Disability Insurance Articles

Deciding On Limits For Your Disability Insurance Policy

2011-11-21

Selecting appropriate insurance limits is one of the most important aspects of customizing the right disability insurance plan. Before securing a disability insurance plan, policyholders should carefully evaluate their financial status, earnings and monthly expenses. Policyholders should also reevaluate their disability insurance needs periodically to ensure that an appropriate amount of coverage is secured. Insurance limits, dollar amounts, time caps and cost-of-living adjustments all factor into how much coverage an individual policyholder or head of household requires.

When selecting disability coverage, the policyholder's annual or monthly income is one of the most important things to consider. Individuals should also analyze their earning potential and whether specialized training is required for the job they perform. Although most individuals don't make more than $10,000 per month, those who do should select a high-limit disability insurance plan or policy with own-occupation coverage. These coverage options help doctors, specialists and wage earners with specialized training recover more of their lost earnings. It's important to remember that most disability insurance plans have a fixed dollar limit or only reimburse policyholders for 50 to 67 percent of their earnings. With own-occupation coverage or a high-limit plan, this number increases to 80 percent although the premiums will be higher due to the increased level of coverage.

Policyholders with Permanent Partial Disability (PPD) coverage enjoy flexible limits with adjustable benefits that are applied if a policyholder returns to work in a diminished capacity. Total disability coverage is an all-or-nothing option that does not have the same flexible limits and benefits. For single individuals, insurance benefits should cover bills and everyday living expenses. Parents, heads of households and primary wage-earners must also consider their family's monthly budget and expenses when determining if the 60 percent earning cap is a comfortable option. Individuals whose monthly earnings approach their policy ceiling should upgrade their coverage immediately.

Purchasing a high-limit disability plan isn't the only way to stretch policy benefits. While two and five-year policies are common, as many as 90 percent of all policyholders retain coverage through retirement age. A lot can happen between the time a disability policy is issued and retirement age, which is why supplemental riders are extremely beneficial in making benefits and limits grow. Some disability policies lock policyholders' benefits in at their current salary. To make sure disability limits grow with increasing earnings and expenses, look into cost-of-living adjustments or COLA riders and optional future wage increase options, which are more personalized than automatic increases. Disabling workplace accidents occur every minute in the United States, so it's imperative to have appropriate coverage in place to ensure all the bills and daily expenses are covered.