Individual Disability Income Insurance

While most Americans insure their lives and material assets, like their homes, cars, etc., many overlook the need to protect their most valuable asset – the ability to earn an income.

Insurance claims studies indicate that the odds of becoming disabled for 90 days or longer are much greater than dying during one’s working years.

At age 27 = 2.7 times greater

At age 42 = 3.5 times greater

At age 52 = 2.2 times greater

What To Look For In A Disability Insurance Policy

· Definition of disability: Are education, experience, and past earnings taken into account in determining whether the insured is qualified to resume work? Many policies provide for an initial own occupation definition of disability, for a specified period of time, after which a different definition of disability applies.

· Partial or residual benefits: Partial or residual disability benefits may be paid in some policies when the impairment allows the insured to perform only a portion of his or her duties. This provision may also pay benefits in the event the disability reduces the insured’s income by a certain amount (for example, 20% or more) from pre-disability levels.

· Cost of living adjustment: Is there a cost of living adjustment (COLA) which would increase benefit payments after a disability occurs?

· Cancelability and renewability of policy: Except for nonpayment of premiums, is the policy noncancelable or renewable? Noncancelable generally means that the insurance company cannot cancel the policy, change the policy provisions or increase policy premiums after issue, as long as premiums are paid on a timely basis. Guaranteed renewable is similar, but allows the insurance company to increase the premium.

· Waiting and elimination period: Is the waiting or elimination period proper for the insured’s circumstances? Commonly available periods include 90, 180 and 360 days. Naturally, the longer the elimination period one selects, the lower his or her premium payments will be. However, a person’s needs, cash reserves and income sources should be the deciding factors in selecting a proper elimination/waiting period.

· Benefit period: What benefit period should be selected? Since a long – term medical disability can be financially devastating, one should elect a long – term benefit where possible. Some companies offer lifetime benefit periods, but periods as short as 24 months to 60 months are also available.

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1 1985 Commissioner’s Individual Disability A Table

2 Own occupation generally means the insured’s current occupation. The own occupation definition of disability may not be available for all occupations or professions.

Individual Disability Income Insurance

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Caution: Highly compensated employees should be aware of payment caps in many group long – term disability policies. While some programs will provide disability income payments at 60% or 66% of salary, many have a relatively low dollar limitation, such as $3,000 per month.

Types of Disability Contracts

Several other specialized disability contracts are available to the businessperson:

· Business overhead expense: Covers expenses such as staff salaries, rent, telephone, utilities, malpractice insurance and other expenses necessary to keep one’s business open.

· Key person disability: Reimburses the business for the loss of a key employee and allows funding of temporary replacement or training of a successor.

· Disability buyout: Provides income to fund a buy – sell agreement triggered by the total disability of a shareholder/business owner. Payouts may come in the form of a lump sum, monthly installments or a combination of the two.