Disability Insurance

Life is full of risks and the role of insurance is to provide protection against whatever life may throw at you to ensure that you will be able to manage whatever situations arise. Not only does insurance provide protection against these risks, it also provides the tangible benefit of peace of mind in not having to stress about what one will do if such things happen and you are not protected.

With disability insurance, sometimes called disability income insurance, should one be unable to work for an extended period, then if your claim is approved, you become eligible to have a portion of your income replaced, as per the agreement.

There are a huge amount of fraud cases with disability claims, so insurers are going to be very diligent in assessing the merits of your claim, so people need to be forewarned that there may be some situations where your claim ends up being denied even though you feel it is valid and you in fact cannot work.

For instance they may require a concrete medical diagnosis to confirm the condition, and you may be genuinely be disabled but without an acceptable diagnosis. So it’s not always enough to be disabled, you have to prove it, and you’re going to need to get a diagnosis which falls within the insurer’s guidelines of what they consider a disabling condition.

Another thing to keep in mind is that workplaces have been very accommodating to people who have disabilities, and to qualify for disability benefits, you do have to be pretty messed up, not just in a wheelchair for instance but unable to function in an employable manner.

The fact that you may have to take a position that pays less or considerably less is not generally part of the discussion, unless you obtain position specific insurance, called “own occupation” disability insurance. This is much more expensive and also not easy to qualify for, and is generally reserved for high paying professional occupations, where being unable to practice is going to involve a very large pay cut.

It’s not a matter of whether you have found another job either, it is enough that you could, that you have the ability to do something else, whatever that might be. Some policies are a combination of own occupation and the normal any occupation, which will pay out disability benefits for lack of own occupation for a certain period, and then revert to any occupation, giving people more time to adjust and obtain additional skills to embark on a new career.

Governments Often Will Pay Benefits, But This Is Even More Restricted

Depending on where you live, you may be eligible for government provided disability benefits. For instance, in the United States, Social Security provides limited benefits to those who are deemed to be totally disabled.

Totally disabled means just that though, and you are not only unable to work in this situation, at anything, you aren’t even able to take care of yourself, and will therefore require some sort of special care, whether that be from a family member or provided by a professional.

So not only is one unable to earn in this situation, but in many cases there will be additional expenses incurred for the medical care needed. If one had a health care plan through work, they may end up without medical insurance and this can restrict one’s options, perhaps having to rely on government provided services which may fall short of both one’s expectations and real needs.

One also generally needs to have worked for a certain period of time and paid in enough to the program to qualify, so young people in particular have to be aware of this.

The amount that people collect for this social benefit, if they qualify at all, is an amount that at best will be barely sufficient to live on, and in some cases it may not be, but that’s not a concern of the program, as it pays out what it pays and you have to make due on that.

Should one become disabled on the job, they often will be able to collect benefits from the company’s policy, and while this tends to be superior to government provided benefits, it still may not meet one’s needs.

Getting Additional Disability Protection

So needless to say, the prospects of this predicament have many people looking to purchase additional protection against becoming disabled. Many employers will provide it as an add on, where one can select from various options.

The company may cover part of this, and may cover short term disability themselves, although the duration of this does tend to be very shot. They may even require all employees to maintain a certain percentage of their income for long term disability, where a co pay is often required,  meaning that certain amounts will be deducted for this according to how much protection one chooses.

If one does not have such protection, or if one wishes to purchase additional insurance, insurance companies do sell disability policies to the public as well. These plans tend to be very flexible and offer a variety of different options and levels of coverage at various prices.

As is the case with all insurance, one must pay careful attention to the terms of the coverage, as the time to discover that your policy wasn’t offering what you thought it would isn’t after the loss occurs, because it’s of course too late at that point.

One of the things well worth looking at, aside from the benefits provided and the exclusions, is the length of time that your policy will cover your disability. Many disabilities are recovered from and are therefore of a temporary nature, in other words you heal up in time and you are able to get back to work.

Sometimes though, this doesn’t happen, and one becomes permanently disabled, and if you don’t have coverage for that then you are underinsured. While the chances of this happening are less, it still could happen, and the idea with insurance is to take care of the what if situations, and unless your insurance is doing that, you are not fully protected.

Other Provisions of Disability Insurance

Another condition that these policies have is what is called elimination periods, which are more like waiting periods. Private disability insurance generally has a 90 day elimination period, meaning that the disability has to be longer than that for you to collect. You are also on your own during this period so you have to plan to be able to get by during this time, so you’ll have to save up for it.

It’s of course a good idea to have a reserve of savings to live on for at least this long, but many people do not and end up in a real bind if they are unable to collect any earnings or benefits for this long.

Insurance companies offer various elimination periods, from 30 days up to two years, and the longer the period, the lower the premium, but the lower the level of protection as well. Ideally, one should not select a longer period than one can reasonably manage, although some people will scrimp here and be left regretting it if something happens.

The amount of income that is protected is also flexible, although most people choose to protect between 50 and 70 percent of their current income. The amount you receive is capped at your income, and the more of it you insure, the more you will pay of course.

People can also select a set benefit to be paid per month, again capped at one’s level of earnings, as insurance companies never want people to benefit financially from insured events, and the cap is being restored to their original situation.

Insurance companies are very reluctant to offer full income replacement actually, as they see this as a disincentive to return to work, and this is why you generally see this as not fully restoring one’s situation, and leaving enough off the table to motivate people.

Whether or not a policy can be cancelled is subject to the specific contract, with some being guaranteed as long as the premiums are paid and others subject to conditional review by the insurance company. These policies typically become reviewed at age 65 and the insurance company may then decide if they want to continue with it, given the increased risk that older people represent.

There may also be cost of living adjustments provided, which makes sense to have because a set amount purchases less and less each year. One may also have a provision where they can return to work part time as they are able and still receive partial disability benefits.

There may also be a provision where if no claims are made over a specified time, the insurance company will refund a portion of the premiums paid over this time.

Disability insurance is important to have, and it’s also important to have enough coverage to ensure that you are reasonably well taken care of should a disability occur. The disability itself will be enough for you to worry about without having to suffer too much economically as well, including being faced with economic disaster.

This insurance doesn’t take care of the whole matter like most other insurance does, but provided one has the right coverage, it can make the difference between recovering economically as well as physically. So it pays to make sure you have enough of this, and many people do not.