Disability insurance policies provide coverage for lost income from an accident or sickness which results in partial or total disability and an inability to work. The loss of income from a permanent disability could represent a multi-million dollar risk when you consider an individual’s earnings potential over a lifetime. Disability insurance is medically underwritten and takes into consideration morbidity risk as opposed to exposure to mortality risk, a premature death. The major diseases that caused death in prior generations are now the major causes of disability because of the advances in medicine which prevents death at the expense of greater numbers who are disabled.
Disability insurance can be obtained on an individual or employer sponsored group basis. The disability policies available are limited by the persons’ occupation. Professionals and higher income occupations can obtain coverage at lower premium rates with more favorable benefit options because the duties and tasks of their employment is not considered physically demanding and hazardous. Skilled labor and blue-collar occupations are considered more hazardous and labor-intensive which results in more costly premiums with limited benefit options. Employer sponsored group disability programs are more prevalent type of disability insurance for the more hazardous and labor-intensive occupations.
Disability benefits from a group policy are tax free and individual policy benefits are tax free if premiums are not deducted on their tax returns. Group disability plans are considered short-term or long-term policies with different underwriting standards and guaranteed benefit issue amounts because of the risk exposure to the insurance company. Individual policies have a more favorable policy definition of “disability” that qualifies for a benefit. An individual disability insurance application undergoes stringent medical underwriting because of the more favorable definition of disability and the greater benefit limit amounts available through insurance companies. In order for an insured with a group disability policy to qualify for a benefit they must be unable to perform the substantial and material duties of any occupation. The individual disability insured must be unable to perform the material and substantial duties of their own occupation at the time of the application. The individual disability policy allows an insured the ability to insure the income from their specialized occupation which is an important distinction. Disability insurance policy features that are available with an individual policy include:
- Guaranteed Renewable Premium;
- COLA Benefits;
- Job Portability;
- Own Occupation Definition; and
- Higher Income Benefits.
A financial advisor will help you understand what your financial exposure is a potentially catastrophic loss from a disability. You will understand what disability insurance options that are available based on your age, gender, health and occupation.
