When looking for a disability insurance policy, 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 aid in the process, we’ve narrowed it down to the top 10 things to consider when choosing a disability insurance policy:
- Whether to purchase an individual policy or purchase a policy at work. If you are thinking of purchasing disability insurance, you may have the option of obtaining disability coverage through your employer’s group benefits plan.However, most of these 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 policies is that they are cheap or possibly even free, since 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 advantage of enforcing your policy, should you ever need to use it, under more advantageous state bad faith law and deceptive trade practices acts. Also, make sure you have both short term and long term disability benefits. If you purchase disability coverage on your own, your premiums will be based on a number of factors including age, health and occupation.Individually purchased polices 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, so it is best to check both options to ensure you are getting the best coverage for your circumstances.
- 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 define a two-tiered definition of disability with the definition shifting to the more difficult standard after a period of time. Initially, the disability standard will be defined as the insured worker being unable to perform the duties and responsibilities of their “Own Occupation”, that is the job they were performing at the time they became disabled.After some defined period of time, usually 24 months, the standard of disability will shift to a more difficult standard 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 totally unemployable at any job. Some policies provide that under the “Any Occupation” standard, the worker must still be able to earn some percentage, usually between 60 to 80 percent, of their former salary. Do not purchase a policy that does not contain this provision regarding being able to earn at least 60 to 80 percent of your former salary. 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.
- Portability. If you purchase your disability insurance through your employer, you must find out if you are able to 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. The benefit of having a portable insurance policy is having the 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.
- 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.
- Cost of living benefits. Though 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, so this additional rider can help your benefits keep pace through inflation even after your disability.
- 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, though, as some insurance companies commonly put restrictions on residual benefits, or tweak the definition to their liking.
- 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 has been in filed. The collection time can range from 30 days to more than 700, so this figure could be a deal breaker.
- Coverage changes. Many policies can be changed by the insurance company at any time over the course of your coverage. This gives insurers the freedom to raise you coverage rates whenever they want, despite whether your policy is up for renewal or not. Likewise, insurance companies could change the terms of your insurance coverage without letting you renew, making it imperative to understand when and how changes can be made to your insurance.
- Future increase. Although the future increase option rider is an addition to your disability coverage, 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.
- 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. A guaranteed renewable policy cannot be canceled by the insurance company, even if an adjustment 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.
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While there are other factors to think about when choosing a disability insurance policy and provider, these 10 things are on the top of our list – and should be on the top of yours! What was the deciding factor in choosing your disability policy? Let us know!
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