FAQs for Disability Insurance

1. How much coverage may I qualify for?
Answer: You can typically be approved for about 60% of your taxable earned income. However, that is not always the case. The more you make, the less percentage is available.
2. Does this include all of my sources of income, such as bonus or commission?
Answer: When you apply for an individual plan, usually bonus and commission can be used toward your annual income.
3. What will determine whether or not I’m disabled?
Answer: While there are several factors, one of the most important provision of any policy is the definition of Total Disability. The definition varies from one policy to the next. Generally, most disability contracts require that you are under the care of a physician and the care provided must be appropriate according to prevailing medical standards.
4. How long will benefits be payable?
Answer: A policy’s benefit period refers to the maximum length of time your policy will pay benefits once you become eligible. Insurance carriers off all different benefit periods. They can be as short as a 2 years, 5 years, 10 years, to age 65/67, and even some offer benefit periods to age 70.
5. Could my policy be changed, cancelled, or my premium increased?
Answer: Disability insurance policies are typically either:
  • Guaranteed Renewable (GR), or
  • Both Non-cancellable and Guaranteed Renewable
With Guaranteed Renewable the premiums can be increased at a later time. Rates are typically cheaper but may actually cost more in the future due to premium hikes. This means the insurance company cannot cancel your policy, as long as premiums are paid on time, but the rates can change. Policies that are both Non-cancellable and Guaranteed may not be increased. Rates are locked in for the entire policy term. That is the strength of a good individual plan. You own the policy as long as you continue to make premium payments.
6. What is the definition of “total disability? Does it allow me to work in another occupation?
Answer: This all depends on the definition of “total disability”. There are different definitions available. Here is a quick breakdown:
  • True Own-Occupation – deems you are disabilited if you are unable to perform the material and substantial duties of your occupation. If you decide to work in another occupation, your benefits will continue to be paid as long as you remain disabled under the policy definition.
  • Modified “Own-Occupation – deems you are disabled if you are unable to perform the material and substantial duties of your occupation. And, many state that if you do work in another occupation you are not totally disabled but may qualify for residual disability benefits (if available) if you choose to work in another occupation. Basically, your monthly benefits may be reduced by income received in your new occupation.
Make sure you understand the language in your policy when it comes to the definition of total disability.
7. What are my chances of becoming disabled?
Answer: Higher than you probably think. You can ignore the problem, but it's hard to ignore the facts:

  • Just over 1 in 4 of today's 20 year-olds will become disabled before they retire.
  • Accidents are NOT usually the culprit. Back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences.
8. Are my benefits taxable?
Answer: You should discuss this with your CPA. Usually individual plans are paid with after tax dollars. If this is the case, your monthly benefit is tax-free. If you are planning on paying the premiums through a business of any other way make sure to consult your CPA.
9. Can I cancel my policy at any point?
Answer: You, as a policy holder can cancel your policy at any point without penalty.
10. When do my benefits begin? Do I have to be out of work for a specific number of days?
Answer: That depends on your Elimination Period. This is the amount of time you need to be disabled before you receive any monetary benefits. You select the Elimination Period. The frame can be from as short as 40 days and as long as 360. The majority seems to be 90 days. Rule of thumb:
  • the shorter the Elimination Period, the more expensive the premium
  • the longer the Elimination Period, the lower the premium.
Anything less than 90 days is going to be significantly more expensive.
11. If I move from one state to another, can I keep my policy?
Answer: Yes, an individual plan can move from state to state.