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.

Question: Does your policy contain such language?

"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.
 

Question: Would your home be subject to foreclosure if you become sick or hurt?

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.

 

Question: Could you work in your occupation on a "part-time" basis?

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:

Americans with Disabilities Act Information