Cost: apx 3% of
your income to give a 45-65% benefit
(varies depending on your
age, occupation, health & options)
Sample Disability Case:
A recent client chose from the following
based on his situation
Male Age: 37
State: Utah
Occupation: CPA
Elimination Period: 3 Months
Monthly Income: $5,000
Met Life Solution
Monthly Disability Benefit: $3,250
Premium - Met Life:
$156.51 /month
See Met Life Quote
Met Life Solution
Monthly Disability Benefit: $3,400
Premium - Principle:
$147.96 /month
See Principle
Quote
What Is Disability Insurance?
Individual disability insurance is truly a basic
concept. It is an insurance product designed to replace
anywhere from 45-60% of your gross income on a tax-free
basis should a sickness or illness prevent you from
earning an income in your occupation. Every disability
insurance policy from every insurance company is very
different, this is not a product to simply shop for the
most competitive rate. To buy the cheapest disability
insurance policy on the market is to throw money away.
The odds of getting paid a monthly benefit under a cheap
contract may be significantly lower than receiving
benefits from a quality contract. The goal of this site
is to provide you with a resource to make an educated
decision on your own. I will provide you with
information regarding the major features of a disability
insurance policy so that you may better understand how
to read a disability insurance policy. I will also
provide you with links to some third party articles, and
links to the best disability insurance sites I have
found on the internet to obtain quotes.
Own-Occupation Disability Insurance
The most comprehensive definition of
total disability available. This type of policy will
have a definition that says:
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Gainful Occupation Coverage
This definition of total disability
is very common in an employer sponsored group long
term disability insurance policy, or with property
and casualty insurance companies that decided to
release a disability insurance policy. It is quite
simply the worst definition available and should be
at the very least supplemented with a quality
contract if not replaced entirely. This definition
basically leaves the determination of whether or not
you are disabled up to the insurance company. A
typical definition will look like this:
Because of sickness or injury you are
unable to perform the material and substantial
duties or your occupation, or any occupation for
which you are deemed reasonably qualified by
education, training, or experience.
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Could somebody be forced to go flip
burgers at McDonalds under this definition of total
disability? Probably not but it does leave it open for
litigation and interpretation. You should be buying
disability insurance so that you do not have to worry
about your income if you can't do the material and
substantial duties of your occupation, going wih this
type of disability insurance policy is an inexperienced
decision, and should be re-thought for an own-occupation
plan. Many people who simply shop for the best
disability insurance rate end up with this type of
coverage. In my opinion, it is worthless, and you may
end up with the Lemon of the disability insurance
industry.
Elimination Period -
The period of time from the onset of a
disability until benefits begin.
The elimination period is a fairly easy choice to make.
The elimination period is the period of time between the
onset of a disability, and the time you are eligible for
benefits. It is best thought of as a deductible period
for your policy. For an individual disability insurance
policy the industry has made the most attractive offer a
90 day elimination period. They will charge you with an
extremely high rate if you choose to go with a shorter
elimination period of 30, or 60 days. They will give you
a price break if you can go longer than 90 days. While
the cost of having a shorter elimination period is much
higher, you will find that going with a longer
elimination period does not save you much money at all
for the risk you take on. It is my opinion that
insurance carriers set it up so that the logical choice
is a 90 day elimination. Most options past 90 days are
180, 365, and 720 day elimination periods. It is
important that you understand once the elimination
period has been satisfied, you receive actual benefit
checks at the end of the month. In reality, a 90 day
elimination period means you are four months away from
getting any claims dollars on a disability insurance
claim.
Possible Elimination Periods
| Longest
Available |
720 Days |
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360 / 365 Days |
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180 Days |
| Most Popular |
90 Days |
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60 Days |
| Shortest Available |
30 Days |
There is only one
thing to watch out for
There are some policies on the marketplace that require
an elimination period be satisfied with a total
disability only, or with consecutive days of disability.
Never own a contract that does not allow an elimination
period to be satisfied with either a residual, or a
total disability. Also make sure they have an
accumulation period so that you can finish your
elimination period in the shortest amount of time.
Typically an accumulation period allows 7 months for a
three month elimination period (2 times the elimination
period + one month). |
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The inability to perform
the material and substantial duties of your regular
occupation, the insurance company will consider your
occupation to be the occupation you are engaged in at
the time you become disabled, they will pay the claim
even if you are working in some other capacity.
What I have found over
the years is that people will choose to fight their
disabilities. They will refuse to sit at home and
collect a monthly disability check. Instead, as long as
they are not severely disabled, most people choose to go
back to work in some capacity to give themselves a sense
of self worth, or just to go do something everyday.
Own-occupation disability insurance is the only plan
that does not penalize somebody for going back to work
in a different occupation while on a claim. Under this
type of plan, the bottom line is if because of a
sickness or injury you can not perform in your
occupation, you will be considered totally disabled,
even if you choose to do something else.
Income Replacement Insurance
This has become the most common
definition of total disability in the industry
today. Most insurance carriers that have stopped
offering own-occupation disability insurance have
moved to an income replacement definition. You will
find the first part of the definition is very
similar to an own-occupation definition, but it is
with the second part that the major change occurs. A
typical income replacement definition will look
something like this:
Because of sickness or injury you are
unable to perform the material and substantial duties of
your occupation, and are not engaged in any other
occupation.
As you can see there is a major
difference between an income replacement and an
own-occupation definition of total disability. The
income replacement definition will penalize you during a
claim if you make the decision to go back to work, or
earn another source of earned income while on a claim. I
have found that most people if given the choice would go
back to some work if possible, under this plan if
somebody wants to go back to work in some capacity, the
insurance company may offset your monthly benefit check.
There is a common misconception that own-occupation
disability insurance costs a lot more than an income
replacement policy. While I am certain that in some
scenarios this is true, as a blanket statement it is
false. There are many professional occupations where an
own-occ contract is actually less expensive than an
income replacement policy. Many companies, as an
example, do not like writing individual disability
insurance on physicians. It is very likely that an
own-occupation disability insurance policy may be less
expensive from a company that still enjoys writing
disability insurance for doctors.
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