How to Compare Disability Insurance

Step-by-Step Guide

1. 1

   Step 1: Opt for an "own occupation" policy.

   When sitting down to compare disability insurance plans, you should look for some particular items.
   
   For example, if you want a disability policy to cover your ability to work in your current industry, you should look for an “own occupation” policy.
   
   This means your insurance will pay out if you can’t perform the tasks needed in your current type of job.This type of policy is much more desirable because it means that if you could work in another industry, you still get coverage for inability to work in the one your'e in now.
   
   An "any occupation" policy means that if you can do anything to make money—even flipping burgers—the policy won’t give you anything.
2. 2

   Step 2: Find out what each policy guarantees.

   Next, you want to find out how flexible the policy is in terms of being cancelled or guaranteed no matter how you become disabled.
   
   Policies can range from being non-cancelable and guaranteed renewable, to just guaranteed renewable (but able to be canceled).Non-cancelable means that your carrier cannot cancel your coverage at any time, giving you more peace of mind.
   
   Guaranteed renewable is a contractual agreement indicating that the insurance company must renew your policy over a set amount of time, usually an extended period.
   
   You are looking for your policy to be guaranteed renewable., You also have to look at provisions and exclusions to make sure you're getting the coverage you want.
   
   Provisions are things that are extra, like rehabilitation coverage.
   
   This includes flexibility of coverage to help pay for expenses not covered by Social Security or other benefits.
   
   Exclusions are things the policy won’t provide for, like pre-existing conditions. , Each policy will have a variety of options and features.
   
   Look at what kinds of riders you can add to cushion all eventualities you are concerned about, such as a cost-of-living rider to help buffer inflation.A cost of living (COLA) option helps you cope with inflation over time, preventing you from feeling the burden of an increase in price of groceries and gas, for example. , A residual benefits feature means that as long as you are still receiving health benefits from a full time job at the time you file a disability claim, you can keep a portion of those benefits.
   
   There are some heavy caveats to this one, so read the fine print before agreeing to add this option to a policy.This option only applies if you are still able to work part time, and this reduction in work hours must equal a reduction in income of 15-20%.
   
   Many policies also demand that you become fully disabled before becoming partially disabled, which means many people can't claim this feature. , Since most long-term disability policies cover minimum five years, you want to make sure yours starts there.
   
   Even better is a what's known as a "future increase" option, perfect for those who buy disability policies young and need the policy to change with their income.Make sure the policy you're looking at starts at 5 years, but preferably lasts until retirement age.
   
   Ensuring yourself through retirement age is smart because you really don't know how long your disability may last.
   
   A future increase option allows you to increase your coverage without having to re-apply for the insurance (meaning you avoid another medical exam and paperwork). , This waiver means that if you lose your job, you can keep the disability coverage without having a monthly payment, at least until you find another job.This only applies if you have personal coverage; employee plans end when you leave your job for reasons other than disability. , Disability insurance carries a waiting period or elimination period that can last from 30 days to two years, or more commonly, 90 to 180 days.
   
   You'll have to wait until after this period expires to get benefits.
   
   A policy with a shorter waiting period will probably cost a little more, but will provide you with benefits sooner.You may set aside emergency funds to cover this waiting period, although you can also purchase short-term disability insurance, which is what long-term insurance companies have in mind to help you during this long waiting period. , After you have picked out at least two different policies, sit down and compare the monthly premiums.
   
   You’re not necessarily looking for which one costs less, but which one offers a better value.
   
   If one policy is higher than the other, look closely to find out why.
   
   This can mean that one policy has more riders or provisions that the other is lacking.
   
   However, if you can’t find any “extras” in the more expensive policy, the other, less expensive one is probably the better value., Finally, you need to make sure that the company you want to buy a policy with is not going to close their doors anytime soon.
   
   You need to look at financial strength, profitability, and claims-paying ability.There are entire businesses dedicated to rating different companies, so look at the insurance company ratings performed by firms like Standard & Poor’s, Moody’s, A.M.
   
   Best, and Fitch. , Most full-time employers provide short-term disability insurance as part of their benefits package.
   
   This is also known as sick leave, and can cover you from just a few days of pay up to as much as one year or even two years.Since long-term disability insurance has a waiting period, you’ll need the short-term coverage to replace your income while you wait after becoming disabled.
   
   Compare benefits of your employer's disability insurance package to individual policies.
   
