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Disability Income Insurance ...

How Long Could You Manage Without Your Current Earnings?

The purpose of disability income insurance is to reimburse an insured because of the inability to work due to a covered injury or sickness. If your expenses would exceed your income during a disability, consider transferring the risk to an insurance company.

The probability of a long-term disability prior to age 65 is greater than the probability of death. The following chart illustrates the risk at various ages:

                           
What about Social Security?

While Social Security is an important part of most people's financial planning, consider the facts:

• Only 35% of Social Security disability claims are approved (based on 1986 Social Security figures).

• Five full calendar months must pass before any disability benefits begin.

• A disability must prevent you from being able to perform any substantial gainful employment.

• The disability must be expected to last at least 12 months or result in death.

Disability Benefits:

Disability income policies provide specific benefits for a certain period of time.

• Short-term periods provide benefits for as short a time as 13 or 26 weeks and as long as 52 weeks or 104 weeks.

• Long-term periods are usually two years or longer.

Benefits can be provided to age 65 or for life. Benefits are usually paid in the 50% to 66% range of the insured's earnings, with 80% usually being the highest percentage available. No policy will pay 100% of earnings, as there would be no incentive to return to work.

Benefits do not begin the first day of a disability. There is normally an elimination period (sometimes called a deductible or a waiting period) of 30, 60 or 90 days. In addition, a probationary/waiting period will usually apply to sicknesses. This is the time period in which the policy is not yet in effect. An example of this would be when a new employee starts to work for a company with disability income coverage, but the company requires a 60 day probationary period before new employees are eligible to receive benefits.

There are several classifications of disabilities (the definition of the specific type of disability must be defined in the policy):

• Permanent Total - This would be the most severe of all disabilities as the insured will never be able to work, in any capacity, at any time.

• Temporary Total - The insured is incapable of working for a period of time, but will recover in the future.

• Permanent Partial - This is caused by an injury which is permanent in nature, but will not stop the insured from returning to some type of employment.

• Temporary Partial - This type of disability is the least severe. This can be as simple as a sprained ankle.

In order to receive benefits from a disability policy that covers injuries, the injury must be accidental in nature and not intentional. If the disability policy covers sickness, the illness must have manifested itself after the effective date. Disability income policies require that the insured provide proof of total disability before payments would begin. There are instances of presumptive disability, however, where total disability will be presumed if any of the following losses are experienced by the insured:

• Loss of use of any two limbs.

• Total and permanent blindness.

• Loss of speech.

• Loss of hearing.

Disability income policies today will have one of two disability definitions. There also may be further restrictions regarding the possible requirement of having a confining disability in order to collect benefits. A confining disability is one that requires the person to stay confined indoors. It is important to understand which definition and restrictions apply to any policy you own or plan to buy:

• Own Occupation - This definition is the most liberal, as it will allow an individual who cannot perform in his or her regular occupation earn a living in another occupation while collecting disability income. The insured must be unable to perform any or all the duties of his or her own occupation, and refers to the occupation at the time of disability.

• Any Occupation - This definition is the most restrictive. In order to collect disability benefits, the insured's ability to perform the duties of any occupation for which he or she is qualified by education, training or experience must be impaired.

Recurrent disability is a policy provision that defines the period of time during which the recurrence of a condition will be considered a continuation of a prior period of disability. If a recurrence is treated as a new disability, a new elimination period would apply.

Some policies contain a residual disability provision, usually expressed as a percentage of what a total disability would pay. For example, such a provision might state that if the insured develops a permanent partial disability and returns to work, the insured can still continue to receive benefits which will be reduced and based on the difference of what the insured earned prior to the disability and what they earn when they return to work.

If a policy states the disability cannot be occupational related, then benefits will not be provided if the injury occurs on the job and the insured must then look to workmen's compensation for financial relief. Non-occupational related means benefits will not be paid unless the disability is caused by a non-job related cause.

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   Products:  [ ANNUITY | LIFE | HEALTH | DISABILITY | MEDIGAP | LONG TERM CARE | DISEASE ]
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