Disability Insurance Guide
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Disability insurance protects workers against the loss of earnings due to temporary or permanent disability. The insurance policy defines the terms of disability, policy tenure, coverage limit and exclusions.
Table of Contents
Types of Disability Insurance
In most developed countries, disability insurance comes in various forms:
Disability insurance protects workers against the loss of earnings due to temporary or permanent disability. The insurance policy defines the terms of disability, policy tenure, coverage limit and exclusions.
Types of Disability Insurance
In most developed countries, disability insurance comes in various forms:
- National insurance program: The most important form of disability insurance is the one offered by the government. This program covers all the citizens who are otherwise uninsured or underinsured. The UK version of this program is called National Insurance and in the US, it is termed as Social Security. Although this program does not offer huge benefits, it pays enough to debar poverty.
- Employer disability insurance: Many renowned companies cover their employees against the possible hazards of disability. Employees face a high probability of meeting with an accident at the work place. So, it is essential for companies to offer disability insurance.
- Worker’s compensation: It pays workers disabled by job-related injuries. This program also covers medical expenses and pays benefits to the family members of workers who died while performing job-related tasks.
- Individual disability insurance policy: This policy is meant for the self-employed, temporary employees or those who are not covered under employer disability insurance. An individual can buy such an insurance policy from any insurance company. However, premiums tend to remain high for policies that provide great benefits or that define disability in a broader context.
Individual Disability Insurance Policy
An individual disability insurance policy can be further divided in two types:
- Short-term disability insurance: This policy extends to not more than two years with a waiting period of zero to fourteen days.
- Long-term disability insurance: Based on the premium amount, this policy can extend from a few years to your entire life. However, it has a long waiting period which can last several months.
An individual disability insurance policy has two types of protection features. With a non-cancelable policy, one can renew insurance every year at the same premium and coverage benefits. The insurance company has no right to deny renewal or cancel insurance except for the nonpayment of premium. However, in a guaranteed renewable policy, the insurance company holds the right to increase your premium with rising cost.
Making a claim for disability insurance benefits is not easy. It requires proper documentation regarding how disability occurred and how it prevents the employee from working.
[break]Disability Insurance Premium
Disability insurance premium is the amount which one is required to pay in order to maintain a disability insurance policy. The disability insurance premium varies from company to company.
Disability insurance premium is determined by a number of factors. Some of the important factors which determine the disability insurance premium is are as follows:
- age
- gender
- occupation
- susceptibility to disability.
The disability insurance premium is higher for an individual who has a higher chance of disability.
A worker who is involved in construction, works on field and is involved in site works is more vulnerable to injury and illness as compared to a worker whose job requires staying in the office throughout the day.
In the latter case the disability insurance premium is low.
It is always recommended that the disability insurance policy should be bought as early as possible. The earlier one is able to get a disability insurance policy the better.
One should always opt for a disability insurance premium plan wherein the premium cannot be raised.
There are some disability insurance provider who raise the disability insurance premium without taking the consent of the disability insurance policy holder.
These disability insurance policies are non cancelable. Non cancelable disability insurance premium of non cancelable policy cannot be altered.
If the disability insurance premium of the non cancelable policy cannot be opted for one can also avail of the guaranteed renewable disability insurance policy. Under the guaranteed renewable disability insurance policy, the disability insurance premium of an individual alone cannot be altered.
If at all the disability insurance premium is to be raised, the disability insurance premium of the entire group of disability insurance policy holders has to be raised.
One cannot be separated out for whom the disability insurance premium can be raised.
Ways to reduce the disability insurance premium:
In order to reduce ones disability insurance premium, the following steps can be taken:- an individual can buy a disability insurance policy on a low priced basis.
- If one is young, buying a disability insurance policy which is renewable annually is advantageous.
This lowers the disability insurance premium.
On the event of the individual being matured and old one can convert to a permanent disability insurance policy. - Availing of a group disability insurance policy economizes the disability insurance premium to a great extent.
Although the group disability insurance policy offers much less flexibility, the disability insurance premium offered by the group disability insurance provider is economical.
Getting enrolled by the employer is the best option one can benefit from which also takes care of ones disability insurance premium.
- Women are required to pay higher disability insurance premium. In order to avoid this anomaly, one can go for a disability insurance provider catering to the disability insurance needs equally irrespective of gender.
- One should also from time to time review ones disability insurance policy to explore new discounts, offers which might be offered by the disability insurance provider. There are times when the disability insurance premium are reviewed.
The following is a rough outline of the tentative disability insurance premium according to disability insurance policy holder’s age:
- if age is 30 , the disability insurance premium may be approximately $37.84.
- if age is 35 , the disability insurance premium may be approximately $45.16.
- if age is 40 , the disability insurance premium may be approximately $54.85.
- if age is 45 , the disability insurance premium may be approximately $63.72.
- if age is 50 , the disability insurance premium may be approximately $70.55
Disability Income Insurance
Necessity of Disability Income Insurance:
One’s ability to get up every morning and earn an income is not only one of his dreams but also his most valuable asset. But uncertainty can transform this asset into a loss. A serious illness or malady can badly affect his physical or mental condition which can force him to miss out his job (and income from that) for a few days or months or years. This can push him and his family into a disadvantage thus lowering the standard of living.
