Shopping for Personal Disability Insurance
Neumann, Randy, The Exceptional Parent
The last two columns have been about the possibility of disability: yours. They discussed the greater probability of disability over death during the wage-earning years. You can't count much on government programs for disability. Most states have Worker's Compensation programs, but they generally pay benefits for only a year or two. Uncle Sam has a program under Social Security, but it turns down two-thirds of all claims. Their definition of disability includes the words "totally and permanently" and "expected to die."
Okay, you believe the above. But, you are not covered under a "corporate umbrella" What to do? Buy insurance. Here is what to look for in a personal disability insurance policy.
A disability is...
The first thing to look for in a disability-income insurance policy is the company's definition of disability. If it says you have to be in a hospital bed and unable to use a telephone, keep looking. The strongest (and most expensive) definition of disability says, "You are disabled if you cannot perform your job." This is called an "own occ" (own occupation) contract. Take, for example, a surgeon who, although unable to perform surgery, can still be a general practitioner or teacher. Even though our hypothetical surgeon is earning money in another occupation, he/she can collect on his/her disability income policy because he/she is not performing surgery. There are very few carriers issuing "own occ" policies these days, but they are worth searching out. Provident and UNUM are good examples of insurance companies offering "own occ."
Another policy that is widely available, for a lesser premium, is known as an "income replacement" policy. It says the company will pay you if you have lost income because you cannot work. The surgeon, in the above example, would not collect a benefit on this policy because he/she earned money as a general practitioner or teacher. With this policy you must lose a substantial amount of income before you can collect.
Next, be sure that the policy is non-cancelable and guaranteed renewable. "Non-cancelable" means the company cannot cancel the policy because of bad experience (a lot of claims) or high individual claims. With this type of policy, the only way the company can get off the hook is if you do not pay the premiums. "Guaranteed renewable" means that, for the individual, the premium is guaranteed not to increase.
Another consideration is the policy's elimination period: the length of time during which you cannot collect benefits. The longer the elimination period, the lower the premium. If you did not need a benefit for six months, your premium would be substantially lower than if your elimination period were 30 days.
Consider next the duration of benefits. …