Disability Insurance Policy

You've probably realized that Disability insurance is not the easiest type of insurance to understand. There are many different provisions, features and optional riders that can be used when designing your Disability insurance policy. Use the guide below as a resource for when you buy Disability insurance.

Occupation Class: Occupation classes are a basic system that insurance companies use to categorize the risk of insuring specific occupations. Each company will have their own guidelines but traditionally, less risky and higher paid professionals will have a higher number occupation class. An attorney may be categorized with an occupation class 6, where as a landscaper might be an occupation class 2. The occupation class you qualify for will have an affect on both the pricing of your coverage as well as the provisions and optional riders available.

Elimination Period: The elimination period is the number of days that must elapse before disability benefits become payable. Most companies provide the option of 30-day, 60-day, 90-day, 180-day and 365-day elimination periods. The 90-day elimination period is normally the most cost effective and also the most commonly used option.

Benefit Period: The benefit period is the period of time for which an insurance company will pay benefits for a disability claim. Once the benefit period is exhausted, benefits will terminate. Depending on the insurance company you work with, you could choose a 1-year, 2-year, 5-year, 10-year, to age 65, or to age 70 benefit period.

Monthly Benefit: The monthly benefit is the amount that the insurance company will pay you for each month of Total Disability. The benefit will begin once the elimination period has been satisfied. Most insurance companies allow a person to insure up to 60% of their income on a tax-free basis. For higher paid professionals – the higher your income, the lower the percentage of your income can be covered.

Total Premium: The premium is the amount a policyholder must pay the insurance company in order for coverage to remain effective. Most companies allow payments to be made in 4 different frequencies: monthly, quarterly, semi-annually or annually. Normally it is less expensive to pay premiums on an annual basis than any other frequency.

Cancelable Vs. Non-Cancelable: This provision of a Disability policy will determine whether or not your premiums and plan parameters are 100% guaranteed. If your policy is Non-Cancelable, the insurance company cannot cancel your policy, change your premiums, or modify the provisions of the contract until you reach age 65. On a contract that is cancelable, an insurance company can make changes, if your state insurance commissioner department approves those changes.

Guaranteed Renewable: A Guaranteed Renewable policy will allow you to renew your policy, as long as you continue to be gainfully employed and satisfy the requirements set forth by your contract.

Definition of Disability: The definition of disability will describe the circumstances in which a person is eligible for a claim. Every Disability contract will have a definition of total disability that is specific to the company who issued it. There are three commonly used definitions of total disability you should know about.

Optional Policy Riders: Policy riders are optional benefits that can be added to a disability insurance policy, which provide protection from other risks often associated with being disabled. Depending on your age, occupation and overall situation there are some policy riders that you should give serious consideration. Although every insurance company will have its own version of each rider, the concepts will remain the same amongst the various companies. You should review the most commonly used policy riders in order to familiarize yourself with what is available.

Exclusions & Limitations: The exclusions and limitations section of a policy will address specific circumstances in which benefits will either not be paid or will be paid on a limited basis. Every company will have a list of general exclusions, which are included on every policy they issue and can normally be found in a disability proposal or disability quote. The most common limitation seen in policies today is a 24-month Mental and Nervous benefit limitation. This will limit benefits to a 24-month period for all disabilities related to mental or nervous disorders.