These definitions will not only help you make an informed decision about the disability insurance coverage you need but also to get the most use out of your policy.
Disability insurance protects you from the financial risk of losing your income when you become disabled and can’t work. That’s the gist of it, but understanding disability insurance can be confusing if you aren’t familiar with all its components.
For example, what does a disability insurance policy actually cover? How does the coverage translate into benefits when you become sick or injured? What goes into the costs you pay to get that coverage? Your disability insurance policy answers all these questions, but if you’ve never encountered the language used in your policy you might find it difficult to parse.
The following disability insurance definitions are common words and phrases you’ll find while shopping for a policy. Knowing them will not only help you make an informed decision about the disability insurance coverage you need but also to get the most use out of a policy you already have.
When you purchase disability insurance, your insurer may make a distinction between any-occupation and own-occupation coverage. You may get to pay lower rates for any-occupation coverage, but that’s because it’s harder to qualify for benefits if you get disabled. Under own-occupation disability insurance, you need only show that you can’t work at your current or most recent occupation anymore to start receiving benefits.
Under any-occupation coverage, however, if you can work another job besides your regular one, you aren’t considered disabled enough to receive benefits. That could mean having to take a job with fewer or less strenuous responsibilities, often at a significant pay cut.
Learn more about any-occupation insurance here.
When you apply for disability insurance (and life insurance), you’ll go through a process called underwriting. During underwriting, the insurer will confirm all the details about your health to make sure you were telling the truth when you applied for coverage. Sometimes, the disability insurance company will request an attending physician’s statement, or APS, from your doctor that lays out all the information the doctor has about your health.
Learn more about the attending physician’s statement here.
Disability insurance works by paying you disability insurance benefits that are meant to replace the income you would’ve had if you could still work. Occasionally, in exchange for a higher premium, the disability insurance company will raise your benefits. The automatic increase benefit is usually offered as a rider, and you have the option to accept the increase or not.
Learn more about the automatic increase benefit here.
Coverage under disability insurance is measured by the amount of benefits you receive when you become disabled and can’t work. Benefits are paid monthly, similar to a paycheck, and you choose the amount of the benefits when you take out the policy. You’ll receive benefits for the entire benefits period, which with a long-term disability insurance policy could be anywhere from five years to retirement, or until you recover from your disability.
Your benefit amount is one of the most important factors in determining your premium, and it should be enough to coverage between 60% to 80% of your pre-tax income before you became disabled. Benefits are not usually taxed, unless you pay for your policy with pre-tax dollars or you have a group insurance policy paid in part by your employer.
Disability insurance companies offer benefits in other ways too, such as a rehabilitation benefit, which go toward the cost of your recovery.
Learn more about benefits here.
The benefit period is the time during which you receive benefits. You choose how long you want your benefits period to last when you take out your policy. Because the carrier will only have to pay benefits during the specified benefits period, it will offer you a lower premium in return for a shorter time. The benefits period ends when you recover from your disability.
Learn more about the benefits period here.
In order to start receiving benefits, you need to file a claim with your disability insurance company after you become disabled. The claim will include a claim form on which you will thoroughly describe the nature of your disability, including when it began and what kind of treatment you’ve been receiving for it. You should file the claim as soon as possible, as you’ll have to wait out an elimination period.
Learn more about claims here.
When you file a claim, you’ll submit a claim form that contains all the information the disability insurance company needs to confirm your eligibility to receive disability insurance benefits. The claim form will have a section for you to fill out as well as sections for your employer, if applicable, and your doctor. Having these extra sections helps the disability insurance company make a determination about whether you meet its definition of disability, which states how disabled you need to be to receive benefits.
Learn more about filing a claim here.
Learn more about the cost-of-living rider here.
Coverage is what your policy offers you when you become disabled under its definition of disability. Essentially, it’s what you pay for when you take out a policy. This includes not only benefits but also services like rehabilitation or a provision to receive benefits when caring for somebody else. What’s covered and what’s not will be outlined in your policy.
Learn more about coverage here.
In order to receive disability insurance benefits, you need to meet the carrier’s definition of disability. There may be several definitions of disability spelled out in your policy, like total disability, partial disability, and catastrophic disability. Each describes a level of severity that needs to be reached in a given disability before you become eligible for benefits under the respective definition, and what percentage of the total benefit amount you can receive under that definition and for how long.
