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Disability
Disability
income insurance pays a monthly benefit to an insured in the
event of an accident or sickness, to help replace lost earnings.
Should the sole income provider become disabled . . . what then?
SOME
FREQUENTLY ASKED QUESTIONS (FAQ):
"What
is the Own-Occupation definition?"
The Own-Occupation definition or otherwise
known as "Own-Occ." It is to a Disability policy as
what your heart is to your body. It is the central most important
definition when insuring such occupations that require highly
specialized personal services such as a surgeon who can no longer
perform surgical procedures but can return to the field of medicine.
Although he returns to work full time as a General Practitioner
he still qualifies for full disability benefits under the "Own-Occ."
provision.
Insurance companies still make this provision available to many
different occupations.
"What
determines my disability?"
Many
companies define disability under the Own-Occupation Definition
as:
" … because of injury or sickness:
You are unable to perform the substantial and material duties
of Your Regular Occupation; and you are under the care of a
Physician appropriate for Your Injury or Sickness."
Which
waiting period is right for me?
The
waiting period is the number of days that must elapse between
the time you become totally disabled and the time benefit payments
begin. Your plan offers a choice of a 60-, 90-, 180-, and 365-day
elimination period. In making the decisions about which one
is right for your income protection, you should think about
the type and amount of funds you have readily available to live
on if you suddenly become (totally) disabled. How long will
these funds last? Do you want to use some - or even all- of
these funds for that purpose? Another consideration is the amount
of premium you want to pay. The shorter the elimination period,
the higher the premium. The 60-day elimination period is the
easiest to satisfy. But to keep your premium costs lower, you
may want a longer elimination period. What if you actually do
become totally disabled? Think about it. It's better to have
coverage even if you have to wait a little longer to receive
benefit payments, than not to have any at all because you don't
think you can afford it.
Can
a disability policy be purchased to insure my mortgage payment?
Yes,
according to the United States Saving and Loan Association,
less than 3 percent of all mortage defaults occur because the
bread winner dies with inadequate life insurance. Nearly half
(48 percent), however, occur because the bread winner becomes
disabled and has inadequate disability income insurance.
Residual
Disability Benefit
Residual
benefits is another term for "partial" benefits. Your
policy will pay these benefits whenever your income is reduced
20% or more by a disability. In other words, if you were making
$50,000 in annual earnings, were disabled, returned to work
part time and now you're only making $25,000, this would represent
50% loss of earnings. You would, then be eligible for a 50%
Benefit.
How
great is the risk of Disability?
For
comparison, about one person in 105 dies every year. One home
in 88 catches fire. One car in 70 has an accident. One person
in eight will suffer disability.
RELATED
TERMINOLOGY:
Key
Person Policy
An insurance policy that reimburses a business for financial
loss during a key employee's disability until recovery or a
suitable replacement can be found.
Buy-Sell (or
Buy-Out)
A disability policy which provides funds for the purchase of
a disabled partner's share of a business.
Business
Overhead Expense
Coverage which helps keep a business operating when a business
owner is disabled. Provides short-term benefits to cover fixed
operating expenses during total or partial disability.
Automatic Increase Benefit (AIB)
A built in feature or optional benefit that increases annually
an insured's monthly benefit without evidence of either medical
or financial insurability.
Cost
of Living Adjustment Rider (COLA)
A benefit that can be added to a disability policy that increases
the monthly benefit annually during a claim.
Guaranteed Renewable
This provision guarantees that the insurance company will renew
an insured's policy provided the insured pays the policy premiums
when due. The insurance company can increase premiums with prior
notification, but policy provisions can never be changed.
Non-Cancelable
The renewal feature of a disability income policy under which
the insurance company cannot change any policy provisions or
increase premiums after the policy has been issued as long as
the insured pays policy premiums on time.
Waiver of Premium
A provision that under certain conditions an insurance policy
will be kept in full force by the company without further payments
of premiums. It is used most often in the event of total and
permanent disability.
Helpful links to
related resources:
Used
with the permission of:
Copyright © 2000
by George Ditzler Associates. All Right Reserved.
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