Disability Insurance Articles
Understanding The Limits Of Disability Insurance
2011-09-18
When a disability prevents a worker from receiving a paycheck, it can be very difficult to make ends meet without proper disability insurance coverage. However, it's not enough to simply purchase the first available policy-buyers should be sure to understand insurance limits and how a disability insurance policy's benefits can end.
The first thing to consider is the amount of a worker's income that the disability insurance policy will cover. Most policies will pay for about 40-60% of a worker's income, but policies with higher coverage are available. It's important to calculate this amount and to compare it to the lifetime limits set on a disability insurance policy. Lifetime insurance limits determine the point at which a disability insurance company will stop paying benefits. Some policies have no set lifetime limits, and these can be a great purchase, but they can also be expensive. Policies sometimes have annual limits, so policyholders should look for these terms and take them into account when considering a policy.
Another important but less obvious type of limit on a disability insurance policy is its elimination period. The elimination period is the period that a worker must wait between when he or she becomes disabled and when disability insurance benefits are issued. For example, an elimination period of six months would mean that no benefits are paid for the first six months of a disability. Elimination periods function as deductibles, and when workers don't plan for them, they can be financially devastating. It's important to choose a policy with a reasonable elimination period, as otherwise a worker can have trouble paying bills in a timely fashion. By the time that benefits are issued, a worker may have ran through his or her savings. When setting elimination periods, it's helpful to remember that the period doesn't have to be served concurrently-if a worker is disabled for two separate periods of three months, for instance, that would satisfy a six month elimination period under the terms of a standard disability insurance policy.
Remember that disability insurance benefits will end when a policyholder is able to go back to work or after a certain age is reached under the terms of some contracts. Policyholders may also need to fulfill certain requirements to keep their benefits. For instance, disability insurance companies regularly require a physician's notes to prove that a policyholder is still unable to work. Understanding the limits on a disability insurance policy means understanding how the policy works in general and how benefits can be restricted. It's important to clearly understand all aspects of the policy to make a responsible purchase.