What are the important features to have on a long-term disability policy?
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We've recommended below key features a good-value disability policy should have. These recommendations are based on our extensive research and lean toward more comprehensive coverage so you're covered when you need it most.
Good-value disability policies should always have:
"Own occupation" definition: How a disability is defined in relation to your occupation is one of the most important features of a disability policy. An "own occupation" policy defines a disability as the inability to work at your regular occupation, even if you still might be able to work at another occupation. For example, a surgeon with hand tremors who takes a job as a medical school lecturer would be eligible for LTD benefits under an "own occupation" policy because he can't perform the duties of his own occupation (surgery). The other option is an "any occupation" policy - to qualify as disabled under this policy, you must be unable to work at any occupation. This is a harder policy for claiming benefits, but it's also usually less expensive than an "own occupation" policy. Bottom line - if you can afford the added cost of an "own occupation" policy, that's probably what you want to get.
Non-cancelable coverage: This feature is a rate guarantee and ensures the carrier can never raise rates on the policy or cancel it (unless you stop paying premiums). This is particularly important for younger buyers who want to lock in a low rate on their policy.
Residual benefits: Under a residual benefits disability provision (either in the policy or available by rider), you'll receive partial benefits if your illness or injury has reduced your income but you're still able to work. For example, if you're only able to work part-time hours, a residual benefit will make up for the income loss.
Other features to consider:
Cost of Living Adjustment (COLA): Individual disability income policies generally offer a cost of living rider that will increase benefits for inflation during a long-term claim.
Future increase option: The future increase option guarantees your right to purchase additional coverage up to a stated age without having to undergo medical underwriting again (as long as your increased income qualifies for more coverage under the company's issue limits).This option is a good idea if you're a younger buyer and foresee salary growth in your future that you'd want to protect.
Guaranteed renewable option: This renewability feature is a notch below the non-cancelable feature we discussed above. "Guaranteed renewable" means an insurer can never change or cancel a policy as long as you keep paying the premiums. However, it does not have a rate guarantee.
Unemployment waiver of premium: With this rider, the premium on your disability policy would be waived in the event you lose your job - meaning you could keep your policy in force even if you couldn't afford to pay the premium while temporarily unemployed.
Catastrophic disability benefit: If you experience a disability that results in: 1) your inability to carry out two or more activities of daily living (e.g., bathing and dressing yourself), 2) cognitive impairment, or 3) total and permanent loss of sight in both eyes, hearing in both ears, or other specified disabilities, this additional rider may cover up to 100% of your previous income from all sources.
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