Many claimants who contact our offices know little about disability insurance. Some are aware that they have disability insurance and need help, while others don’t even know what kind of policies they have and just happen to find our firm while trying to figure out their next steps. Most people realize the need for disability insurance but because it’s bundled in group packages from their employer, they have never seen their actual policy and know little of their coverage rules and limitations. When the time unexpectedly comes to file a claim for benefits, disability insurance companies capitalize on this lack of knowledge and use it to place some claimants at a significant disadvantage when initially filing their claim for benefits.
However, it doesn’t have to be this way. Information is available to learn about the risks you face of becoming disabled, different types of policies and options, and how you can protect yourself and your income. Doing this homework before purchasing a disability policy will help ensure that you have an understanding when you have to file a claim for benefits while you’re disabled along with the comfort that you and your family is protected if something prevents you from earning a living or continuing in your job. This ounce of preparation will allow you to use disability insurance for its intended purpose: to reduce the risks of everyday life.
The first issue to consider is the likelihood of becoming disabled during your working life. This can depend on a number of factors such as age, medical history, lifestyle habits, and career choices. For example, a healthy 35-year old male has 38% chance of becoming disabled according to the Council for Disability Awareness. This number can go up or down depending on whether the person smokes, drinks, eats a lot of fast food, or works in a career that can be considered hazardous. Milliman Actuarial Consulting has created a great graphic (shown here) that illustrates the increasing chances of men and women white-collar workers filing a long-term disability claim during their working lives. When purchasing a disability policy, it’s vital to take a step back and honestly evaluate your chances of becoming disabled before you retire. If your chances are elevated, it’s best to purchase a disability insurance policy with sufficient benefits amounts and comprehensive coverages. For individuals with a lower chance of becoming disabled, all these bells and whistles may not be necessary nor financially responsible to buy large amounts of coverage you likely won’t need.
The next issue to consider when purchasing a disability insurance policy is pricing. Disability insurance is relatively expensive when comparing it to other types of insurance policies for similar amounts of coverage. The average group LTD policy costs $16.30 per $1,000 of coverage with a 30-day elimination period while the average individual policy costs $18.60 per $1,000 of coverage with a 90-day elimination period. Although the total cost may not seem that much more expensive, the 90-day elimination period removes most short-term conditions and diseases from the benefit period and greatly reduces the short-term benefits costs to the insurer. To put it another way, the premium is about 1% of a salary in group plans and about 3.5% in individual plans. (New York Times)
After you have considered your risks of disability and the price you’re willing to pay, it’s finally time to choose the policy that is correct for you. When visiting with a disability insurance agent or broker, you should come prepared with a list of questions that will help you make your decision. Even if you have coverage provided by your employer, these questions can help you understand the terms, conditions, and limits of your disability coverage. Here are some questions can get you started and reflect the types of questions that our firm recommends asking:
- What percentage of my income is replaced if I become disabled?
- Will commissions, bonuses, and tips be included in my benefit calculations?
- Is there a maximum payout per year?
- How long are benefits paid?
- Is the benefit subject to income taxes?
- Are there any circumstances under which the insurer may cancel the policy?
- How does being self-employed affect what the insurer needs to know about my job and work environment?
- What types of injuries and illnesses does my policy exclude?
- Are some illnesses covered for a limited period of time?
This isn’t intended to be an all-inclusive list of questions, just some of the more common ones. Many (many!) more important, specific questions should be asked that apply to your personal situation, especially if you are predisposed to certain kinds of conditions or have certain occupations. For example, if you’re afraid that you might need benefits resulting from a mental health condition, knowing the policy limits and differences for those types of conditions can be important, as they’re often more restrictive. This may change your opinion on the type of policy that’s needed.
Filing a claim for disability benefits is hard enough, there’s no reason to make it more difficult by having an insurance policy you don’t understand. Fighting the insurance company’s tactics when they’re trying to find reasons to deny your claim gets much harder if you don’t know the groundrules in your policy for the fight. Having a basic understanding of disability insurance and the vocabulary of the industry will help you enormously while you consider your disability insurance options and even more so should you need to file a claim. The insurance company will only pay on the specific promises in the policy that it has to, so there’s every reason to understand which promises are included rather than excluded before making a claim.
If you have any questions about choosing a disability policy or concerns about a policy you have already purchased, please call our offices at (855) 828-4100 or visit our website for a free consultation.