In previous posts, we’ve looked at two types of disability income insurance – traditional and residual – and looked at some of the key differences between them. Now we’ll take a look at some of the key similarities.
For Tax Purposes
All premiums paid on individual disability insurance are not tax-deductible since disability insurance is not medical. But, any benefits received from disability insurance are tax-free and not considered income for your IRS Form 1040. For a group plan, an employer can deduct premiums paid as a business expense. The value of the coverage on behalf of employees is not taxable income, but any benefits paid to employees are considered income and are taxable. Either way – on the front end, or the back end, the money is taxable.
Injury and Sickness Benefits
Usually shorter or no elimination period. An illness may have an elimination period (EP) of a week to a year, while the EP for an accidental disability could be from zero to a few days.
Exclusions: War, military service, attempted suicide, being an aircraft pilot, or committing a felony act, are all common reasons for denying a disability claim.
D.I.-Specific Mandatory Provisions:
- Change of occupation – premium or benefits could be changed if the insured changes to a more or less risky profession
- Average earnings clause – prevents over insurance by reducing benefits based on current average monthly income
- Relapse provision – if same or similar disability recurs within six months of returning to work, the relapse can be considered part of the original disability.
Optional Provisions:
Presumptive disability: loss of speech, hearing or limbs
- Transplant and cosmetic surgery – benefits pay out if the insured donates an organ, for example
- Rehabilitation benefit – benefits pay out while disabled but undertaking vocational training
- Cost of living benefit – benefit payouts adjust for inflation and cost of living changes
- Future increase option – benefits increase with certain life changes (marriage, birth, birthday, etc.).
For more information about the two types of disability insurance and which type would be best for your needs, please contact a helpful professional at www.DoctorDisability.com.