Disability insurance coverage was developed to replace tax-free 45% to 60% of your gross income if you’re unable to work because of illness. It can be a life-saver if you know the facts, shop carefully and read all the policy fine print before you buy. Finding out that your disability insurance has severely restrictive exclusions and limitations when you’re sick and counting on the benefit can be a nasty shock. In the past, most workers received disability coverage through their employers. That’s changing. A recent article in the Wall Street Journal reported that the percentage of companies that paid all or part of their workers’ private long-term disability insurance fell to 48% in 2009 (down from 59% in 2002. That’s putting the burden of buying disability insurance policies increasingly on the individual. Here are some things to keep in mind when shopping for disability insurance quotes.
Social Security provides disability benefits under severely restricted conditions. Because of the record number of unemployed, there’s been an uptick in the applications and a resulting backlog in payouts, which typically average just 40% of income, or less for high-income earners. Your state may be one of the handful that also offers some disability benefits. In general, don’t count on government safety nets. You’re better off taking whatever your employer offers, even if you have to pay part or all of the premium. Do find out, however, if your employer-provided policy is portable. If you’re self-employed or unemployed, purchase your own coverage through a private carrier.
Most disability insurance coverage is intended for white-collar workers as opposed to blue-collar and gray-collar workers.
Most disability insurance benefits do not kick-in for 90 to 180 days. Consider short-term disability insurance to cover you in the interim.
Long-term disability insurance premiums for individual buyers are typically based on your age, health and occupation.
Disability insurance policies are typically sold as non-cancellable/guaranteed renewal; guaranteed renewal; and conditionally renewable. The first option will probably cost you more, but give you the greatest peace of mind since there can be no changes to your premium schedule, monthly benefits or policy benefits up to the age specified in your policy (usually 65). Even if your income goes down or you change occupations, a non-cancellable policy will pay you the total disability benefits agreed to when you originally bought the policy.
Do you have to be unable to do any work at all before the policy pays a benefit?
How does the disability insurance company define “total disability?” This will differ widely and could be a nasty surprise if you fall outside your policy’s definition.
Understand how payments are determined. Does your policy include commissions and bonuses when factoring the percentage of your income?
Are there limits or caps on payouts for certain disabling conditions such as mental illness?