Disability Insurance

Although the majority of younger, working adults appreciate the need for life insurance, they may not be as aware of the even greater need for disability insurance. In a given year, the odds of becoming disabled are actually much higher than dying for most workers. In fact, one out of every seven workers will suffer a five-year or longer period of disability before age 65, and for those over 35, the chances of experiencing a three-month or longer disability before age 65 are a whopping 50%.

Experiencing a period of disability may not pose economic hardship for those persons who have substantial savings on which they can rely. In most cases, however, suffering a disability can be financially catastrophic. Unfortunately, fewer employers offer disability insurance than life insurance, and it is harder to qualify for individual disability coverage than for individual life insurance. Even when disability insurance is available, it usually replaces just 50 to 60% of the insured's pre-tax monthly income.

Not all disability policies are alike, however. One of the principal variables relates to the amount of monthly benefits. Most disability policies have a fixed monthly benefit that remains constant over time, although extra coverage that offers graduated payments may sometimes be purchased. Another principal variable relates to the definition of disability. In some cases, the inability to perform the duties of the insured's specific occupation will render him or her disabled, whereas in policies that are more restrictive a finding of disability will be limited to cases in which the insured is unable to perform the duties of any job for which the insured's education and training make him or her qualified.

The third variable relates to the waiting period, or the amount of time the insured must be disabled before benefits will begin. Waiting periods can range from one week to two years; the longer the wait, the less the disability policy will cost. Fourth, policies will vary as to the benefit period, or how long monthly benefits are paid out once they kick in. The benefit period can range from six months to life.

Other coverage options include riders that pay if the insured can only remain at or return to work part time; an additional purchase option, which guarantees the right to buy additional disability insurance in the future regardless of the insured's health at that time; and a Social Security offset rider, which guarantees that if the insured qualifies for disability payments under the policy but not for Social Security disability benefits, the policy will pay what Social Security would have.

Although Social Security does provide disability income in certain cases, most applicants are rejected for Social Security disability benefits on their first try. An appeal process is available, and applicants who use attorneys to help them with their appeals stand a better chance of prevailing and obtaining these benefits. An estimate of an individual's Social Security disability benefits can be obtained at the Social Security Administration's website, www.ssa.gov. Workers' compensation may also provide income replacement for disabilities that are job related.

The monthly amount for which an individual qualifies, the price of the policy, and the benefit period may all depend upon the hazards of the insured's occupation. Workers in occupations that pose a greater risk of becoming disabled will generally be subject to higher rates than those in relatively safer jobs. In other words, a high-rise construction worker, for example, may pay more for disability coverage than a shoe salesperson. Cost of coverage may also be affected by the insured's physical and mental health.

Disability insurance can be the subject of litigation, such as when a claimant is denied coverage and sues. Attorneys experienced in disability and insurance law can advise their clients on whether a valid claim exists and provide zealous representation throughout the entire litigation process.

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Glossary: Disability Insurance Terms

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