The Basics of Disability Income Insurance

*Commissioner's Individual Disability Table A?

Amount of coverage that should be considered

You should consider obtaining enough coverage to maintain the present lifestyle your family has. This means taking into account rent or mortgage payment, food, automobiles and other monthly expenses. You should be aware that income from Social Security benefits or employer related plans most likely would not come close to covering your expenses. Typical policies range from 60 to 70 percent of pre-tax income.

Choosing a benefit period

There are many different plans with different options on this. The best plan would be one that will replace the lost income until you are 65 years of age. However, a premium-saving solution would be to elect a shorter period such as a five- or ten year benefit period.

Definition Of disability

This will be a critical element to any policy that you purchase and with each policy the definitions will vary.

Some examples are:

Unable to Continue in Your Present Occupation
You should consider a plan that defines "disabled" as being unable to continue in your "present occupation". Most workers have obtained a skill that pays them at a salary reflective of that. A good policy is going to replace the income that you would have lost if you are no longer capable of that earning power.

Unable to Perform "Any Occupation"
There are plans that call for you to be unable to perform, "any occupation". These should be avoided, as they are not reflective of your loss

Elimination Period:
An elimination period is similar to the deductible on an auto policy. It will be the amount of time, generally quantified in a number of days, where you will have to wait until benefits are paid. As in an auto policy this will have a direct effect on the cost of your premiums.

A typical Elimination period would be approximately 90 days. This means that in order to be protected, you would need to have your own financial resources to last 90 days without any income.

Riders

A rider is optional, added coverage on a policy and usually carries a premium. It's important to consider adding a cost of living rider for coverage that helps disability benefits keep pace with inflation. Coverage provided by all optional riders can be refused.