Individual Long Term Disability Insurance
If you could not work because of sickness of injury, how would you maintain your standard of living? If you’re like most people, your ability to earn an income is your most valuable asset.
Long term disability insurance helps replace income for an extended period of time. It is a fact that one out of three (3) working adults will have a disability that lasts longer than 90 days in their lifetime. Long term disability insurance is a vital component in any individual and family’s future financial security.
Features of Disability Income Insurance
Most individual policies are either noncancellable or guaranteed renewable. With a noncancellable policy, premiums can never be increased. Under a guaranteed renewable policy, premiums cannot be raised based on an individual’s circumstances, but they can be increased for an entire class of policyholders. A guaranteed renewable policy may define how a class is determined for example, all policyholders in a state who own the same type of policy might constitute one class.
The amount of income you would receive when disabled varies by policy. However, benefits from all sources are usually limited to 70-80 percent of your monthly salary. Policies that pay 50-60 percent of salary are most common.
If you purchase your own policy, your disability benefits typically are not subject to income taxes. Benefits are taxed, however, if your employer pays for the disability insurance coverage.
Policies have different waiting periods (called elimination periods) before you begin receiving benefits. You can lower the premiums you pay by waiting 90 days, six months, or even longer before starting to receive benefits.
Some policies offer cost-of-living adjustments in the amount paid to the insured as an optional benefit.
Most companies review an individual’s medical and financial history and consider any other disability coverage that person has before issuing a policy.
Factors Influencing Cost
A number of factors determine the cost of an individual disability income policy, including:
Occupation: Professionals, Executives, and “White Collar” occupations will have the broadest coverages and the lowest rates. Blue Collar will have the most restrictive benefits and higher costs.
Age: Younger persons pay less per year for a policy than those who are older and more likely to become disabled.
Definition of Disability: A policy that pays benefits if you are unable to perform the duties of your own occupation is more expensive than a policy that pays benefits if you are unable to perform the duties of any job for which you are reasonably qualified.
- Benefit amount
- Elimination period (waiting period before benefits begin)
- Benefit period
- Recurrent disability (relapse provision)
- Cost-of-living adjustments
- Your current health status
- Smoker/Tobacco. Smokers pay more
- Gender
- Mental health/substance abuse provisions
- Exclusions or other coverage limitations
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Checklist – (click here to get a quote)
Noncancellable and Guaranteed Renewable
Two types of individual policies are most common: noncancellable and guaranteed renewable. Both types can usually be renewed until age 65, and neither can be canceled by the insurer as long as the premiums are paid.
Under a noncancellable policy, premiums can never be increased. With a guaranteed renewable policy, premiums cannot be raised based on an individual’s circumstances, but they can be increased for an entire class of policyholders.
Is this policy noncancellable? ________
Or guaranteed renewable? ________
Definition of Disability
How does this policy define disability? Can you receive benefits if you are unable to perform the major duties of your own occupation, but could still complete the duties of another line of work?
________ Yes ________ No
How long can benefits be collected under this definition? ________
Do you have to be unable to complete the duties of any occupation for which you are reasonably qualified by training, experience, and education before you receive benefits?
________ Yes ________ No
How long can benefits be collected under this definition? ________
Will the policy pay benefits if you are unable to earn a specified percentage of your salary?
________ Yes ________ No
What is the percentage? ________
Must you meet two or more of the definitions, for specific periods of time, before you collect benefits?
________ Yes ________ No
Benefit Amount
Is the benefit from this policy a percentage of your regular income or a flat amount?
________ Percentage of income at ________ percent
________ Flat amount of $________ per ________
(Policies that pay a flat benefit amount each month are common.)
Elimination Period
Although some policies pay benefits immediately after the insured suffers a disability, most policies have a waiting, or elimination, period. Elimination periods can last six months or longer. The shorter the elimination period, the more costly the policy.
Considering all the resources you may have such as a spouses income, emergency savings, unused sick leave, and vacation – how long can you wait before your benefits begin?
________ Less than one month
________ Three to six months
________ Longer than six months
How long is the elimination period in this policy? ________
Length of Benefit Period
Policies generally pay benefits until retirement age for most disabilities, but shorter benefit periods are available at lower cost.
How long does this policy pay benefits? ________
Benefits for Partial Disability
Some policies provide benefits when you have a partial disability that keeps you from doing part of your job or working full time.
Does this policy provide benefits for partial disability?
________ Yes ________ No
Replacing Lost Income
Some policies provide a benefit to make up for your loss in income if you must take a lower-paying job because of your disability.
Does this policy provide benefits if your disability results in reduced income?
________ Yes ________ No
Return-to-Work
Some policies have return-to-work or rehabilitation provisions that enable the insurer to pay for training, modifications to your work environment, or other services that assist you in returning to work.
Does this policy have a return-to-work or rehabilitation provision? __________
(If a return-to-work policy provision is not listed, ask for the insurer’s practice in this area.)
Recurrent Disability
Most policies don’t require you to wait before receiving benefits if you go back to work after recovering from a disability and have a relapse within a specified period, such as six months.
Does this policy require you to wait through an elimination period to receive benefits in the case of a recurrent disability?
________ Yes ________ No
Cost-of-Living Adjustments
A cost-of-living adjustment benefit provides for periodic increases in the amount paid to the insured, usually corresponding to increases in the cost of living.
Does the policy provide this benefit? ________
Mental Health/Substance Abuse
Policies usually pay benefits for a maximum of two years in the case of disabilities resulting from mental health problems or substance abuse. However, these limits usually don’t apply when substance abuse or mental health problems require institutionalization.
How long does this policy pay benefits for disabilities resulting from mental health problems or substance abuse? ________
