How To Buy The Best Disability Insurance Policy

Many employers offer disability insurance as part of their employee benefits packages. Although it is dictated by the employer, many disability plans include short- and long-term benefits designed to help supplement income when an employee suffers a disabling accident or illness. Unfortunately, not all employers offer such comprehensive benefits and not all of those who need it are employed.

For those who are not eligible for disability benefits through their employers or are self-employed, insurance companies provide individual disability plans which can be purchased to help supplement a person’s salary in the event of a disabling accident or illness.

Who Needs Insurance?

If you have a job, you most likely need disability insurance. According to the Life and Health Insurance Foundation for Education (LIFE), a non-profit organization which helps consumers better understand life, health, disability and long-term care insurance, nearly one in three women and one in four men suffer a disability that inhibits their ability to work for 90 days or longer. Furthermore, statistics show that one in seven workers can expect to be disabled for five or more years at some point in their lifetime.
For those who suffer a disability that incurs significant time away for work, the interruption of income may lead to negative financial consequences. Personal expenses do not disappear simply because the income does. Mortgage and rent payments are still due. Many mortgage foreclosures and personal bankruptcies are a result of disabilities.
In addition, medical bills can be costly. Some disabilities will require modifications to vehicles and homes to accommodate a variety of adaptive resources such as walkers, wheelchairs and other medical equipment.

How Much Do You Need?

Several of the leading insurance providers offer calculators to assist customers in deciding the level of insurance they should purchase. Monthly expenditures such as mortgage and rent payments, installment loan payments, utilities and other day-to-day living expenses are taken into consideration, along with any savings and supplemental income that are available.

How Much Does It Cost?

Although premiums will vary by provider, a rule of thumb is that disability insurance will typically cost between one and three percent of an individual’s salary. According to Insurance Logic, premiums are based upon several factors including:

• Age
• Gender
• Occupation
• The amount of lost income
• Specifics of the policy
• Additional riders

It’s important to note that most providers will charge higher premiums for occupations that are considered dangerous. For example, an accountant should have a lower premium than that of a construction worker or firefighter.
In addition, many insurance companies offer various riders at additional costs, which set payout guidelines for specific circumstances. For example, many policies offer catastrophic riders which provide higher disability payouts in the event of total disability.
For those individuals in higher income brackets, it may be wise to consider plans with “own-occupation” riders, according to The Motley Fool. This coverage stipulates that disabled workers will receive their disability benefits unless a position of equivalent salary is available. Plans which provide “any-occupation” coverage require that if an accommodating position at a lower salary is available, the beneficiary must take that job or risk losing their coverage. The cost of “own-occupation” coverage is generally more expensive than “any-occupation” coverage.

Supplemental Insurance

Some businesses provide employees with supplemental insurance. Since most disability plans only pay a portion of an individual’s income, the goal behind these types of programs is simply to help provide additional financial resources to help pay for medical bills and other living expenses. According to SmartMoney, these plans require premiums and enrollment above and beyond that of the individual disability plans. In the event of a disability, supplemental plans will often pay out an additional 10 to 20 percent of an individual’s income.

Shop Around

If an employer does not offer disability insurance or if you are self-employed and want to enroll in an individual disability policy, be sure to shop around for the policy that best meets your needs and your budget. There are hundreds of providers that offer individual policies, but most have minor differences that may increase the price or simply don’t pertain to your individual needs. Speak to representatives from several providers or brokers before making a decision. The Motely Fool offers some things to consider when selecting a plan including:

• Be sure the policy cannot be cancelled for reasons other than non-payment.
• Be sure the policy cannot be cancelled when you turn 65.
• Consider the waiting period, or amount of time before disability payments are made. If you have an emergency savings, you may be able to extend your waiting period which may reduce your premiums.
• Look for clauses that exclude pre-existing medical conditions or dangerous hobbies.

Accidents happen and people get sick. Disability insurance not only helps protect the individual. It also helps ensure financial stability for their family. Many individuals count on federal disability programs, like Social Security Disability Insurance, to help with their financial needs. However, the reality is that only 20 percent of those applying for federal disability payments are approved. Private disability insurance helps individuals rest easy knowing that if something does happen, there will be a steady stream of income, at least for a clearly defined period of time.