Things to know about disability coverage
Think you might need disability insurance? Most people would be wise to buy it, experts say. But there are vast differences in what policies cover and their cost. The trick is to cover the biggest risks at a price you can afford. Here are the key elements to consider.
Definition of disability
Some policies pay benefits if you can’t return to the exact occupation that you had before. Others will pay only if you can’t do any job “for which you are reasonably qualified.” Some pay only if you’ve been disabled by an accident, not by illness. Some policies have several tests to determine whether you are disabled according to the policy.
The wider the definition of disability, the higher the premiums are likely to be. On the other hand, a policy that requires many tests to qualify may be worth little or nothing.
Benefit limits
Wage replacement ratio: This is the percentage of your working wages that a policy will pay, usually 50% to 80% -- not 100%.
Duration: Some policies limit how long payouts can last to a fixed period such as two years or five years. Others will pay until you qualify for retirement benefits.
Dollar limits: Some policies cap the dollar amount of benefits that can be paid per month or over the life of the policy.
Waiting periods
Most policies won’t pay until after a fixed period of time passes from when you become disabled, usually 90 days to a year.
Bells and whistles
Experts recommend policies that are either “non-cancelable” or “guaranteed renewable,” which means you can keep your coverage even if you file a claim or your health deteriorates. Generally these terms also mean the premium will be relatively stable.
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