Choosing an Individual Disability Insurance Policy
If you’re depending on your income to cover the cost of your living expenses, it’s essential that you protect your income with a quality disability income insurance policy. Here are important tips for individual disability insurance shopping so you can find a policy that’s right for you.
Personal Disability Insurance: What to Look For
- Own Occupation Disability Definition: Be sure to select a policy that covers you with an “own occupation” definition of disability.
- Noncancellable: Select a policy that specifies that the insurance company cannot cancel your policy for any reason, as long as you are paying your premiums.
- Premiums: Verify that the insurance company can’t change the premiums as shown in your policy and whether they are level premiums or a guaranteed schedule of increases.
- Residual Coverage: Choose a policy that continues to pay proportional benefits after you’re able to return to work, until the great majority of your income is restored to pre-disability levels.
Understanding What Guaranteed Renewable Means
When shopping for personal disability insurance, one of the phrases you’re likely to see is guaranteed renewable. It’s best to select a policy that has this feature and it’s also important for you to understand exactly what this means. When a disability income insurance policy is guaranteed renewable, the company cannot make material changes in your policy or refuse to renew coverage for any reason, as long as you pay your premiums.
Rates Can Increase
The fact that a particular policy is guaranteed renewable does not, however, ensure that your rates will not change. While the insurance company can’t refuse to continue coverage for a guaranteed renewable policy or single you our for a rate increase, premium charges can go up over the life of the policy subject to approval to all similar policies by the state insurance commissioner. That’s why it’s also best to look for a policy that is non-cancelable as well as one that is guaranteed renewable.
Guaranteed Renewable and Non-Cancellable Disability Coverage
Coverage Can’t Be Canceled and Rates Will Never Increase
When you have a guaranteed renewable and non-canclellable individual disability insurance policy, the insurance company can’t cancel the policy regardless of changes to your health or life circumstances, even if something happens that places you in a higher risk class. Additionally, the insurance company isn’t allowed to add restrictions to your coverage or alter the policy’s provisions. And finally, the insurance company can never raise your premiums.
Determining the Optimal Elimination Period
Looking for the best possible individual disability insurance premiums? The elimination period associated with any disability income insurance policy has a significant impact on premium costs. The elimination period refers to the period of time you’ll have to wait between experiencing a qualifying disability and beginning to receive benefits. The longer the elimination period, the more time has to elapse before you’ll be eligible for benefits.
The longer the elimination period, the lower policy premiums are likely to be. While lower premiums sound great when you’re shopping for a policy, long elimination periods can result in significant financial hardships for policyholders who need to file a claim. Before you choose a policy with a long elimination period in order to get the lowest possible premiums, be sure that you understand exactly what it means to have an extended waiting period. Some policies have elimination periods of as long as a year, while others require a waiting period of only 30 days. Most policies fall somewhere between these two extremes.
Be sure you know how long your policy’s waiting period is, and make sure you’re prepared to meet your financial obligations for the period of time you’ll have to wait to receive benefits. If you have a significant sum of money saved that you can use to cover living expenses, a policy with a long elimination period might be ideal for you. If you don’t have access to cash to pay bills, you’re likely better off going with a shorter elimination period when selecting personal disability insurance.
Three Additional Tips for Individual Disability Insurance Riders:
- Inflation Protection: It’s a fact that inflation is likely to affect everyone as time goes by. When your individual long term disability insurance options include an inflation protection rider, your benefits will be adjusted in accordance with the cost of living up to a specified percentage per year that you select at the inception of the policy.
- Future Increase Protection: Over time your income will likely increase with your business or practice growth. If your individual long term disability insurance policy includes a future increase rider, you can add on additional coverage as your earnings increase without proof of medical insurability at that future time.
- Provision for Residual Disability: Not every disability results in a complete loss of income or ability to work. When you opt for a residual disability rider, you’ll be able to receive a percentage of benefits in accordance with the impact a partial disability has on your income.
Disability Income Insurance Cost
Because disability income insurance provides benefits in the form of a percentage of your monthly income in the event you experience a disability, premium rates are typically tied to the amount of money you earn. When shopping for individual disability insurance, you can expect to pay between one and four percent of your annual salary for policy premiums. In most cases, rate variations are based on coverage, with the higher premium long term disability insurance options providing the best coverage.
It’s important to look closely at the policy terms before selecting a policy, rather than making your choice solely based on price. Make sure you choose a coverage option that truly provides comprehensive income protection benefits rather than going for the cheapest option. If you find yourself needing to file a claim, you’ll be very glad that you chose the best available individual disability insurance policy.
What about Baby Boomers?
More than 45 percent of Baby Boomers aren’t concerned about disability insurance, and a least one third of them believe they have less than a 5 percent possibility of experiencing a debilitating illness or injury. Statistics prove otherwise, showing the risk is at least 30 percent that a worker injured on the job or suffering a devastating illness will miss three or more months of work.
Know your coverage
Know your coverage. Many baby boomers mistakenly assume their insurance automatically includes either short or long term disability coverage. Most policies do not normally carry disability insurance, but have separate policies that can be attached to include disability and other types of elective forms of insurance. Read through your policy thoroughly. If you have any questions concerning what is covered and what is not, call your disability insurance broker and ask them directly.
Understand the limits of conventional insurance policies
Conventional insurance policies cover the cost of an illness or an injury, but few offer coverage that extends past the initial injury. Long term care falls under short and/or long term disability policies. Purchase a disability police before you need it and the transition to a facility that offers long term care will be much easier. Staff members at assisted living facilities in Tampa are able to answer questions about the estimated cost of living after being transferred into their care, so don’t wait until an emergency to ask questions about coverage. Be informed about both conventional and long term coverage before you find out you need it. Don’t remain under the impression that a disability policy will cover all of your medical costs. Most benefit programs are deceptively modest. Make sure you have adequate coverage using both types of insurance policies.
Social Security is not a cure-all
As a baby boomer, you know that Social Security is not a perfect system and can be complicated to understand. It was not designed to cover individuals who received a disabling injury or illness. Disability insurance is the most efficient way to help cover where social security leaves off. Contact your insurance agent to discuss the options you have available, and ask them to explain each policy in depth so you understand what Social Security will cover in comparison to what a disability policy will.
Consider what will happen if you do experience an injury that requires long term care and determine your financial needs. Talk to long term care facilities to find out what costs are associated with residency and what you will have to provide out of pocket. Learn as much as you can about both short term and long term disability policies. Know your responsibilities so you can maintain the same quality of life after an accident as you had before. Continually re-evaluate your needs when it comes to long-term care. The financial resources you had at your disposal five years ago may not provide adequate coverage in the future.
Financial Ratings of Insurance Company
The best way to asses the soundness of a particular insurance company is by looking at the firm’s financial strength rating, as determined by one of the recognized independent rating agencies.This is a very simple and efficient way to determine just how sound an insurance company really is. It’s certainly important to choose a solid insurer to meet your income protection needs. After all, it’s essential to purchase income protection coverage from a disability company that is likely to be in business and able to honor your policy if you ever need to file a claim.