Disability Insurance Articles

Knowing What Your Disability Insurance Coverage Provides

2010-08-10

Disability coverage is a specific type of insurance that provides benefits in the event that a serious illness or long term injury occurs and the insured person is unable to work. Understanding what disability insurance can and cannot provide will serve an insured well as he or she searches for quality disability insurance. Industry standards prevail, and being able to compare and contrast quotes for disability coverage against these standards can highlight a policy that is worth the cost. Disability insurance coverage is never meant to completely subsidize or replace income lost to a serious illness or long term injury. Rather, disability coverage is a supplement that can partially replace income lost to a disability.

Disability can be addressed two ways by a provider. One way is to look at the inability of the insured to perform any gainful employment; this is called "any occupation." The other way is to evaluate the inability of the insured to perform the duties of their specific current employment at the time of disability; this is called "own occupation." Benefits are disbursed differently depending on which way the provider assesses disability. "Own occupation" will be more expensive but more advantageous to the policyholder. Disability coverage is provided up to approximately 70 percent of lost income, but this number varies across the industry by as much as 20 percent.

The policy should have an auto-renewal clause which stipulates that the policy must renew automatically as long as the premiums are paid in full and on time. There are two other clauses that affect when and for how long benefits are paid. The first of these is the elimination or waiting period, which stipulates the amount of time that must elapse before benefits begin. This gives the provider a chance to assess the likelihood that disability is the result of an injury or illness. Shorter waiting periods generally generate higher premium costs. The second is the cap on payouts, which can be administered as a cap on monthly benefit amounts or a cap on the percentage of income to be covered. Both of these caps will also combine with a maximum lifetime cap under the policy.

Disability insurance often will exclude pre-existing conditions, mental health and "subjective symptoms," which are intangible medical complaints that may pertain to fatigue, unverifiable pain or damage to areas which cannot be measured effectively such as soft tissue unless those are considered standard diagnostic criteria for a certain type of serious illness for which benefits can be paid out. Understanding what a disability insurance policy will and will not cover, ensures that a policy is purchased for the right reasons and with the right coverage levels for the insured's needs.