Disability Insurance Articles
How Existing Wages Affect Disability Insurance Coverage And Plans
2010-12-17
The cost and type of disability insurance coverage available to an individual depends upon the individual's income. Disability insurance is intended to protect an individual should he become unable to work and earn an income after becoming disabled. Coverage and plans, then, are determined by the amount of money an individual anticipates needing should he become totally unable to work for an extended period of time.
Existing wages, therefore, are one of the main determinants of the disability insurance coverage offered to an applicant. The more money an individual earns, the more debt he typically acquires. So, while an individual with a high wage may have more money, his cost of living is typically more than it is for individuals with lower wages.
What this means is that individuals with higher wages will purchase larger policies with better coverage and plans, provided that they are offered by the insurance company. Insurance companies are aware of these trends and, in response, may offer individuals with higher wages smaller policies or policies with more expensive premiums. Higher premiums protect an insurance company from the potential of needing to make large payments should the policy holder become disabled.
Important, too, is the fact that, with higher wages, individuals are also presumed to have a larger amount of savings. Sometimes this results in the insurance company offering less coverage or smaller plans. This is because the company would not anticipate that the policy holder would need much additional income should he become disabled. This decision would be based on the amount of debt reported to the insurance company should the company run a credit report on an applicant. Low amounts of debt with high wages often indicate that the policy holder has a large amount of savings.
Low wages, however, also affect disability coverage and plans. An individual with low wages is typically considered by insurance companies to have a low cost of living. Moreover, insurance companies will recognize that an individual earning low wages most likely does not have the money to pay for an insurance premium. Therefore, insurance companies may not offer large policies simply because they do not believe that the applicant is able to pay for a larger policy, regardless of the applicant's need.
More than anything else it is the ability to pay that affects the disability insurance coverage offered or sold to an applicant. Coverage and plans will be proportionate to an individual applicant's ability to pay for the policy more than the applicant's stated or anticipated need. Individuals with higher wages will be anticipated as needing less money should they become disabled even though they are able to pay for better coverage.