Types of Disability Income Insurance:
There are basically two types of disability income insurance:
- Short Term Disability Income Insurance– This provides income replacement benefits for two weeks up to two years depending upon insurance providers. Short term disability income insurance coverage are available on individual as well as group basis. Group coverage can be offered directly by the employer or a professional group or an association. Individual policies are issued if the insurance seeker didn’t have any medical treatment for the past 10 years. Group policies from an employer requires the person to work for the particular employer for at least ten years.
- Long Term Disability Income Insurance– This provides income replacement benefits for at least one year and can extend till five years or unless the disabled person turns 65. Long term disability income insurance available in the market are normally of two types:
- Non-Cancelable Long Term Disability Insurance– Under this policy if one pays required premium at time, then one has extra security that premiums can never be raised over and above of that shown in the policy document.
- Guaranteed Renewable Long Term Disability Insurance– The premiums under this policy can be raised only if the change affects an entire class of policy holders. So guaranteed renewable policies usually cost less than noncancelable policies in terms of premium.
Policies other than the above mentioned types are also available. These can be either a variation or a mix of these two types. Policies that replace a greater percentage of one’s lost salary are more expensive.
So disability income insurance can certainly save a working person and his family from financial hardships in unforeseen circumstances.
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Disability Insurance Claim
Asking for disability insurance claim:
Disability is a physical or mental impairment(temporary or permanent) that prevents one from working efficiently in the particular occupation he is involved. There are three different definitions of disability:
- Own Occupation- The person is unable to perform the important duties related to his own occupation.
- Modified Own occupation- The person is unable to perform the important duties and on top of that he is refraining from his work.
- Any Occupation- This disability renders the person unsuitable for any occupation where otherwise the person may find worth according to his education and experience.
The HIAA Source Book of Health Insurance depicts ‘back problems’ as the major reason for asserting disability insurance claim. Surprisingly the second major reason for claiming benefit is psychiatric and emotional disorders. This might occur because one saw his 10 year old child going through chemotherapy or due to a tense situation at office or home. A claim depends on the type of coverage on has bought. Another factor is the type of disability i.e. whether the disability is partial, full or residual. One just has to complete a form and return it to the insurance company. One portion of these form is to be filled by the physician treating the disabled. In case of a group plan an employer also has certain obligations. The claim must be substituted within a specified period of time(30 days) of being disabled. In case of short term disability insurance plans one must be disabled for at least 8 consecutive days and must either be employed or seeking job in an active manner.
Points To Remember Before Filing Disability Insurance Claim:
- First things first. One must understand the precise definition of disability in his policy to determine whether his condition qualifies for benefits.
- Most disability policies require one to be under the care of a doctor. So it is mandatory that the doctor treating the disabled confirms and explains the problem in writing .
- The answers given in the disability insurance claim form must be true to the maximum extent. An unsure question must be marked unsure. In case an answer contradicts the medical record that the insurer will obtain, the insured must have a comprehensive explanation for that.
- Almost all disability policies incorporate an elimination period. An elimination period is the period of time one remains disabled before receiving benefits. So one must arrange for enough money to meet usual expenses.
- A disability insurance claim must be filed as soon as one discovers his disability. A failure to do so can lead to the insurance provider denying the claim.
- Under no circumstances should the insured give up his rights. An offer to compromise by accepting less can lead to worse consequences.
- Under an own occupation policy, one can collect benefits if he can no more continue his own job but can get employed in another kind of job.
- Insurance companies can videotape a person who has filed a disability insurance claim to record him doing something that he claims he is unable to do.
- One must not keep any stone unturned in understanding the policy and disability insurance claims. So he must not bother asking questions that look stupid.
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Disability Life Insurance
Disability life insurance covers a working person by paying a percentage (usually 50-60%) of lost monthly income if he gets temporarily or permanently disabled. This protection is provided to keep his present lifestyle intact and so that he can pay for the medical expenses required to recover from the illness or injury that turned him disable. The advent of disability life insurance has occurred recently.
Disability Life Insurance is a must because:
A worker expects the reward of hard working as the ability to increase his or her personal assets and a secured and happy future. People tend to attach huge importance to death thus increasing the demand for life insurance. The propensity to ignore possible loss of income without death is quite high. But facts are just the opposites. Research has proved that in one year 1 in 8 will be disabled but only 1 in 113 will die. Growing proportion of women and men in the age group of 45-65 years suffer from heart diseases, diabetes and hypertension. For most people death usually comes after retirement but becoming disabled during working is quite common. The family receives a sum of money if the person dies but disability brings in only inferior consequences. The person loses his source of income and remains a consumer alone. This makes him a liability. There are other disadvantages of disability too. For instance, a temporary or permanent loss in health must be restored at least partially. A huge amount of the accumulated wealth is drained in meeting the enormous medical expenses. So a guarantee that one’s flow of income will not get truncated if he becomes disabled is mandatory for every working person. Although it doesn’t eliminate the risk of disability but still alleviates the concern. Disability life insurance secures monthly income and at times is tax-free too.
