you are working a certain number of hours a week. If you are retired or financially independent, you may not need your policy anymore.
Do I have to pay premiums when I'm on claim?
Usually not
What if I go back to work after I was on claim and then have a recurrence or another disability?
Some policies will allow you to go right back on claim and will pay you right away (no elimination period) if the disability occurs again. Policies can vary on this anywhere from six months to five years.
Will my policy benefits keep up with inflation when I'm on claim?
If you have a cost of living rider, your benefit will increase by a percentage every year.
What if I am diagnosed with an illness/disease and become uninsurable? Can I still buy more benefit in the future?
If you have increase options on your policy, you only need to show that your income has increased.
How can I cancel my policy?
You can cancel your policy at any time by submitting a request in writing.
I'm moving to another state. How will this affect my policy?
Your policy definitions are based on the state where you originally purchased your policy and will remain so after your move.
Disability insurance is just another kind of insurance that duplicates coverage I already have. I have over insured myself!
Wrong: Disability insurance is one of the most overlooked kinds of insurance. Instead of thinking of it as just another kind of insurance, think of it as your primary insurance policy since it is insuring your income, which pays for everything else.
I'll wait until I am making better money and can afford a policy. Think again: If you wait to buy a policy, you are risking a change in health that could cause you to be declined for coverage. Furthermore, the longer you wait, the more expensive the policy becomes since it is based on your age.
There is a policy available to me through my employer that I can take with me if and when I leave employment. Caution: Beware of these kinds of policies. They are often limited in their definitions of disability since the company can't control whom the policies are offered to (no medical underwriting).
If something happens to me, my employer will take care of me. Maybe not: Even if you work for a great employer who wants to take care of you, your disability benefit may not go on for a long period of time since your employer may need to replace you and can't afford to continue to pay someone who isn't productive.
I can rely on family or friends to support me if I get disabled. Think about it: Do you want to rely on the hard-earned dollars of family and friends? Their money may be earmarked for a child's education, a home or other special dream – not to take care of you because you didn't have a plan of your own.
Disability won't happen to me! Wrong: The fact is one in three people will miss work for 90 days or longer prior to reaching age 65 due to a serious illness or accident.
I don't think I can afford it right now. Think again: Could you afford to take a six-month vacation without pay? If you can't, how can you afford a six-month disability? And, it's hard to plan for a disability, since you never know when it could occur.
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