What’s in Your Disability Insurance Policy?

What’s in your disability insurance policy? That question might remind you of a certain credit card commercial in which the announcer asks, “What’s in your wallet?” We won’t subject you to a Viking assault in this blog, as one version of the commercial did onscreen, but we will share our opinion that ignorance of what’s in your disability policy could be as painful as an arrow in your back when it comes time to make a claim.
Disability insurance plans can be complex, and each plan is different. Employer-based disability plans are often free or very inexpensive, but the benefits are likely to be inadequate to cover all contingencies. Are you sure your disability insurance policy contains what’s best for your long-term financial plan? Maybe it’s time to look into it.

Basic Income Benefit

First, you need to understand the policy’s basic benefits. The purpose of disability insurance is to compensate for the income you lose if you become disabled and can no longer work. Most disability policies replace 60 to 70 percent of your taxable income.

Elimination Period

Second, you need to know how long after becoming disabled you’ll have to wait to begin getting benefits. With most disability policies, it’s likely to be 90 days. Again, you usually can get a shorter waiting period for a higher premium. On the other hand, extending the waiting period will barely save any premium at all—typically only 10 percent. You can get through the waiting period by keeping an emergency fund to cover expenses while you wait.

Additional Riders For More Protection

Once you know the basics of your policy, turn your attention to the wide array of options it might include. Some options are likely good choices for your needs; some not as good. We recommend opting for continuing coverage in one of two forms—either through “guaranteed renewability” that keeps your policy in force as long as you pay premiums, or a “non-cancelable” policy that also keeps premiums the same for the life of the policy. Make sure your policy covers disabilities from illnesses as well as accidents—some policies exclude illness-related disabilities.
Does your policy include some form of residual disability or “loss of earnings” clause, either in the policy or as a rider? If so, the policy will make up any difference between your previous salary and your new salary. For physicians, “own occupation” coverage is often critical to maintaining financial well-being. This coverage pays in full if your disability keeps you from returning to the job you trained for.
Some disability benefits compensate for changes in the economy. If your policy includes a guaranteed-increase option, you can boost coverage without taking another physical. Cost-of-living adjustments automatically increase benefits based on the Consumer Price Index, and your policy also might include a rider that increases benefits after you’ve been disabled longer than a year.
Some disability insurance policy options are geared toward getting and keeping money, such as a waiver of premium option, which exempts you from paying premiums if you’ve been disabled more than 90 days. Some policies include a lifetime benefits option, allowing you to continue receiving benefits after you reach age 65. Before you purchase a disability insurance policy, your financial advisor should help you carefully consider your overall financial goals.
The options described above often add to premium cost, but in many cases they could be exactly what a doctor like you needs to fend off the financial assault of a disability. Take time to understand exactly what’s in your disability policy, and ask your financial advisor to help you weigh the costs and benefits.
Additional Resources:

 
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Sources Bradford, Stacey L., “Do You Need Disability Insurance?” Retrieved May 6, 2013 from the SmartMoney website: http://www.smartmoney.com/plan/insurance/do-you-need-disability-insurance-17318/ “Riders That Make Sense for You.” Retrieved May 21, 2013 from the SmartMoney website: http://www.smartmoney.com/plan/insurance/riders-that-make-sense-for-you-9710/ Roth, J.D., “The Disability Insurance Maze: How to Select and Purchase a Policy.” Retrieved May 21, 2013 from the Get Rich Slowly website: http://www.getrichslowly.org/blog/2008/02/27/the-disability-insurance-maze-how-to-select-and-purchase-a-policy/ “What are the types of disability insurance?” Retrieved May 21, 2013 from the Insurance Information Institute’s website: http://www.iii.org/articles/what-are-the-types-of-disability-insurance.html “How can I purchase disability insurance?” Retrieved May 21, 2013 from the Insurance Information Institute’s website: http://www.iii.org/articles/how-can-i-purchase-disability-insurance.html

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