Key details to look for when shopping around for disability insurance

In this guide we point out the important details you have to keep an eye on when choosing a particular policy.

  • Look at how "disability" is defined - policies define "disability" in a number of ways. Each definition can have an impact on your coverage. The three general definitions of disability are presently divided in the three:
    • Any occupation - under this type of disability, you will get paid only when you cannot do any tasks called for by any job. This is considered to be least protective among the disability definitions.
    • Own occupation - under this definition, you will get paid your benefits if you are not able to perform only the duties of your specific job or occupation. This is considered the most advantageous definition of disability as you can get your benefits even if you opt to go back to working but with another job.
    • Modified own occupation - under this coverage, you will be paid your benefits if you cannot perform the duties of your specific occupation, and you are not working on another occupation. Basically, the insurer allows you to decide whether you want to go back to work or not. If you decide to, the insurer will make a reduction on your benefits using your latest income as basis. In certain policies, this feature is effective only for some amount of time after which the "any occupation" definition is applied.
  • The benefit period - refers to the time wherein benefits are paid out. Financial experts agree that you have to get a policy with a benefit period up to your 65th birthday. Because when you reach that date, your Social Security benefits will take over. If you are still young, take advantage of the cheaper rates attached to policies that offer lifetime benefits, this way you get the necessary benefit period without having to worry about expensive premiums.
  • The waiting or elimination period - all policies involve a certain amount of time wherein the policyholder has to be disabled prior to getting any benefits. The longer the waiting period, the lower is your premium. If you want to take advantage of this, you need to have a sufficient emergency fund to take care of you during this period. While reviewing this provision, be sure to ask the insurance agent or officer as to when you can expect your first check after the elimination period. In some cases, it is thirty days after.
  • The replacement amount - review your total income and see how much of it you need to be replaced under policy. The ideal amount to start from is sixty to seventy percent of your taxable income. Be aware that higher replacement amounts mean higher premiums.
  • Coverage for both illness and accident-causing disability - policies that offer accident-only coverage is cheaper but will not give you enough protection. Always aim for coverage that will provide you benefits when you become disabled because of illness and accident.
  • Inflation-friendly benefits - because of inflation, the benefits calculated today may not be enough to cover the cost of living in the future. See if the policy you are getting will be apace (indexed against the inflation rate) with the general increase in prices.
  • Option for partial or residual benefits - it can happen you get partially disabled but still be able to earn a living. This could allow you to receive part of the benefits while at the same time be able to work on a part-time basis.
  • Transition or rehabilitation benefits or assistance - this provision can be helpful as you aim for a resumption of your pre-disability lifestyle through a rehabilitation program.
  • Non-cancelable or on-going policy - coverage that will remain enforced without suffering any changes in premium payments and benefits. This differs from a guaranteed renewable coverage, which offers the same benefits when renewed, but with the premium amounts subject to change by the insurance provider.
  • Guaranteed future insurability - with this feature you can raise your monthly benefit as your income grows without having to present medical proof of your insurability. Usually, this is offered as a rider.
  • Premium payments waived during period of disability - many insurers allow this but you need to check if this is part of your policy.
  • Financial stability of the company - you can do this and have an idea by visiting the following rating agencies' websites:
  • Be alert for certain clauses - these are provisions that exclude hobbies deemed as high risk or even pre-existing health conditions or dangerous hobbies.
  • Establish a price for your disability policy - this allows you to budget your finances accordingly. Premium payments usually cost around one to three percent of one's yearly income. The actual rate will be calculated based on the consumer's age, sex, medical history and line of work.
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