Disability insurance: What to know when buying

Disability insurance is considered by experts to be just as important to obtain as life insurance, if not more important. Whereas life insurance provides for the future of your family after you die, disability insurance provides you and your family's future while you're living. If you were to become disabled in such a way that prevented you from being able to work, disability insurance would be able to provide you with monthly benefits totaling a percentage of the income you would receive were you able to work.
You may already have disability coverage provided to you through your employer. If this is not the case, you can purchase disability insurance on your own through an insurance agent or firm. However you choose to obtain disability insurance, either from your employer or on your own, there are many important points to consider when preparing to buy. Every insurance provider and every insurance policy is different; therefore, taking a little knowledge with you as you shop for disability insurance can assure you excellent coverage from a well-formed policy package.

When you choose to obtain disability insurance through your employer, you most likely will not be able to customize your policy package. However, much of the information you need to know when buying disability insurance is still applicable to you.

Firstly, there are two types of disability insurance you can buy:

Short-Term Disability
This type of disability is frequently provided by an employer. When a person becomes injured or ill and is covered by short-term disability, they receive an income during the early period of their injury. Depending on the insurance provider, the individual may receive disability benefits for 2 weeks or up to 6 months.

Long-Term Disability
This type of disability replaces income during an extended period of time, normally for 2 years, 5 years, or until the disabled recipient turns 65. There are two types of long-term insurance available to individual consumers:
 Non-cancelable long-term disability: Under this type of long-term disability coverage, the recipient has the assurance that their premium (monthly cost of insurance), will never be raised, and, that their policy (the insurance contract) cannot be cancelled as long as it is being paid on time;
 Guaranteed renewable long-term disability: This type of policy, usually less expensive initially, allows the premium to be raised, but only if it affects a class of policy-holders.

Secondly, when looking to buy your chosen type of disability insurance policy, there are several questions you need to ask yourself:

 How much of a benefit can I qualify for?
 How does the policy define disability?
 Is the policy non-cancelable or guaranteed renewable?
 What is the waiting period?
 What is the benefit period?

The answers to these questions will ultimately dictate the type of coverage you buy. Consider each question separately:

 How much of a benefit can I qualify for?
Policies usually pay 50, 60, or 80% of the income your job provided. Experts recommend that you get the highest benefit you are able to qualify for.

 How does the policy define disability?
There are two ways an insurance company defines a disability in a policy: own occupation ("own occ") and any occupation ("any occ"). When a policy defines disability as own occ, you are considered disabled because you cannot perform the duties associated with your own profession. A policy that defines disability as any occ means you are disabled because you cannot perform work in any profession. Experts recommend a policy that defines disability as "own occ", because it can prevent you from being forced into a new line of work.

 Is the policy non-cancelable or guaranteed renewable?
A disability policy can be either non-cancelable or guaranteed renewable. Non-cancelable means that a policy's premium can never be raised nor the policy be cancelled as long as you pay the premium on time. Under a guaranteed-renewable policy, premiums can be subject to increases. Experts recommend a non-cancelable policy for the best coverage.

 What is the waiting period?
A policy's waiting, or elimination, period is the amount of time you wait before you begin to receive your disability benefits after a claim is accepted. Waiting periods can be as little as 2 weeks or as long as 1 year. Experts recommend a policy with a slightly higher waiting period to save money, because, premiums increase when waiting periods do. However, if you do not have the savings to tide you over for 6 months to a year without income, you may want to seriously consider paying a higher premium for a shorter waiting period.

 What is the benefit period?
The amount of time a disability policy allows benefits to be paid can vary with the type of insurance you buy. Short-term disability insurance will pay benefits for up to 6 months, whereas long-term disability insurance pays up to 5 years or until you turn 65. Experts recommend buying a policy that offers benefits for the longest available time, usually until you turn 65.

Additionally, you may want to consider these options if a policy offers them:

 Cost of living adjustment. With this option, benefits are adjusted for inflation;
 Future purchase option. This option offers you the ability to purchase additional coverage for income later, even if you develop a disability that would normally prevent you from being able to obtain coverage;

Experts recommend you buy disability insurance while healthy and still relatively young, because premiums increase with age.

Make sure you compare policies from at least 3 different financially sound insurance companies, so you know you're getting the best coverage and premium. Women especially, who must frequently pay higher premiums, should do plenty of comparison shopping. Also, comparing each company's service and claim records is vital.

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