Disability Insurance Basics

If you suffered an injury or illness and couldnt work for weeks, months, or even years, how would you support yourself and your family?

Won't the government provide?
Well, maybe. Social Security disability insurance pays benefits to qualified individuals under age 65, and Supplemental Security Income pays benefits to disabled individuals over 65, but neither program covers partial disabilities, and both programs define disability strictly. All states and the District of Columbia offer workers compensation--but only if your injury or illness is work-related. And current or former military personnel are entitled to veterans benefits only if their disabilities are service-related. If you're injured in a traffic accident or at home, you may be out of work-- and out of luck when it comes to benefits from these programs. Accordingly, you might consider purchasing private disability insurance.

Disability defined
You're disabled (at least, for insurance purposes) only if you meet the policy's definition of disability. While no single definition exists, all policies define disability either according to how an illness or injury affects your ability to do your job or any job (total disability), or according to how it affects your ability to earn income (residual disability). When you purchase disability insurance, make sure you understand what will be covered.

First you wait, then you benefit
If you become disabled, you'll have to wait a certain amount of time (the elimination period) before you'll receive benefits. Once you begin receiving benefits (which typically cover 50% to 70% of your normal earnings, subject to a monthly maximum), you'll get them for a certain amount of time (the benefit period). You'll get what you pay for: The shorter the waiting period and/or the longer the benefit period, the higher the premium you'll pay.

The long and the short of it
Some disability policies are short-term; others are long-term. Short-term disability insurance covers temporary disabilities that last for a few weeks or months. Long-term disability insurance covers disabilities that last for an extended period. Common benefit periods offered are two years, five years, or up to age 65; some policies even offer lifetime benefits. If you can't afford both short- and long-term disability insurance, it generally makes more sense to purchase long-term coverage. Most disabilities last only a short time, and you may be able to financially survive a temporary disability even without insurance. Also, you may have short-term coverage through your employer.

Join the group, but act on your own
Even if you have disability coverage through your employer, you may want to consider purchasing additional protection, since the group coverage may be minimal and you can't take it with you if you leave your job. If that happened, you could end up without coverage when you need it, especially if you develop health problems that might prevent you from buying individual income disability insurance. So don't wait until it's too late; consider purchasing an individual disability income insurance policy now. An individual policy can be tailored to meet your needs, and it may offer more liberal benefits than those offered through group protection.

For your consideration
Here are points to consider when purchasing individual disability income insurance:

• How does the policy define disability?
• What are the contractual guarantees of the policy? Is it noncancelable and guaranteed renewable? Does it offer any special provisions or contain any exclusions?
• What base and optional features does the policy offer? How long is the elimination period and the benefit period? Can you add optional benefits, such as a cost-of living rider to adjust the benefits for inflation?
• How much will the policy cost? If comparing premiums, make sure you compare equivalent policies.
• How is the insurer rated for its financial strength and claims-paying ability?