Buying Insurance

Lesson 7: Disability Insurance

Defining "Disability" And Other Key Terms

The definition of "disability" in the policy is very important. Some disability insurance policies require that you be totally disabled before you can receive payments. Other policies will pay full benefits only for a limited time, say 90 days, unless you are or become totally disabled. Total disability is frequently defined as the loss of an eye, a limb, or such incapacity as to make any gainful employment impossible. From your point of view, you would want the policy to define disability as "the inability to perform the usual and customary duties of your occupation." In other words, if you were a highly compensated troubleshooter of compluter software programs, you would not want your insurance company to deny disability payment because you didn't go to work at a minimum wage job. Moreover, you will also want a disability policy which has a "residual disability" provision. This means the insurance company will pay you a proprotionate payment if you are unable to work at your occupation full time. In other words, if you can work only three days a week, your policy would pay you 40% of your benefit for to compensate your for the two days a week you could not work. (Buyer beware:make sure your residual benefit lasts as long as the long term portion of your policy.) You would also want your disability insurance to have a short term and long term component. If you have only short term disability insurance, then when the short term ends, so do the payments. On the other hand, if you have only long term disability insurance, payments typically will not begin until 90 or 180 days have elapsed (insurance jargon:elimination period). Insurance companies are going to assume that you have some money saved up for emergencies. So all disability insurance will have a waiting period before payments begin. The longer the waiting period you choose, the lower the cost for the insurance. For more information on other key terms in a disability insurance policy see Hungelmann, pp.276-79.

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