Disability Insurance: The Basics

By Compuquotes Team on March 27th, 2008
Health Insurance

Disability insurance is one of the simplest health insurance products around. This form of health insurance replaces a percentage of your gross income (typically between 45% and 60%) if a medical condition prevents you from working and earning an income.

Buying disability insurance is not just a matter of finding the cheapest product. Different companies offer very different plans that provide varying levels of coverage, and buying cheap disability insurance might save you money in the short term, but in the long run it could prove to be a disaster.

Important Features of a Disability Insurance Policy

The Definition of �Total Disability'

There are three different definitions for the term �total disability' and finding out which you have before you purchase a policy is crucial. The definition of this term could make a big difference in your ability to make a claim. The three definitions are:

True Own-Occupation: This type of policy pays out if you are unable to continue working in the occupation you were employed in at the time you became disabled. With this type you can work in a different occupation and still receive disability insurance payouts.

Modified Own-Occupation (AKA Income Replacement Insurance): This policy pays out if you're unable to work in your normal occupation, as long as you are not employed in any other occupation.

Gainful Occupation: This type of policy pays out only if you are unable to perform any occupation for which you are qualified. This more or less leaves the definition of whether or not you can work up to your insurance company. It's best to avoid these types of policies, no matter how cheap they might be.

Is it Renewable?
There are three types of renewability options.

Non-cancelable and Guaranteed Renewable: This type of policy guarantees that until you reach 65, your policy cannot be canceled, and that there will be no changes in your premiums or policy benefits.

Guaranteed Renewable: The insurance company cannot refuse to insure you at each review period, but they change features such as the size of your premium payments.

Conditionally Renewable: This means that your insurance company doesn't need to renew your policy at each review period. If they wish, they may decline to continue your policy, or may increase your premiums or reduce the size of the payout.

Elimination Period

The elimination period of the policy is the time that elapses between your disability occurring and the time you are eligible for benefits. Elimination periods range from 30 days up to a year or more.

Benefit Period

The benefit period is simply the length of time you can continue to receive disability payouts. Most people choose the option that gives them payments until they reach the age of 65. If you're looking to save money on disability insurance, it's helpful to know that the average length someone suffers from a sudden disability is around three and a half years.

Residual Disability

Residual disability means that you can work, but you suffer a loss of income or time at work due to disability. Adding a residual disability rider to your policy allows you to obtain benefits up until such time as you're receiving 100% of your normal pre-disability income, or until you're not losing work-time due to disability.

Recurrent Disability

This means that for a certain period of time, the insurance company waives the elimination period for a recurrent disability. For example, if you recover from one disability only to experience a reoccurrence after a couple of months, the elimination period is waived.

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