Disability Life Insurance is an innovative idea:
One can consider various options to have a secured future income in case of an unforeseen event. But all resources are not equally preferable. For example there is an impression that half of all Social Security disability claims are denied. Group disability benefits from employers cover only base pay and provides benefits that are taxable. Limited benefits are available from Worker’s Compensation and that too are for a short period. Banks are reluctant to lend. So one has to depend on his/hers spouse’s income or a disability life insurance plan that goes to work when the insured is at home. The second option unambiguously sounds better.
Disability Life Insurance has out of the box gains too:
- One can choose the elimination period i.e. the time period after which payment of benefits begin. Elimination periods in the case of disability life insurance are of 30, 60, 90 or 180 days. Lower is the elimination period higher is the insurance premium (the monthly payment to make the policy work).
- For disability life insurance, benefits can last for 6 months as well as for lifetime depending on the occupation needs and the company of the insured.
- Most disability life insurance plans have Surrender Value Riders. This is a very valuable rider that nearly all the premium one has paid after deducting any claims at the age of 65 years.
- So opting for disability life insurance that costs only 2-3% of one’s annual income is always a good idea.
- These benefits are not connected with Social Security or Worker Compensation so that in case of a claim the cover is extended to any of these traditional protections.
Disability Insurance Cost
One should not compromise with the disability insurance cost. The reason being a disability insurance can be of immense help in the event when one falls sick and is out of job due to an injury, which is not related to work.
In case of group disability insurance the employer usually pays the amount needed to pay premium. The employees usually are not required to pay.
If however the norms of a company desires so, a very small fraction is required to be paid by the employee.
Not compromising with the disability insurance cost does not necessarily mean that one has to accept whatever the disability insurance provider quotes. There are several factors to be kept in mind while calculating the disability insurance cost.
One should opt for a group disability insurance than an individual disability insurance policy.
Group disability insurance cost is much less than an individual disability insurance cost.
Although the group disability insurance cost is less but group disability insurance policy offers much less benefit and flexibility.
One has to find out from the disability insurance agent which policy suits him the best.
In the event when a group disability insurance policy cannot be availed of, one may adopt of the following measures to enroll oneself with an individual disability insurance policy.
Reducing the disability insurance cost:
The individual disability insurance cost can be reduced in the following manner.
- One can reduce ones monthly benefit offered by the disability insurance provider in the event of sickness or injury leading to disability.
- In order to lower disability insurance cost one can increase the waiting period prior to the disability insurance policy which becomes equivalent to a short term disability insurance policy.
Waiting period can vary widely. A waiting period can range from a year to many years.
If one plans to increase the waiting period to lower the disability insurance cost one should be prepared with sufficient money in the event of an emergency arising out of disability.
- A disability insurance policy holder can also find out if the disability insurance policy being held includes any coverage which is optional or facultative.
To lower the disability insurance cost one can do without the optional coverages.
- To lower the disability insurance cost, one should cut the benefit period short. This method of lowering the disability insurance cost may not be very much advisable. The risk lies in the fact that the benefit one is availing for disability may cease to exist even before the disability gets over.
An individual intending to buy a disability insurance policy should weigh the advantages and disadvantages before deciding upon lowering the disability insurance cost.
There are people who feel that buying a disability insurance policy is of no use and there are yet others who tend to buy policies with disability insurance cost on the lower side.
Long Term Disability Insurance
Types of Long Term Disability Insurance:
There are basically two types of long term disability insurance:
- Non-Cancelable Long Term Disability Insurance– Under this policy if one pays required premium at time, then one has extra security that premiums can never be raised over and above of that shown in the policy document.
- Guaranteed Renewable Long Term Disability Insurance– The premiums under this policy can be raised only if the change affects an entire class of policy holders. So guaranteed renewable policies usually cost less than noncancelable policies in terms of premium.
Policies other than the above mentioned types are also available. These can be either a variation or a mix of these two types. Policies that replace a greater percentage of one’s lost salary are more expensive.
Points To Remember Before taking Coverage under Long Term Disability Insurance:
- Before applying for long term disability insurance one must calculate the amount of alternative income he has. Sometimes employer pay a part (50%-60%) of the income if an employee becomes disabled and can’t work for about 6 months or more. Also the total income of the family be enough to cover the expenses incurred by the family. Having diversified sources of income may obviate the need of long term disability insurance.
- It is of utmost importance to read the plan document carefully before taking cover. For instance, some policies pay benefits only against injuries that are quite serious. So one must know the definition of disability offered by the insurer.
- Long term disability insurance is sold through insurance agents as well as directly by insurance companies. So shopping around before buying is important.
- It is crucial to check whether the company and agent are licensed in the state to which the insurance seeker belongs. Also one should check the repute and financial condition of the insurance company. These can be obtained for free from the websites of Standard & Poor’s Insurance Rating Services or Moody’s Investor Services.
