Disability Insurance Articles

Buying Disability Insurance That Is Appropriate For You

2010-12-10

If you work for a living; that is, if you trade your time for money, then you should consider buying disability insurance. Having said that, the questions remaining are which is the appropriate disability insurance and what should you consider when buying disability insurance.

It is good to know that although disability benefits vary anywhere from 50% - 80% of your pre-disabled income, since benefits are tax-free, they should roughly cover your actual pre-disabled income after taxes. This is not the case if your disability insurance comes through your employer and your employer pays the premiums for you. If this is the case, then your benefits will be considered taxable income. Depending on the coverage of your employer-paid premiums, you may find that you will need to purchase additional insurance on your own.

Here are some definitions of disability you may find helpful. This of course varies from insurance company to insurance company and policy to policy. If you are unable to do the job or type of job you were doing at the time of your injury or illness, this is called Own-occupation. You cannot perform your own occupation. If you qualify for Own-occupation disability and were not engaged in any other form of occupation, then you qualify for Income Replacement. If you are unable to perform any occupation a reasonable person would expect you to be able to perform given your education and experience, then you qualify for Gainful Occupation disability.

It is helpful to know that there is usually a Waiting Period, also called an Elimination Period, before the benefits from your Long Term insurance start. A Short Term policy covers that period; and depending on your policy, the Waiting Period is usually between 60 and 90 days, but can be anywhere from two weeks to two years. Short Term insurance can sometimes take up to two weeks to begin paying.

Other than definition of disability, there are ways to moderate the cost of the policy. For example, "level premiums" stay the same as long as you own the policy while some policies have premiums that increase as you age. An advantage of the latter might be that it has a lower initial premium cost and that you may not plan on keeping it for a long period of time.

Other factors to consider include the effect of varying the benefit amount, the percentage of your lost income you want insured, the benefit period, and your general health at the time you purchase the policy. Men and younger people generally pay a lower premium than women and older people. Make note of these variables before going in to negotiate the appropriate disability insurance for yourself.