top of page

Disability Insurance: What You Should Know

If you must work in order to earn your income, you need to have disability insurance. That said, purchasing such insurance is a “buyer beware” situation. This is because when it comes to most disability insurance policies, you must be aware of the numerous pitfalls that come with acquiring coverage that will really work for you and your family, if and when you need it. This week’s article covers what you need to know to get the best coverage possible.

What Is Disability Insurance?

A disability insurance policy pays benefits when you are unable to work because you are sick or injured. Most disability policies pay you a benefit that replaces a percentage of your income when you can't work due to illness or injury. Disability insurance is not the same as health insurance, as it will not cover your medical bills. Instead, disability benefits are designed to replace a percentage of the income you lose due to your inability to work, so you can cover your basic financial needs, such as paying bills, covering household expenses, and providing for your family, until you are able to return to work. Should I Get Disability Coverage?

You might think you don’t need disability insurance, especially if you’re young and in good health. Hopefully, you’re right. Unfortunately, becoming sick or disabled can happen to anyone at any time, whether it’s from a serious accident, illness, or as with most people, as we get older. And this threat to your health isn’t specific to the most recent diseases; it has always been true. In fact, according to the U.S. government’s statistics, one in four 20-year-olds become disabled before reaching retirement age. That makes it all the more important that you consider how to protect yourself and your family’s well-being with disability insurance. When shopping for a policy, it’s best to work with an insurance agent who can survey many different companies to help you choose the right policy for your budget, age, health, and other risk factors. And remember, you must have the insurance policy in place before something happens. If you’re already sick, you can’t buy disability insurance to make up for lost income. Additionally, when shopping for disability coverage, always check out the “claims paid'' rating of the insurance company. This is a measure of the percentage of claims they pay compared to the ones they deny, and it’s a good indication of the company’s quality. Of course, you should also search online for reviews of the company as another measure of the company’s reputation. In addition to these considerations, disability insurance comes with a huge array of different options and types of coverage. With so many different things to consider, it can be hard to tell what is necessary and what isn’t. While you should meet with us, your Family Business Lawyer™ to discuss the disability coverage that best fits your situation, here are some key factors to consider when choosing a disability insurance policy.

The Definition of Disability

There are many different ways to define disability. In fact, most dictionaries include more than five definitions of the word. So be sure you fully understand the definition used by your insurance provider. Most policies have a two-tiered definition of disability.

With most policies, the disability standard will be defined as the insured worker being unable to perform the duties of their “own occupation.” This refers to the job they were performing at the time they became disabled.

After a defined period of time, usually 24 months, the standard of disability will shift to a different level, known as the “any occupation” standard. This is defined as the insured worker being unable to perform any occupation. In other words, the any occupation standard means the worker has to prove they are unable to work at any job, regardless of whether it’s the one they were hired to do.

Under the any occupation standard, which is offered in many policies, the worker must still be able to earn some percentage of their former salary. Usually, the percentage is 60% to 80%. Note that many employer-provided disability policies are only available with the any occupation option, though employees may purchase a supplemental disability policy for additional protection.

Types Of Coverage

There are two main types of disability insurance: short-term disability coverage and long-term disability coverage.

Short-Term Disability Insurance

Short-term disability insurance normally lasts between 3 to 6 months, and sometimes up to a year or more. It covers about 60% to 80% of your monthly gross income. The premiums you pay ranging from 1% to 3% of your annual income.

The percentage of your income the policy pays depends on what kind of health risks the insurance company determines you have. If you smoke, for instance, the premium will probably be higher, just like with many health insurance policies. If you have a risky job, such as working with heavy machinery, premiums will likely be higher as well.

One major upside to short term policies is that payouts usually happen within two weeks, which can be a lifesaver in an emergency. Long-Term Disability Insurance

Long-term disability insurance can pay benefits for a few years or until your disability ends, which may even be when you reach retirement age. Most policies cover 40% to 60% of your monthly gross income, but ones that pay up to 70% do exist. These policies also cost 1% to 3% of your yearly income, but based on the benefits they provide, they tend to be more cost-effective in the long run. A major difference between the two forms of insurance is that it can take up to 6 months to see a payout from a long term policy, which may not be an realistic option, when you need money immediately to cover basic living expenses. Despite the lengthy payout times, we recommend getting a long term policy whenever possible. This is due to the fact that such policies will last through a long recovery or treatment period, which can be invaluable if you are seriously ill or injured and cannot work. Additionally, look for a “non-cancellable insurance policy,” which will keep the insurance company from canceling your policy if you have any health changes