Under some definitions of disability, such as presumptive disability, you may not be subject to an elimination period.
Learn more about the definition of disability here.
The elimination period, also known as the waiting period, is the length of time you need to wait after you become disabled to start receiving benefits from the disability insurance company. The elimination period, under disability insurance, usually ranges from between 30 days to 365 days, although under short-term disability insurance the elimination period may be only a few weeks.
The elimination period begins on the date you become disabled, not the date you file a claim. Once the claim is successfully processed, you need only wait out the remaining days. Waiting periods help the insurer keep its costs low as if you recover during that time you become ineligible for benefits. For that reason, choosing a policy with a shorter elimination period could result in higher premiums.
Learn more about the elimination period here.
An exclusion is a condition or activity in your disability insurance policy for which you will not receive disability insurance benefits should you become disabled due to that condition or activity. Pre-existing conditions are a common exclusion, but not all pre-existing conditions are excluded. Other types of exclusions include risky hobbies or lifestyle choices, such as smoking.
Learn more about exclusions here.
The future purchase option, also called a future increase option, is a provision of disability insurance that allows you, up to a certain age, to increase your coverage even if your health has declined since taking out the policy. While you’ll have to pay higher premiums, you won’t have to take another medical exam.
Learn more about the future purchase option here.
Group disability insurance is an insurance policy you receive from your employer. Because it’s offered to a large group of people – your fellow employees – you’ll be offered a discounted rate, which may even be wholly or partially subsidized by the company. However, employer-sponsored disability insurance may offer lower coverage than a private disability insurance policy, and if you leave your job you’ll lose that coverage.
Learn more about group disability insurance here.
Most disability insurance policies are guaranteed-renewable policies, which means that the insurance company won’t cancel the policy or change its terms, such as the benefit amount, as long as you continue paying your premiums.
It’s easy to confuse the guaranteed-renewable provision with the non-cancelable provision. The latter enhances the guaranteed-renewable provision by prohibiting the insurance company from raising premiums.
Learn more about the guaranteed-renewable option here.
Long-term disability insurance (LTDI) is a type of disability insurance policy that lasts for many years. When you take out the policy, you pay premiums in return for coverage and if you become so disabled that you can’t work and lose your income, you’ll receive benefits that are paid out every month for a (benefits period)(#benefits-period) that could last until you retire.
Like other kinds of disability insurance, LTDI doesn’t cover excluded conditions or activities, and your higher coverage needs will result in a higher premium. You’ll have to meet your disability insurance company’s definition of disability, but your benefits should replace between 60% and 80% of your income. Many people get long-term disability insurance as part of an employee-benefits package, but you can get an individual plan as well with higher benefit amounts and a longer benefits period.
Learn more about the long-term disability insurance here.
An important part of the disability insurance underwriting process is taking a medical exam. The medical exam confirms to the carrier the information about your health that you gave when you initially applied. It may also uncover new conditions which could affect your eligibility for coverage, render a higher premium than you were originally quoted, or cause those conditions to be excluded from coverage.
Learn more about the medical exam here.
A non-cancelable policy is one in which the disability insurance company can’t raise your premiums as long as you keep paying them. It may be included as part of your policy, or it may need to be added as a rider, sometimes at an additional cost. The non-cancelable provision works in tandem with the guaranteed-renewable provision, which states that your policy can’t be changed or altered as long as you’ve been paying your premiums.
Learn more about the non-cancelable option here.
Overinsurance is when you purchase more coverage than you need. Most people only need benefits that equal about 60% to 80% of their pre-tax income, which roughly aligns with their take-home pay. If you sign up for more coverage than that, you’ll pay much higher premiums. Because of the risk of your policy lapsing, your carrier will make sure you’re not overinsured.
Learn more about overinsurance here.
Own-occupation coverage, also known as regular-occupation coverage, is part of the definition of disability that describes what kind of work you must be too injured or ill to perform to be eligible for disability insurance benefits. Under an own-occupation policy, you only need to be too disabled to do your current or most recent occupation; if you can still do a type of less physically demanding work, you may be eligible for benefits.
That’s in contrast to an any-occupation policy, which means you have to be too disabled to do any kind of work in order to receive benefits. Own-occupation policies may cost more because it’s more likely that the carrier will have to pay out.
