Many families believe they have enough insurance coverage, but unfortunately, disability income protection is often left out of the planning strategy. Many people may give little thought to how they would handle financial responsibilities such as mortgage payments, car payments, college tuition, grocery bills, and utility expenses if their income suddenly stopped for a period of 90 days or more. Disability income insurance can help fill the void that occurs when income stops, and the bills keep mounting.
What About Social Security?
Social Security will most likely not replace your lost wages in the event of a serious illness or accident. You must be severely disabled to qualify for Social Security disability benefits and, even then, you will have to wait at least five months for payments to begin. The bottom line is that if you lose your ability to earn an income, you risk losing everything you own. Thus, it could be in your best interest to consider purchasing a disability income insurance policy.
What to Look for in a Policy
When purchasing disability income insurance, it is important to properly examine the contract provisions outlined in any policy under consideration. Here are a few things to look for:
o A favorable definition of disability—There are a variety of definitions of disability. However, most contracts contain descriptions based on the inability to perform the duties of your own occupation or a general loss of income. The “ownoccupation” definition may offer better protection, particularly if you are a highly skilled professional.
o A noncancelable clause—This clause states that the insurance company cannot cancel the policy (making it “guaranteed renewable”) or increase the premiums.
o Partial disability payments—If you go back to work to a less demanding job for a fraction of your former salary, the policy will continue to pay benefits in proportion to your loss of earnings. Many companies also have residual payment plans, which allow you to go back to work in any occupation, but pay a percentage of lost income based on how much you earn while disabled.
o Future insurability—A benefit that allows the purchase of future coverage without regard to medical insurability.
o Benefits—More favorable contracts pay benefits to age 65 or for life. However, benefits specified in your contract will depend on numerous factors, beginning with the nature of, and risks associated with, your occupation and your age. In addition, exclusions may be placed in a contract due to medical history.
o A reasonable waiting period—Waiting periods in disability income policies vary. Typical waiting periods are 90 or 180 days. Shorter waiting periods are more expensive than longer waiting periods. Consider your liquidity, sick pay, and any money owed to you before you decide how long you could reasonably afford to wait for benefits should you become disabled.
To be certain that you’re protected against financial hardship due to disability, consult a qualified insurance professional to review your current needs and to plan a disability income package that will work for you in the event of a long-term disability.