As an independent insurance agent, James E. Tharp works with you to get a competitive price on the policy that best fits you. The differences in policies and options are difficult to navigate without a strong advocate like Tharp Insurance on your side.
Below are just some of the things to know about disability insurance. Call us today, an independent agent like Jim Tharp can get you a policy that meets your specific needs.
Not all individual disability income insurance policies are alike. Consider these features when comparing policies:
- Some policies pay benefits if you are unable to perform the duties of any occupation for which you are reasonably qualified by training, experience, and education. Other policies pay benefits if you are unable to perform the major duties of your own occupation. Many policies combine these features, providing “own occupation” coverage for an initial period, such as one or two years, and “any occupation” coverage after that. Some policies also pay benefits if you become ill or injured and are unable to earn a specified amount, such as 80 percent or less, of your income.
- The amount of income you would receive when disabled varies by policy. However, benefits from all sources are usually limited to 70-80 percent of your monthly salary. Policies that pay 50-60 percent of salary are most common. Most policies do not replace commission or bonus income.
- If you purchase your own policy, your disability benefits typically are not subject to income taxes. Benefits are taxed, however, if your employer pays for the disability insurance coverage.
- Policies have either level premiums (intended to stay constant over the life of the policy) or premiums that increase as you age. If you plan to keep your policy in force long-term, a level premium policy may be appropriate. If you are uncertain about how long you will need the insurance, a policy with premiums that
increase with age may be the better choice.
- Policies have different waiting periods (called elimination periods) before you begin receiving benefits. You can lower the premiums you pay by waiting 90 days, six months, or even longer before starting to receive benefits.
- If you go back to work after recovering from a disability and suffer a relapse within a specific period of time, such as six months, most policies do not impose a second waiting period.
- The length of time that benefits can be received varies by policy. Some individual policies pay benefits for a specified period of time, such as two or five years, while others pay benefits until age 65 or your retirement age under Social Security.
- Some policies require total disability before payment begins, while other policies cover partial disability.
- Some policies pay “residual” benefits. These benefits make up for any loss of income if you are still able to work but your disability keeps you from performing all of your normal responsibilities.
- Under some policies, the insurer pays for job training or other assistance you may need to return to work, such as modifications to your work environment.
- Some policies offer cost-of-living adjustments in the amount paid to the insured as an optional benefit.
- Most individual policies are either noncancellable or guaranteed renewable. With a noncancellable policy, premiums can never be increased. Under a guaranteed renewable policy, premiums cannot be raised based on an individual’s circumstances, but they can be increased for an entire class of policyholders. A guaranteed renewable policy may define how a class is determined for example, all policyholders in a state who own the same type of policy might constitute one class. Ask about the circumstances under which premiums can be raised and how classes are defined.
- Most companies review an individual’s medical and financial history and consider any other disability coverage that person has before issuing a policy. Based on this information, an insurer may offer limited or modified coverage.
Factors Influencing Cost
A number of factors determine the cost of an individual disability income policy, including:
- Age Younger persons pay less per year for a policy than those who are older and more likely to become disabled.
- Benefit amount Policies that replace more of an individual’s salary are more expensive. A policy that replaces 80 percent of your salary costs more than one that replaces only 60 percent of your salary.
- Benefit period The shorter the benefit period, the less expensive the policy. For example, a policy with a two-year benefit period costs less than a policy that pays benefits to age 65, or the retirement age specified under Social Security.
- Current health status Your health status determines whether you are eligible for standard rates or rates that are higher. A policy also may exclude from coverage any health conditions that exist before the policy is issued.
- Definition of disability A policy that pays benefits if you are unable to perform the duties of your own occupation is more expensive than a policy that pays benefits if you are unable to perform the duties of any job for which you are reasonably qualified.
- Discounts Many companies offer discounts for policies issued at the same time on more than one person, as well as when an employer (or association) collects the premiums for individual policies from employees and pays the insurer.
- Extent of disability A policy that pays benefits only if the policyholder is totally and permanently disabled costs less than a policy that also pays benefits for a partial or temporary disability.
- Gender Women usually pay more than men for an individual policy because claim costs are higher for women than men. Under a group policy, however, men and women typically pay the same rate.
- Optional benefits For an extra premium, some policies offer additional benefits, such as cost-of-living increases or the option to purchase higher benefits in the future.
- Smoker/tobacco use Most companies either give a discount to non-tobacco users or add a surcharge to the premium for tobacco use.
- Type of job Expect to pay more for a policy that covers a high-risk occupation compared to a low-risk line of work.
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