Most people are easily convinced that they should insure against health care costs, death, and the value of their stuff. It is startling, however that most people neglect to insure against the loss of their ability to earn. Looking at historical data, one will find that becoming disabled, especially in the early years of the earnings cycle, is more probable than dying yet disability income policies are purchased less often than life insurance.
Becoming disabled and losing the ability to perform your job can be financially devastating for anyone who hasn’t planned accordingly. Yes, Social Security disability benefits are available, but in many cases, by the time these benefits are awarded, the disabled worker has already suffered financial devastation.
An Individual Disability Income Insurance Policy (DI) is the best way to continue your income stream in the event you are unable to perform your job. Most large employers provide this valuable coverage (at least short term) as part of the standard benefits package, but the self-employed, which makes up a large amount of the American workforce, must acquire and pay for this on their own.
The DI policy will insure against being unable to perform your occupation while Social Security disability normally pays if one cannot perform any occupation. These two descriptions are critically important when it comes to replacing your income. Be aware, however, a DI policy normally only pays about 60% of your normal income so a certain amount of savings must still be available until you can re-enter the workplace. Not all policies are the same, so an experienced and reputable agent should be consulted before applying for coverage.
What to Look For
The Definition of Disability – It’s important to know in advance how the policy defines disability. Some will pay benefits if you are unable to perform your regular occupation while others will only pay if you cannot work at all.
The Extent of Disability – Many older disability policies will require that you are totally disabled before benefit payments begin. A partial disability may be covered for a limited time but, in most cases, a partial disability is only covered if it follows a prescribed period of total disability resulting from the same cause. Newer policies are allowing for benefit payments without a total disability before partial disability payments are made.
Presumptive Disability – Some disability policies will consider you to be totally disabled if though you can still perform a portion or all of your duties. This typically happens when an insured loses their eyesight, speech, hearing or loss of limbs. Normally the elimination period (waiting period) is waived, and benefits are paid out immediately.
Residual Benefits – Some policies may provide a residual benefit based on the insured’s loss of income. This typically takes place when the insured is able to work but experiences reduced income because they cannot fulfill all of their responsibilities. Although Residual Benefits are considered standard in many policies, some companies require this benefit to be added on (endorsed) at the time the policy is purchased.
Although a necessary coverage, Disability Income Coverage can be complicated. Be sure and talk with an experienced agent that can help you navigate the coverage selections so that you can make informed decisions when purchasing your policy.