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Disability Insurance 
Statistics show that one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days (Council of Life Insurers). One in seven workers will be disabled for more than five years. Many people think that disabilities are typically caused by accidents, but the majority of long-term absences from work are actually due to illnesses, such as cancer and heart disease.
Disability insurance is designed to pay cash benefits to a policyholder if the insured becomes unable to work due to sickness or injury.
That cash benefit can range anywhere from 50% to 70% of the insured’s income.
The following are some common features found in disability insurance:
- The Benefit Amount - the larger the benefit is, the more expensive the policy will be.
- Residual Benefit – if you are partially disabled but return to work anyway, a residual benefit is paid if you cannot earn your full income.
- Elimination Period - is the period of time the insured has to wait to receive benefits after they become disabled. Some common elimination periods are 30, 60, 90,120,180 and 360 days. Choosing a longer elimination period will bring down the premium of the policy.
- Benefit Period - is the period of time the benefits will be paid after the elimination period. The benefit period could be anywhere from two years to a lifetime benefit. Choosing a longer benefit period will increase the price of a policy.
Occupation factors:
- Own-Occupation - pays a benefit if you are unable to return to your present occupation but can work doing something else.
- Reasonable/Any Occupation - pays a benefit while disabled, but stops when you are able to return to work at a job that matches your education and experience. This policy costs less than an Own-Occupation policy.
- Guaranteed Renewable - the insurance company, even due to a change in the insured’s health or other circumstances, cannot cancel these policies for circumstances that might make them a greater risk to cover.
- Non-Cancelable - guarantees future premiums will not be increased.
- Presumptive Disability – definition of presumptive disability says that you are considered totally disabled and eligible for benefits for the loss of sight in both eyes or the loss of two limbs.
Types of policies
There are several types of disability policies; some private and some federally funded.
- Social Security
The Social Security Disability program is administered by the Social Security Administration and only individuals who have a disability and meet medical criteria may qualify for benefits under either program.
- More than 60% of the applicants who apply for benefits are declined the first time they apply and some people don’t qualify at all. Nationwide statistics provided by the SSA in 2005 stated that 52% of all SSDI applications are ultimately approved.1 Eligibility is based on criteria which Social Security puts forth to define “disability.”
- In 2008, the average monthly payment for a disabled worker was $1179. The average monthly payment for a family of a male disabled worker, young spouse and two or more children was $1755.02.
- Tax treatment: 85% of Social Security disability payments are subject to federal income tax if your income exceeds $34,000 individually or $44,000 jointly.
- Workers Compensation
Most employers are required to provide worker’s compensation. Each state has different rules and regulations for this type of insurance. Workers Compensation only pays if the disability occurs on the job, and usually pays benefits for only a few years after the injury.
- Individual Policies
For individual policies, the applicant needs to qualify and go through an underwriting process, just like they would for individual health or life insurance. Whether or not they qualify, and for how much, will be based on their occupation, medical history, or lifestyle. These things will also determine their premiums.
- Group Policies
Some states require employers to carry group disability insurance anywhere from 26 to 52 weeks.
- Group Long-term Disability (LTD)
Group LTD provides long-term benefits for at least 5 years covering about 60% of salary. The premium is usually low, does not require proof of insurability, and often is fully paid by the employer.
As independent brokers, we are not limited to any one company, so we can be objective in our search for the company that fits your needs, at the best possible price.
Please contact us to get a quote or talk to us about disability insurance!
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