When choosing a disability insurance policy that covers you when you are injured or sick, 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 know what’s necessary and what’s not. To help, we’ve narrowed it down to the top 10 things to consider when choosing a disability insurance policy:
Reading: How to choose disability insurance
1. individual disability policy or employer-sponsored group policy
If you are considering purchasing disability insurance, you may have the option of obtaining coverage through your employer. however, most of these group plans limit the application of coverage, should you ever become disabled, under the federal erisa law.
erisa provides a great deal of protection to the insurance company and almost none to you, the insured. The only advantage of these long term disability insurance policies is that they are cheap or even free. your employer pays 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 practice laws. these laws are more advantageous in 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. policies purchased individually are more expensive, but you get what you pay for.
The details of your coverage can vary greatly depending on whether you purchase through your employer or not. it’s best to check both options to make sure you’re getting the best coverage for your circumstances.
2. the definition of disability
There are many different ways to define disability: there are more than five in most dictionaries! so make sure you fully understand the definition used by your insurance provider. most policies have a two-tier definition of disability.
Initially, the disability standard will be defined as the insured worker being unable to perform the duties of his or her “own occupation.” this refers to the job they were doing at the time they became disabled.
after a defined period of time, usually 24 months, the disability standard will change to a more difficult standard. this is defined as the insured worker not being able to perform “any occupation”. In other words, the “any occupation” standard means that the worker must show that he cannot work in any job.
Under the “any occupation” standard of some policies, the worker must still be able to earn some percentage of their previous wages. 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 occupancy” definition exclusively.
confusing, right? That’s why it’s best to learn the definition of disability first, before delving deeper into the fine print.
If you buy your disability insurance through your employer, ask if you can keep that insurance if you leave the company. If your insurance isn’t transferable, it won’t follow if you leave your job for another.
Having a portable insurance policy gives you peace of mind knowing you’ll be covered no matter where you work. While not many disability policies purchased through an employer are portable, it’s definitely something to consider. If portability is important to you, you may want to consider purchasing disability insurance on your own.
4. your cousin
Premiums also vary by insurance provider. some policies allow you to secure a premium, while others do not. Plus, you can get a non-cancellable policy or a guaranteed renewal policy.
These options differ greatly, so be sure to choose the one that best suits your situation. A guaranteed renewal allows you to renew without making any changes to your coverage, but your premium may fluctuate.
A non-cancellable policy means your coverage and premiums cannot be changed, assuming you pay your premiums on time. Also, be sure to find out if premiums are waived during a qualifying disability.
5. cost of living benefits
Cost of living benefits are not included in most policies. Adding this clause is definitely something you’ll want to consider when making your choice regarding disability insurance. cost of living benefits are intended to provide financial stability by offering an increasing benefit.
When choosing cost-of-living benefits, consider choosing one that increases on a compound basis. Compound interest is earned on principal and interest. this rider can help your benefits keep pace with inflation even after you become disabled.
6. residual benefits
Another thing to make sure your disability insurance policy includes is residual benefits. Residual benefits will help offset your income if you are only able to work partially. Residual benefits will help offset the rest of your income, making these benefits extremely important.
be careful, as some insurance companies often impose restrictions on residual benefits or modify the definition to their liking.
7. pick up time
It is also very important to consider the collection period, as this could affect the insurance company you choose. With some policies, you can start collecting as soon as 30 days after your disability claim is filed.
collection time can range from 30 days to more than 700, so this figure could be a deal breaker.
8. coverage changes
The insurance company can change many policies at any time during the course of your coverage. this allows insurers to increase your coverage rates whenever they want, whether or not your policy is renewed.
Similarly, insurance companies could change the terms of your insurance coverage without allowing you to renew it. 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’s worth considering if you think your income could grow over time.
With this additional clause, you can increase the monthly benefit of your policy, regardless of the state of your health. Without this rider, your policy won’t protect your future income at all.
However, many insurance companies will limit the total supplemental coverage that can be implemented each year.
10. renewable provision
How long can you expect to be covered? if asked, you should check the renewal 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-cancellable 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 at the top of our list. we think they should be on top of yours too! What was the deciding factor in choosing your disability policy? Call 800-562-9830 and tell us!