Disability Insurance

It’s been said that disability causes a greater financial hardship than death for those that may be financially dependent upon you. Not only have you lost your income, but according to the definition of the disability, you still have living expenses and medical expenses. Think of it this way: each of us are like a “money machine” that produces a paycheck each payday. If that machine were to break down, it can no longer produce a paycheck. If you become disabled, the “money machine” is broken.

Why should I have disability insurance?

For most people, their biggest asset is their income. Maybe not for just one year, but think about the total income you will earn over your lifetime. For example, if you have a salary or wages of $50,000 per year, you will earn one million dollars over 20 years. What if a disability cuts off your ability to work the next 20 years? A disability insurance policy can replace a portion of that lost income. If you are the sole or major bread winner for your family, a good disability insurance policy is essential to insure you have the funds available to pay for your mortgage, cars, food, and other expenses to maintain your standard of living.

How much disability income insurance can I purchase?

Most disability income insurance policies will reimburse or indemnify up to 50-70% of your income. You may be wondering why it would not replace 100% of your income. The main reason is to prevent fraud and abuse. A lot of disabilities are not permanent, but simply temporary. Insurance companies naturally want to see the disabled person restored to health and back to their job. One might not be so motivated to return to work if their disability income was equal to that of working.

What are some of the important features and terms to be aware of with disability income insurance?

Occupation – The definition can vary greatly from policy to policy. The best definition of disability is the inability to perform “your own occupation.” Another definition would be “the inability to perform an occupation for which you are reasonably suited by education, training, or experience.”

Benefit period – This defines how long the policy will pay benefits. Short term disability policies will replace income for up to 6 months while long term disability policies will pay benefits for many years, even up to age 65.

Elimination period – This is the “waiting period” before benefits begin. Think of it as a deductible on your health or auto insurance; the higher the deductible, the lower the premium. The longer the waiting period on disability insurance, the lower the premium. That is why it is important with financial planning to have several months of income set aside to cover short periods of disability on your own. Say, for example, you have a broken leg. While this may disable you from doing your job, being able to “cover yourself” for a few months would enable you to purchase a longer elimination or waiting period. Common elimination periods on a short term disability plan will range from 0-7 days while long term disability insurance plans can have a 30, 60, 90, or even 180-day elimination period.

Residual benefits – What if you’re not totally disabled, but can do part of your job? Your earning power may not have been eliminated completely, but simply reduced because you’re not as productive. A policy with this benefit would help restore the portion of your lot wages because of a partial disability.

Guaranteed insurability option – This feature allows you to purchase additional benefits over time regardless of medical conditions that may have developed. There is not underwriting for the additional benefits. Some policies provide “automatic increases” on specific dates. Rejection of an automatic increase could cause forfeiture of additional future increases.

Rehabilitation benefits – This feature will pay benefits for rehabilitation services, such as physical therapy, so that you can get back to your job quicker. It can even provide services to “re-train” for a different occupation. Some disabilities could prevent an individual from ever returning to their normal job, but could easily be re-trained for another occupation.

Cost of living – This important feature increases your benefits over time. This is especially important for long-term disabilities. As the cost of living increases, you will need more income to live. Most people expect normal raises in their salary while working. Why not have a Virginia disability income policy that provides those raises as the cost of living increases?

Waiver of premium – This feature “waives” or “forgives” the premiums for the policy while you’re receiving benefits. While standard on most policies, it is an important feature to look for.

Can my disability insurance policy be cancelled by the insurance company?

The “renewal” provision of a Virginia disability insurance policy defines when and now a company may take these actions. Here are some of the most common renewal provisions:

  • Guaranteed renewable – This provision allows the insurer to cancel policies or raise premiums only on an entire class of people. For example, an insurance company could decide to raise premiums for everyone in the state of Virginia based on its losses. You could not be singled out for cancellation or an increase.
  • Non-cancellable – This renewal provision prevents the insurer from cancelling the policy, raising the premiums, or changing the policy benefits or options in any way. The policyholder has all the renewal rights in this type of policy.

What about Social Security?

While Social Security does provide disability benefits, they are more difficult to get and should not be relied upon solely for most people. You must be disabled for at least 6 months to apply for Social Security disability benefits. The definition of disability as it relates to “occupation” is much broader with Social Security than you will find in most personal disability income policies.

How do you prove that you’re disabled and have met the definition of disability?

  • Activities of daily living – Some insurers use the inability to perform one or more actives of daily living (ADLs) as the definition of disability. These include eating, dressing, toileting, transferring about, and generally being able to take care of yourself.
  • Physician’s statement – Some Virginia insurance companies use a letter from your doctor as evidence of disability generally with a requirement that your condition be reassessed from time to time.
  • Presumed disability – Some policies state that dismemberment (loss of a limb) or a loss of sight or hearing qualifies for proof of disability.

Where can I purchase disability insurance in Virginia?

  • Individual personal plans – These plans are purchased by individuals directly from Virginia insurance companies. The premium rates vary from company to company and are based age, gender, health conditions, and occupation class. Some of our top disability companies include Illinois Mutual, Unum Provident, Anthem Blue Cross Blue Shield of Virginia, among others.
  • Group plans – Group disability insurance can sometimes be purchased as part of a group insurance if offered by your employer. Prices may be more competitive in a group plan and underwriting of health conditions more lenient. Some group disability insurance plans, however, may not allow you to continue your coverage should leave your employer.
  • Credit disability – Usually purchased in connection with a loan whereby your loan payments would be paid by the policy should you become disabled.
  • TIP! Purchasing small disability insurance policies from several sources can be more expensive than simply buying a single disability insurance policy to cover your needs.

Summary:

Statistics show that your chances of becoming disabled are about three times greater than dying, yet a larger percentage of people purchase life insurance instead of disability income insurance. Don’t let the unexpected rob you of your life savings and the financial security of your family. Contact Us today!