   Be careful that your employer isn't just buying the cheapest option, because this could leave you with fewer benefits and a shorter coverage period.
   
   If your employer does not offer short-term disability insurance, you either want to shop for this yourself or dedicate a savings fund for when you need to wait for the long-term disability coverage to kick in—again, anywhere from 30 days to two years (but more likely 90 to 180 days). , Both types of insurance will only cover a percentage of your salary.
   
   Look at your employer’s short-term disability insurance policy (or the personal policy you’re looking at purchasing) to see how much this amount is, and determine if you can live on it for up to two years.
   
   If you find that the amount covered is too low to live on, you may want to initiate a savings goal to help, or shop for a policy that covers more of your salary per month. , Just like with short-term disability, many employers offer long-term disability insurance with their benefits package.
   
   While many employers currently provide it for free, the trend is moving toward lowering how much they’ll pay and offering employees a purchasing option.Long-term policies last anywhere from 5 years to the retirement age of the insured worker.
   
   Plans provided by employers are protected by the Employee Retirement Income Security Act (ERISA), but this federal jurisdiction means that states probably can’t help if a claim is denied.You can’t take employer-provided disability insurance with you if you leave your job. , The typical amount of income per month offered by long-term disability policies is 60% of your salary, although sometimes rising to 80%, and does not include bonus income.
   
   This is so that you have an incentive to go back to work.You should take a look at your lifestyle and determine if the coverage offered will support it.
   
   Keep in mind that the 60% or 80% will be reduced by the amount of Social Security benefits, worker’s compensation, or lawsuit payments you receive each month.
   
   If your employer’s long-term plan doesn’t offer you enough replacement salary, you can shop around for your own long-term plan, but no insurance company is going to pay for 100% of your salary.
   
   Also, consider that on your own, you’ll be paying a higher premium until you file a claim. , If you don’ have disability insurance at all, not even through an employer, you may want to consider purchasing it.
   
   The odds of making a disability claim are higher than you’d think—one-third of working Americans will become disabled for 90 days, and more likely due to chronic illness (like heart disease, back pain, and arthritis) than from injury.Most working Americans do not have personal disability insurance, but rather accept it through their employers.
   
   This doesn’t mean they should leave it that way.
   
   You may want to purchase disability insurance on your own for a variety of reasons, including an undesirable employer plan or being self-employed. , Look for coverage with the best value.
   
   Some plans may have higher premiums but more protection, while other plans may offer fewer benefits but a lower premium.
   
   Insurance premiums are usually 1 to 3 percent of your annual income, 4 percent if you’re over age
   55.Extras like the COLA rider cause most premiums to rise in cost. , To assist in your search, ask an expert like an insurance agent or financial planner.
   
   In fact, most Americans don’t buy disability insurance without an agent.You can ask a financial planner to help you look at your finances and determine whether, based on your health history and income, you should purchase disability insurance at all, or simply to help you decide which plan is best. , Once you’re out there, you might be flooded with offers and pressure from agents.
   
   But instead of giving into this pressure, make an educated decision and stick to it.
   
   If you work in a high-stakes industry or you know chronic illness runs in your family, having disability insurance—whether or not through an employer—is pretty much a necessity.
   
   Once you’ve selected a plan, don’t let agents pressure you to move to a different, more expensive one.
3. 3

   Step 3: Look at provisions and exclusions.

4. 4

   Step 4: Consider a cost of living feature.

5. 5

   Step 5: Look for a residual benefits option.

6. 6

   Step 6: Investigate length of coverage and increase options.

7. 7

   Step 7: Make sure personal policies have an "unemployment waiver of premium."

8. 8

   Step 8: Check the waiting period.

9. 9

   Step 9: Determine the cost of each plan.

10. 10

    Step 10: Make sure each company has a good reputation.

11. 11

    Step 11: Find out if your employer offers short-term disability.

12. 12

    Step 12: Estimate how long short-term coverage will assist you.

13. 13

    Step 13: Look at your employer’s long-term disability package.

14. 14

    Step 14: Estimate how helpful the long-term coverage will be per month.

15. 15

    Step 15: Decide if you need disability insurance.

16. 16

    Step 16: Consider how much you'll receive per month.

17. 17

    Step 17: Ask an expert.

18. 18

    Step 18: Stay strong against pressure to buy.

Detailed Guide

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