Protecting Your Income When It Matters Most
Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. For example the inability to focus or maintain composure as with psychological disorders or an injury, illness or condition that causes physical impairment or incapacity to work. It encompasses paid sick leave, short-term disability benefits, and long-term disability benefits. Statistics show that in the US a disabling accident occurs on average once every second.
Types of disability insurance
Traditional disability carriers have limitations on the monthly benefits, which limit benefits for high income earners. Benefits typically cap at $20,000-$25,000 of monthly benefits.
Individual Disability Insurance
Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies. Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries. In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances. Web-based disability insurance calculators assist in determining the disability insurance needed.
High-Limit Disability Insurance
High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level. Coverage is typically issued supplemental to standard coverage. With high-limit disability insurance, benefits can be anywhere from an additional $2,000 to $100,000 per month. Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30,000 with some companies.
Key-Person Disability Insurance
Key person disability insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability. The company can use the benefits to hire a temporary employee should the disabled employee's disability appear to be short-term. In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.
Business Overhead Expense Disability Insurance
Business overhead expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.
National Social Insurance Programs
In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens. For example, the UK's version is part of National Insurance; the U.S.'s version is social security (SS)—specifically, several parts of SS including Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs provide a floor beneath all other disability insurance. In other words, they are the safety net that catches everyone who was otherwise (a) uninsured or (b) underinsured. As such, they are large programs with many beneficiaries. The general theory of the benefit formula is that the benefit is enough to prevent abject poverty.
Employer-supplied disability insurance
One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers' compensation and more general disability insurance policies.
Claims: what is covered, and for how long
The important variables regarding claims are listed below. Not every variable matters to every type of disability insurance, but most of these are generally relevant.
Examples of each variable
Was the disability unpredictable (not resulting from previously-known chronic illness)?
To obtain a regular individual policy on the open market the purchaser must warrant that he is in good health and to the best of his own knowledge is not currently HIV-positive. A general principle of insurance is that the policyholder sells risk that, to the best of his knowledge, is not higher than the stated circumstances imply. Withholding relevant circumstances or hiding them is selling something that is not what it was warranted. Analogies are insider trading using material non-public information and making fraudulent (incomplete or false) seller disclosure in a real estate transaction.
Was the disability incurred in the course of performing job-related duties?
Workers' compensation policies are not obligated to pay claims for disability that is not job-related. Insurance for such risks can be purchased, but because the risks are more inclusive, the premiums are higher.
How long is the waiting period before claim payments start?
Because most disability events are temporary, insurance coverage for them is cheaper when the policyholder agrees to wait longer before receiving payments. For example, if a policy-holder breaks a finger, it may be only 2 months before he or she is able to do his or her job again. If the policy-holder agreed to wait 60 days before receiving claim payments, then the insurer need not pay. This reduction to the insurer's risk is reflected in the lower price that was paid to purchase coverage (lower premiums).
What other insurance policies will pay claims for this event?
An auto insurance policy may include coverage for lost income during a driving-related period of disability. Often lost-income coverage is a separately-priced rider to the auto insurance policy. In this case, the policy-holder may make a claim with the auto insurance company and either (1) make a secondary claim with disability insurer, or (2) decide that the primary claim is enough and skip the second claim. Sometimes there is a pre-established priority that makes the disability insurer liable only to the extent that the auto coverage is not enough.
If the injury is someone else's fault, their liability coverage from an auto, home, or personal umbrella policy may pay for the injured person's lost income, and therefore that person will not make a claim on his or her own policy.
How much money will be paid per week/month/pay period?
It is rare for any policy to pay the full amount of the insured's salary. Generally it pays only some percentage, such as 80%, or a flat amount, such as $1500/month, regardless of the normal salary amount. The idea behind this reduced benefit is that it is enough to protect the beneficiary from mortgage foreclosure, or to keep the beneficiary from running up huge debts during convalescence.
For how many weeks/months/pay periods will payments continue?
Most policies in the lower and middle areas of the market have a cap, for example, 5 years. More expensive policies pay until the national social insurance program takes over as the primary income source. For example, in the U.S., this is usually at the individual's Social Security full retirement age; for most individuals, age 66. Also, in the U.S. most long term disability insurance policies require those receiving benefits to apply for Social Security disability benefits.
What if the beneficiary is only partially disabled?
Most policies in the lower and middle market pay claims only if there is no job that the beneficiary can possibly do. Others, referred to as own-occ policies, pay the claim as long as the beneficiary cannot return to his or her own occupation. Own-occ policies have higher premiums than non-own-occ, because their claims risk is greater. For example, suppose that a disabled person's normal job involves lifting heavy boxes and getting paid $4000/month. If insured is still capable of doing light assembly work at a workbench for $2000/month, a less-expensive policy provides no benefits.
Should you have any questions or concerns about whether Disability Insurance is right for you, please take a moment and contact us on the Home Page or under the More/Contact drop down menu.
