When choosing a disability insurance policy to cover you when suffering an injury or illness, there are many things to consider. Since many disability policies offset or deduct Social Security disability benefits, there may be even more factors to consider when choosing a disability insurance policy.
With so many different policy options, it can be hard to tell what is necessary and what isn’t. To help, we’ve narrowed it down to the top 10 things to consider when choosing a disability insurance policy:
1. Individual Disability Policy or Employer-Sponsored Group Policy
If you are thinking of purchasing disability insurance, you may have the option of getting coverage through your employer. However, most of these group plans limit your enforcement of coverage, should you ever become disabled, under federal ERISA law.
ERISA affords great protection to the insurance company and almost none to you, the insured. The only advantage to these long term disability insurance policies is that they are cheap or even free. Your employer pays for most, if not all, of the premium.
A better option, if you can afford it, is to purchase your own individual policy. Under this option, you have the right to enforce your policy under state bad faith law and deceptive trade practices acts. These laws are more advantageous for fighting disability denials. Also, make sure you have both short term and long term disability coverage.
If you purchase individual disability coverage, premiums will be based on a number of factors, including age, health and occupation. Individually purchased policies are more expensive but you get what you pay for.
The specifics of your coverage can vary greatly depending on whether you purchase through your employer or not. It is best to check both options to make sure you are getting the best coverage for your circumstances.
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2. The Definition of Disability
There are many different ways to define disability — there are more than five in most dictionaries! So be sure you fully understand the definition used by your insurance provider. Most policies have a two-tiered definition of disability.
Initially, the disability standard will be defined as the insured worker being unable to perform the duties of their “Own Occupation.” This refers to the job they were performing at the time they became disabled.
After a defined period of time, usually 24 months, the standard of disability will shift to a more difficult standard. This is defined as the insured worker being unable to perform “Any Occupation.” In other words, the “Any Occupation” standard means the worker has to prove they are unable to work at any job.
Under the “Any Occupation” standard of some policies, the worker must still be able to earn some percentage of their former salary. Usually the percentage is 60 to 80 percent. Do not purchase a long term disability plan that does not contain this provision. Better yet, try to find a policy that uses the “Any Occupation” definition exclusively.
Confusing, right? That’s why it is best to learn the definition of disability first, before delving any further into the fine print.
3. Portability
If you purchase your disability insurance through your employer, ask if you can keep that insurance if you leave the company. If your insurance is non-portable, it will not follow you if you happen to leave your job for another.
Having a portable insurance policy gives you peace of mind that you will be covered no matter where you work. Although not many disability policies purchased through an employer are portable, it is definitely something you should look into. If portability is important to you, you can consider purchasing disability insurance on your own.
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4. Your Premium
Premiums also vary depending on the insurance provider. Some policies allow you to lock-in a premium, while others do not. Also, you can get a non-cancelable policy or a guaranteed renewal policy.
These options greatly differ, so be sure to choose the one that suits your situation best. A guaranteed renewal allows you to renew without making any changes to your coverage, but your premium can fluctuate.
A non-cancelable policy means your coverage and your premiums cannot be changed, assuming you are paying your premiums on time. Also, be sure to find out if premiums are waived during a qualified disability.
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5. Cost of Living Benefits
Cost of living benefits are not included in most policies. Adding this rider is definitely something you will want to consider when making your choice regarding disability insurance. Cost of living benefits are meant to provide financial stability by offering an increasing benefit.
When choosing cost of living benefits, consider choosing one that increases on a compounding basis. Compound interest is earned on the principal and the interest. This additional rider can help your benefits keep pace through inflation even after your disability.
6. Residual Benefits
Another thing to be sure your disability insurance policy includes is residual benefits. Residual benefits will help you make up your income if you can only work partly. Residual benefits will help you to make up the rest of your income, making these benefits extremely important.
Be careful, as some insurance companies commonly put restrictions on residual benefits or tweak the definition to their liking.
7. Collection Time
It is also very important to note the collection time period, as this could affect which insurance company you choose. With some policies you can start collecting as soon as 30 days after your disability claim has been filed.
The collection time can range from 30 days to more than 700, so this figure could be a deal breaker.
8. Coverage Changes
Many policies can be changed by the insurance company at any time over the course of your coverage. This allows insurers to raise your coverage rates whenever they want, whether your policy is up for renewal or not.
Likewise, insurance companies could change the terms of your insurance coverage without letting you renew. This makes it imperative to understand when and how changes can be made to your insurance.
9. Future Increase
The future increase option rider is an addition to your disability coverage. However, it is worth considering if you think your income may increase over time.
With this additional rider, you are able to increase the monthly benefit of your policy, disregarding the status of your health. Without this rider, your policy will not protect your future income whatsoever.
However, many insurance companies will limit the total of supplementary coverage that can be implemented each year.
10. Renewability Provision
How long can you expect to be covered? If you’re wondering, you should check the renewability provision of your disability insurance coverage.
The insurance company cannot cancel a guaranteed renewable policy even if a change in your situation puts you at greater risk. But even with a guaranteed renewable policy, the insurance company can change your premium.
A non-cancelable policy offers a guaranteed future premium. The best disability insurance policies will be non-cancelable and guaranteed renewable.
While there are other factors to consider when choosing a disability policy, these 10 things are on the top of our list. We think they should be on the top of yours, too! What was the deciding factor in choosing your disability policy? Call 800-562-9830 and let us know!
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