Learn more about own-occupation coverage here.
Your disability insurance coverage is described in the policy, which is a document that thoroughly spells out the various definitions of disability, the conditions under which you can receive benefits, the exclusions unique to your coverage, and details such as the premium, benefit amount, and the benefits period.
Your policy functions as an agreement between you and the disability insurance company, and its terms, if followed correctly, are binding. Additional coverage may be added in a rider.
Learn more about policies here.
A pre-existing condition is any kind of medical issue that you had before taking out the disability insurance policy, from conditions as minor as anxiety to as severe as cancer. Many pre-existing conditions are excluded from coverage, meaning that you won’t receive benefits if your disability is caused by the one. However, depending on your disability insurance carrier, some pre-existing conditions may be covered, albeit with a higher premium.
Learn more about pre-existing conditions here.
The premium is the monthly or annual amount you pay to keep you (policy)(#policy) in force. The rate is calculated as a factor of your pre-existing conditions; your coverage needs, including benefit amount; and the benefits period. If you choose a more lenient [definition of disability](#definition-of-disability], such as own-occupation coverage your rate may also be higher. You should expect to pay between 1% and 3% of your income in premiums.
Learn more about premiums here.
The reconsideration period is a part of some exclusion riders that lets you ask the disability insurance company to consider removing the exclusion from your policy, thus letting you receive coverage due to a disability caused by an excluded condition. If the reconsideration period is offered, you may be eligible for it within a few months or years of taking out the policy, and you’ll need to show that the condition is resolved and not getting worse.
Learn more about the reconsideration period here.
A rider is a provision of additional terms to your policy that enhances the coverage in the policy. Some riders are included automatically, but others must be requested and can increase your premium. In disability insurance, a rider may attach additional conditions under which you can become eligible to receive benefits or increase your coverage amounts to meet different needs that may arise.
Learn more about riders here.
Short-term disability insurance (STDI) is like long-term disability insurance except that its benefits period lasts for a much shorter time. While long-term disability insurance is meant to provide coverage for years or even until retirement, short-term disability insurance only lasts for a few months and almost never more than a year. However, STDI also has a much shorter elimination period.
Learn more about short-term disability insurance here.
Simplified issue is a type of underwriting where your premiums are determined without you undergoing a medical exam. With a simplified-issue policy, you can get coverage must faster because you may not be asked for an attending physician’s statement or even your medical records. However, the benefit amount may be smaller than a more traditional disability insurance policy, and you may be ineligible beyond a certain age or with certain coverage needs.
Learn more about simplified issue here.
For people who become disabled but can’t afford a private disability insurance policy, Social Security disability insurance (SSDI) may be an option. The government pays Social Security benefits to people who become disabled much like a long-term disability insurance policy, but the Social Security administration’s definition of disability is much more strict than a typical disability insurance plan, and the large majority of applicants are rejected. Additionally, SSDI benefits are much smaller than those offered by private plans.
Learn more about Social Security disability insurance here.
A survivor benefit is a feature of some disability insurance policies in which the carrier will pay your designated beneficiary a small benefit if you die while receiving disability insurance benefits. The survivor benefit is usually equivalent to a few months’ worth of your usual coverage, so it may not be enough to cover any of the beneficiary’s expenses you were paying while alive. For that, you should look into a life insurance policy.
Learn more about the survivor benefit here.
The opposite of overinsurance is underinsurance, where you get less coverage than you need. Sometimes you may understate your coverage needs because it may result in a lower premium, but it could come back to haunt you if you become disabled and need to replace your income with disability insurance benefits. You should aim to purchase coverage that replaces between 60% and 80% of your pre-tax income.
Learn more about the underinsurance here.
Underwriting is the point during your application process when the disability insurance company will determine your actual premium rate. Up to then, you only had an estimated quote, but during underwriting the carrier will take a look at your medical records, the results of your medical exam, and your finances, including tax returns, bank statements, or paystubs.
By weighing your risk and what you can afford against your coverage needs, the disability insurance company will use a formula to calculate what you’ll need to pay in premiums. Some people may be able to expedite the underwriting process by purchasing a simplified-issue policy instead.
Learn more about underwriting here.
Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.
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