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Do I really need disability insurance?
If you need your income to pay for housing, food, and other expenses, and have no other means to support yourself if an illness or injury kept you out of work for over 90 days, you are a good candidate for disability insurance.
When is the right time to purchase disability insurance?
Right now is the best time to buy a policy. Disability insurance costs increases with age. If you’re in good health, you should easily qualify for a policy — and can lock in better rates at this age. However, if your health declines, you may no longer be insurable at an affordable premium
How much coverage should I have?
You should have enough to cover your living expenses (rent/mortgage, groceries, utilities, etc.). For most people, benefits equal to 60% of their pre-tax salary is recommended.
I have group disability insurance through my employer so do I also need an individual disability insurance policy?
Maybe not — you should check the amount of coverage you have and the terms of your policy. But you might still consider purchasing an individual disability insurance policy for a number of reasons:
If you switch jobs, you probably won’t be able to take your LTD coverage with you. Depending on your age and health, it could be difficult to obtain new LTD insurance if your new employer doesn’t offer it or you plan on being self-employed.
Your coverage through work might not be enough. If your employer pays the premium, then any benefits you receive are taxed. This could leave you with an income “gap” if you’re out of work with a long-term injury or illness.
Many group policies have caps on coverage, so employees with higher salaries could be underinsured. There are supplemental disability policies you can purchase to close that income gap.
What benefit amount should I get?
The benefit amount is based on a percentage of your current income. Typically this will be in the 60% range of gross (pre-tax) monthly salary. But remember that if you buy your own policy (with after tax dollars), your benefits will not be taxed. So a 60% coverage benefit could be pretty close to your current monthly take-home pay.
What is the elimination (waiting) period?
It’s the amount of time you have to wait from the first day you get ill or injured to when you start receiving benefits. Disability policies can carry elimination periods of 30, 60, 90, 180 or 365 days. Generally, the longer the elimination period, the lower your premiums will be. But keep in mind a few important things:
Most policies are designed to be most cost-effective with at least a 90-day waiting period.
Individual LTD policies usually pay at the end of each month, so if you have a 90-day elimination period, you will not receive your first claim check until the 120th day.
You should look at your financial situation to determine how long you can be without an income to decide what elimination period is best for you.
What is the benefit period?
It’s the length of time for which you’re eligible to receive monthly benefits while you have an illness or injury that keeps you out of work. Policies commonly pay for two, five, or 10 years or up to retirement age. The longer the benefit period, the higher the cost will be. A five-year benefit period would cover the average duration of long-term disabilities across age groups. But depending on your age and health, a policy that covers you to age 65 (i.e., pays for a permanent disability) and gives you extra peace of mind might not cost that much more.
What features should I have on my disability policy?
We’ve recommended key features a good-value disability policy should have below. 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 coverage: 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 they can’t perform the duties of their own occupation.
Non-cancelable coverage: This feature is a rate guarantee and ensures the insurer 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 until retirement.
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: As long as your increased income qualifies for more coverage under the company’s issue limits, the future increase option guarantees your right to purchase additional coverage up to a stated age without having to undergo medical underwriting again.
Guaranteed renewable option: This renewability feature is a notch below the non-cancelable feature we discussed above. It 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, if you were to lose your job, the premium on your disability policy would be waived.
Catastrophic disability benefit: If you experience a disability that results in: your inability to carry out two or more activities of daily living (e.g., bathing and dressing yourself), cognitive impairment, or 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
Does my benefit coordinate with government benefits (such as workers' compensation or Social Security)?
It depends on the policy. Some disability policies pay out the full benefit regardless of whether you qualify for workers' compensation or Social Security Disability. Other policies will require you to apply for government benefits for which you might be eligible and will offset the benefit payment by the amount you receive from government aid.
Choosing an insurance provider
Are insurance companies rated for quality?
There are various rating agencies that are independent and assign ratings to insurance companies based on an in-depth study of their operations and financial stability. Some of the more widely known agencies are A.M. Best, Standard & Poor’s, Fitch, and Moody’s. The rating is typically assigned in the form of letters, e.g., AAA or A+. Each company’s website will have a link to its ratings from these agencies. Financially sound companies are an important factor in choosing an insurance company.
Where can I find out which insurers are better at paying claims?
This is a difficult area to compare insurers on an “apples-to-apples” basis, since it depends on each insurer’s pool of customers, underwriting criteria, claims experience and other factors. We recommend checking with your state’s department of insurance for the complaint record of a particular company you are considering. In addition, you can search the National Association of Insurance Commissioners website for complaint records against specific insurers.
How do I compare policies from different companies?
Every policy is different, which makes it very difficult to compare them side by side. The most important thing is to look for and understand important terms. Read the policy language and definitions carefully, as they vary greatly from company to company (e.g., what is the definition of own-occupation and how do they value residual disability benefits?
Also, make sure you consult with an advisor you trust. At Policygenius all the policies we recommend have been pre-screened and translated so our clients are clear in terms of what is covered and what isn’t.
Application & claims
How much will disability coverage cost?