Types of disability insurance
Traditional disability carriers have limitations on the monthly benefits, which limit benefits for high income earners. Benefits typically cap at $20,000-$25,000 of monthly benefits.
Individual Disability Insurance
Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies. Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries. In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances. Web-based disability insurance calculators assist in determining the disability insurance needed.
High-Limit Disability Insurance
High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level. Coverage is typically issued supplemental to standard coverage. With high-limit disability insurance, benefits can be anywhere from an additional $2,000 to $100,000 per month. Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30,000 with some companies.
Key-Person Disability Insurance
Key person disability insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability. The company can use the benefits to hire a temporary employee should the disabled employee's disability appear to be short-term. In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.
Business Overhead Expense Disability Insurance
Business overhead expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.
National Social Insurance Programs
In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens. For example, the UK's version is part of National Insurance; the U.S.'s version is social security (SS)—specifically, several parts of SS including Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs provide a floor beneath all other disability insurance. In other words, they are the safety net that catches everyone who was otherwise (a) uninsured or (b) underinsured. As such, they are large programs with many beneficiaries. The general theory of the benefit formula is that the benefit is enough to prevent abject poverty.
Employer-supplied disability insurance
One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers' compensation and more general disability insurance policies.
Claims: what is covered, and for how long
The important variables regarding claims are listed below. Not every variable matters to every type of disability insurance, but most of these are generally relevant.
- Was the disability unpredictable (not resulting from previously-known chronic illness)?
- Was the disability incurred in the course of performing job-related duties?
- How long is the waiting period before claim payments start?
- What other insurance policies will pay claims for this event?
- How much money will be paid per week/month/pay period?
- For how many weeks/months/pay periods will payments continue?
- What if the beneficiary is not totally disabled, but only partially?
Examples of each variable
Was the disability unpredictable (not resulting from previously-known chronic illness)?
To obtain a regular individual policy on the open market the purchaser must warrant that he is in good health and to the best of his own knowledge is not currently HIV-positive. A general principle of insurance is that the policyholder sells risk that, to the best of his knowledge, is not higher than the stated circumstances imply. Withholding relevant circumstances or hiding them is selling something that is not what it was warranted. Analogies are insider trading using material non-public information and making fraudulent (incomplete or false) seller disclosure in a real estate transaction.
Was the disability incurred in the course of performing job-related duties?
Workers' compensation policies are not obligated to pay claims for disability that is not job-related. Insurance for such risks can be purchased, but because the risks are more inclusive, the premiums are higher.
How long is the waiting period before claim payments start?
Because most disability events are temporary, insurance coverage for them is cheaper when the policyholder agrees to wait longer before receiving payments. For example, if a policy-holder breaks a finger, it may be only 2 months before he or she is able to do his or her job again. If the policy-holder agreed to wait 60 days before receiving claim payments, then the insurer need not pay. This reduction to the insurer's risk is reflected in the lower price that was paid to purchase coverage (lower premiums).
What other insurance policies will pay claims for this event?
An auto insurance policy may include coverage for lost income during a driving-related period of disability. Often lost-income coverage is a separately-priced rider to the auto insurance policy. In this case, the policy-holder may make a claim with the auto insurance company and either (1) make a secondary claim with disability insurer, or (2) decide that the primary claim is enough and skip the second claim. Sometimes there is a pre-established priority that makes the disability insurer liable only to the extent that the auto coverage is not enough.
If the injury is someone else's fault, their liability coverage from an auto, home, or personal umbrella policy may pay for the injured person's lost income, and therefore that person will not make a claim on his or her own policy.
How much money will be paid per week/month/pay period?
It is rare for any policy to pay the full amount of the insured's salary. Generally it pays only some percentage, such as 80%, or a flat amount, such as $1500/month, regardless of the normal salary amount. The idea behind this reduced benefit is that it is enough to protect the beneficiary from mortgage foreclosure, or to keep the beneficiary from running up huge debts during convalescence.
For how many weeks/months/pay periods will payments continue?
Most policies in the lower and middle areas of the market have a cap, for example, 5 years. More expensive policies pay until the national social insurance program takes over as the primary income source. For example, in the U.S., this is usually at the individual's Social Security full retirement age; for most individuals, age 66. Also, in the U.S. most long term disability insurance policies require those receiving benefits to apply for Social Security disability benefits.
What if the beneficiary is only partially disabled?
Most policies in the lower and middle market pay claims only if there is no job that the beneficiary can possibly do. Others, referred to as own-occ policies, pay the claim as long as the beneficiary cannot return to his or her own occupation. Own-occ policies have higher premiums than non-own-occ, because their claims risk is greater. For example, suppose that a disabled person's normal job involves lifting heavy boxes and getting paid $4000/month. If insured is still capable of doing light assembly work at a workbench for $2000/month, a less-expensive policy provides no benefits.
Should you have any questions or concerns about whether Disability Insurance is right for you, please take a moment and contact us on the Home Page or under the More/Contact drop down menu.
