Disability income insurance replaces part of your income if you get sick or hurt and can't work. Typical policies replace 50%-70% of your pre-tax earnings. To get a quick overview, check out the video below:
If you're thinking about getting a disability policy, the first step is comparison shopping. When you shop, there are four main criteria you'll want to use: (1) how each policy defines a disability, (2) the base and optional features each policy offers, (3) the cost of each policy, and (4) the insurers' financial strength and claims practices. Let's take a closer look at each one.
(1) How does the policy define disability?
In the insurance world, 'disability' is defined in several different ways. Some policies only pay benefits if you're completely disabled, while others will still pay if you can return to work part-time. Some will only pay out if you can't work in any occupation, while others will pay benefits if you can't work in your own occupation. Also, do you want only want coverage for catastrophic illnesses or injuries...or do you want to be covered if your illness/injury recurs later in life? Based on your medical history and your educated guesses about possible future medical problems, you'll have to decide what definition of disability you want in a policy.
(2) What are the policy's features?
Disability policies offer a range of base and optional features. Is the policy you're considering guaranteed renewable? How long is the waiting period before you can begin collecting benefits? Is the coverage short- or long-term? What optional benefits can you add? For example, can you add a cost-of-living rider to adjust the benefits as inflation rises? Does the policy offer special provisions (e.g., for rehabilitation coverage) or exclusions (e.g., for pre-existing conditions)? If you're not sure how to answer these questions, don't worry! That's what I'm here for. I can help you sort through all the options to find the policy that best meets your needs.
(3) How much does it cost?
Once you've decided what features you want, compare the costs of a few equivalent policies. How do they compare? Is one a better value for the price? Can you find explanations for price disparities? Are there ways to reduce the monthly payments? Again, I'm here to help you answer these questions.
(4) What is the insurer's rating?
Finally, examine each insurer's rating. How do they rank in terms of financial strength and their claims-paying record? If you were disabled, when would you be able to get your first check? What percentage of policy owners terminate their policies after the first year? All these questions tell you how well an insurer serves its clients. This is important, because if you ever get sick or hurt, you could be one of those clients!