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Ten Considerations for Disability Income Insurance
February 10, 2010
By: Monte Marshall
If you have done any research at all, you have certainly heard that applying for Disability Income Insurance makes good sense. After all, you are potentially protecting the greatest asset that you have which is your ability to earn an income. But when considering that purchase, make sure you know the ins and outs of how policies work and what options are available to you.
1. Make sure you consider applying for as much as you can. Most companies will generally offer 60%-70% of your overall income if you have an individual policy. Most group policies through your employer will pay 60%-70% of your base salary only and does not include any bonuses or overtime. So if you are under a group policy, you may want to consider buying up the shortfall in an individual policy.
2. Make sure you consider a partial rider. Policies that do not have this rider will only pay if the disability is total and you are unable to work. If you drew any income at all, the policy would not kick in. However, a partial rider will generally pay the percentage of loss of earnings. So if you have had a 50% loss of earnings due to the disability, your policy will generally pay 50% of the monthly benefit stated in the policy.
3. Make sure you consider a Cost of Living Adjustment. Most companies will offer this rider which increases the monthly amount by 3% each year on the anniversary of the disability. The purpose of this rider is to keep up with inflation.
4. Make sure you consider a Catastrophic Rider. This rider allows for you to receive up to 100% of your pre-disability earnings provided you meet the criteria for this rider. It is generally a very low cost to pick up some additional monthly benefit in case the very worst types of disabilities happen.
5. Make sure you consider a Future Insurability Option. This allows for you the opportunity to buy more Disability Income Insurance down the road without having to prove that you are healthy. You only have to prove that you financially qualify to buy more and not be disabled.
6. Make sure you consider an Automatic Additional Benefit Rider. As your income increases over time, the policy will allow for the monthly benefit to increase automatically without having to prove health or income on an annual basis. This is usually 3% on the anniversary of the contract. As your income creeps up, so can your Disability Income Insurance without having to do anything. Most companies will usually allow you to decline this annual increase if you don’t want it. But watch out. If you decline it too many times, you will lose the option.
7. Make sure your policy has a waiver of premium. You don’t want to have to continue to pay premiums while you are receiving a benefit if you are disabled. Most companies have this already built into the policy.
8. Make sure you understand and can financially handle the waiting period. Most policies have options of 30, 60, or 90 days or even more. The longer the waiting period, the lower the premiums. But remember that if you file a claim, you will have to continue and pay the premiums during with waiting period and pay all your bills. Once the waiting period is over, most companies will reimburse your premiums only during the waiting period and then start paying the benefit.
9. Make sure you use a quality company. There are several companies that offer Disability Income Insurance, but their financial ratings may differ substantially. So check out the company to see how sound they are.
10. Make sure you consider having a policy that has an own occupation definition. This rider will protect what you are specifically trained, experienced, and educated to do.
Finally, when considering buying Disability Income Insurance, make sure you give it strong consideration. No one knows when or how a disability may strike. There is great peace of mind knowing that if the worst happens, a portion of your income may be protected.
Please note that all riders are at an additional cost.
Monte P. Marshall is an insurance agent in Birmingham, AL and can be contacted at the following address:
Two North 20th St.
Suite 1500
Birmingham, AL 35203
205-244-8652 Office Direct
205-908-6851 Cell
mmarshall@finsvcs.com