You should expect to pay between 1% to 3% of your annual salary (women can expect a slightly higher range of 2% to 4%). These percentages are a rough estimate, based on selection of certain benefits and options. Most important is that your advisor understands your unique situation and ensures that the disability policy recommendation takes that into account.
How long will it take to get a policy issued?
The length of time for the issue of a policy will vary depending on the number and nature of additional requirements for that particular case. Companies may wish to acquire medical records for previous medical issues and sometimes this process can take many weeks. Generally, you can expect a disability policy to be issued within five to six weeks.
Should I purchase disability insurance through my association?
You should definitely look at coverage through your association — which is often less expensive than buying on your own because the insurer is offering a group rate. However, you should compare the coverage offered by your association with individual policies offered by reputable disability insurance companies. Then, select the policy that offers the best coverage for your situation.
If I use Policygenius to apply for LTD insurance will my personal information be safe and confidential?
At Policygenius we appreciate the sensitive nature of the financial, medical and occupational information required for a disability insurance application. We comply with all privacy and consumer protection laws and employ the strictest safeguards for your information.
Will I need to take a medical exam? For an individual disability policy, you will probably have to submit some medical information and take a medical exam as part of the underwriting process. This exam is paid for by the insurance company and scheduled at your convenience. Usually, the exam involves basic measurements (of height, weight, pulse, and blood pressure) and may also require blood and urine samples for analysis.
If tests or exams are required, who will pay for them?
The insurance company to which you’re applying for a policy will pay the entire cost and arrange for any tests to be done.
What if I have a health problem?
In some cases, coverage may still be issued. However, depending on the health issue, the coverage may be modified or a particular condition excluded from coverage, or an extra premium may be charged because of adverse health history.
If I am issued a modified policy, can it be reviewed later?
In some instances, yes, depending on your health history. Regardless of any exclusions, we recommend having coverage for any other potential disabilities
Why do I have to provide proof of income?
Just as banks require income verification for mortgages and other loans, insurers will need to verify your income for disability insurance, which makes sense because coverage is tied to your income and the insurer is taking on the risk of paying that income should you become disabled. Usually, you’ll need to submit proof of income through tax returns, W2s and/or pay stubs
What exclusions are in my policy?
Exclusions in disability policies are those situations or events under which the policy will not pay a claim. Policy exclusions are usually few in number. Most often the exclusions apply to disabilities arising as a result of a crime, self-inflicted injuries, war or military action, or pre-existing conditions. Be sure to check any insurance proposal for these exclusions so you are fully informed as to what is not covered.
Do I have to pay more if I purchase a disability policy through a broker?
No. Prices for disability policies are fixed by law and filed with state regulators. That means buying a policy through an independent broker will not cost you more than if you purchased directly from the insurer. An independent broker like Policygenius can give you recommendations from a number of insurers so that you can compare policies, features, and price and make an informed decision
When does my disability policy go into effect?
Assuming you are approved by underwriting, your policy will be delivered to you. It goes into effect upon receipt and after you’ve paid the first premium.
After I buy, what are the reasons my premium can go up?
If don’t have a non-cancelable policy your premiums can increase as you get older. This is because the risk of a disability increases with age and thus the cost to insure you increases. We advise younger purchasers of disability to get a non-cancelable policy to lock in their rate. If you have a future increase option on your policy, you will be able to purchase more coverage when your income increases. But this increased coverage will come with a higher premium since you’re now insuring for a higher benefit payout.
If you do not have a non-cancelable policy, then insurance companies in some instances may increase the premiums for all their members. This is due to the change in the underlying risk of the insured group, which has resulted in higher payouts than premiums they are taking in. But raising rates requires regulatory approval (meaning the insurer can’t do this arbitrarily or on a specific person).
How difficult is it to make a disability claim?
Insurance companies will require you to provide proof of your disability, typically by filling out a claims form and submitting a statement from your doctor and copies of any relevant medical tests. Depending on the insurer and the type of claim, the claims process may be quite involved and take anywhere from a couple weeks to a few months. For major or more complex claims, there are disability attorneys and claims consultants who can advise and guide through the claims process (for a fee).
What happens if I'm laid off or change my job?
If you have bought an individual long-term disability policy this will be portable and you can keep it regardless of employment status. With some individual policies you can also purchase an unemployment waiver of premium that will cover your premiums for a defined period of time while you’re unemployed.
If you own a group long-term disability policy, this is probably not portable. You would need to apply for a new policy either at your next employer or individually, if your new employer does not offer a group plan.
Can’t I just file a claim for Social Security Disability Insurance (SSDI) benefits if I’m unable to work because of injury or illness?
If you have a long-term disability you can (and should) apply for SSDI benefits. But to qualify for SSDI, you have to be unable to do any occupation (not just the occupation you had before your disability that you may have specially trained or were educated for) and have been totally disabled for at least five months.
Also be aware that nearly 65% of initial SSDI claims applications are denied. And, if you successfully appeal the denial, it could take up to two years to start receiving benefits. If approved, the average monthly benefit paid by SSDI is around $1,000 a month. Consider whether you could wait that long and live on that amount if you had a long-term injury or illness that kept you out of work.
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