The Basics of Disability Insurance

There is a common misconception that the disability insurance provided by your workplace is sufficient coverage. In most cases, your coverage at work is not enough to cover you. Typical work policies cover up to 60% of your pay and that amount is still taxable. Also, there is all the red tape involved in getting any kind of payment. You all know how difficult it is dealing with insurance companies as it is, now, imagine dealing with the insurance company AND with the bureaucracy of your work place as well. Supplement your disability insurance coverage with your own policy. Bills don’t go away just because you can’t work. Thats the concept of disability insurance. If you are incapable of working disability insurance will replace their income. This is important if you are injured for an extended period of time.

The definition of disability can vary depending on the policy you have. For example, some plans pay when you’re unable to engage in your own occupation, while others pay when you’re unable to engage in any occupation for which you’re reasonably suited based on your training or experience. It’s common to use an own-occupation definition for two years, three years or even longer, with an any-occupation definition thereafter. Many disability plans require that you not be gainfully employed while you’re collecting benefits. In addition, some policies will pay you a portion of your monthly benefit if you have lost a part of your income due to a disability. (This is usually referred to as a residual or loss of earnings benefit.)
Some policies include a rehabilitation benefit that pays some or all of the cost of a course of occupational rehabilitation approved by the insurer. Keep in mind that many policies will not cover disabilities caused by suicide attempts, drug abuse, war, or attempts to commit a crime. Pre-existing conditions are also frequently excluded.

There are two major types of disability coverage:
Short-Term Disability
Short term disability provides an income for the early part of a disability. A policy may pay benefits for two weeks up to two years. Short-term disability is often included as part of an employee benefits package.
Long-Term Disability
Long term disability helps replace income for an extended period of time, usually ending after five years or when the disabled person turns 65. Some people have long term disability insurance provided by their employers; others purchase it individually. There are two major types of individual long-term disability insurance: noncancelable and guaranteed renewable. (Other less expensive policies with limited, if any, premium or renewability guarantees are also sometimes available.) In the case of non-cancelable or guaranteed renewable policies, the insurer cannot cancel or refuse to renew the policy as long as the required premiums are paid on time. The key difference between the two major types of policies is that under a non-cancelable contract, you have extra security that premiums can never be raised above those shown in the policy as long as the required premiums are paid. With a guaranteed renewable policy, the premiums can be raised, but only if the change affects an entire class of policyholders. For this reason, initial premiums for guaranteed renewable policies can be less expensive than non-cancelable policies.
When looking for disability insurance look for the following:
1) Research the various insurance companies that offer disability insurance and make sure they are decent companies with good track records. There may be small companies that offer cheap insurance, but if they go out of business you will be helpless. Smaller companies may also be harder to deal with.
2) Decide on what type of policy. There are three options: a non-cancelable and guaranteed renewable policy, a guaranteed renewable policy, and a conditionally renewable policy.
3) Understand how much work you can do. Some policies will allow you to work part time at your non-occupation and still pay you benefits. Others will not
4) Look into partial coverage. If after you go back to work, you can only work part time, this will cover you.
Disability insurance premiums will cost between 1 and 3% of your income. Prices will vary according to several main factors, including your age, gender, health history, occupation, and elimination period.