Story at-a-glance
- A disability can stop income cold and create extra costs—yet most people don’t have a plan in place.
- Disability insurance replaces lost income when you can’t work due to illness or injury.
- Many people rely on savings or a spouse’s income, but that often isn’t enough long term.
- The right policy depends on how “disability” is defined, the benefit amount, waiting period, and optional features.
- Working with a professional advisor helps you compare options and choose coverage that fits into a smart financial plan.
Disability insurance should be one of the key components of any sound financial plan. Unfortunately, however, many Americans have not secured this vital protection to step in when illness or injury prevents them from working. The bottom line: A disabling illness or injury stops income, imposes additional costs, and prevents building a retirement nest egg.
Disability insurance replaces lost income when an individual is unable to work because of an accident or illness. Some individuals may be covered under a group disability income insurance policy through an employer or eligible for disability benefits through work, the government, or other programs. Some even may have access to additional sources of income in the event of a disability, such a spouse’s salary, savings, investments, or even help from family members.
However, this still may not be enough to pay for living expenses on a long-term basis. This is particularly true for professionals, such as physicians and others, who have high incomes. Without disability coverage as part of the financial planning puzzle, the result can be devastating, depleting the savings accumulated for a childs education or for retirement. The disabled individual who was once the breadwinner becomes the dependent.
What to look for in a disability income policy
When speaking with a professional advisor on the type of disability insurance policy that is right for an individual, there are certain key issues that should be addressed. First, be sure to find out how the term disability is defined in the policy. There are policies that provide benefits only if and when the individual cannot complete the duties of any occupation for which he or she is reasonably qualified to do based on training, experience, and education. There are other policies that will pay benefits if the individual cannot perform the major duties of his or her occupation. This will make a difference, especially for professionals such as physicians.
In addition, be sure to discuss with an advisor the features of each policy being recommended, including:
- Benefit amount
- Elimination period (which is the waiting period before the benefits kick in)
- Length of the benefit period
- Type of benefits for partial disability
- Provision for recurrent disability (a relapse)
- Cost-of-living adjustments and the ability to purchase additional coverage
Have the advisor provide an outline of the coverages recommended so that a side-by-side comparison can be made of the features for each policy proposed. Policies have different waiting periods – for example, some have 90 days, while others have six months or even longer. Most policies will not impose a second waiting period if a relapse occurs within a specific time. In addition, most individual disability income policies are non-cancellable or guaranteed renewable. With a non-cancellable policy, premiums cannot be increased. Under a guaranteed renewable policy, premiums cannot be increased based on an individual circumstance, but they can be raised for an entire class of policyholders.
A professional advisor will be able to address each of the critical features within the various policies available and the benefits of having disability income insurance as part of an overall financial planning strategy.
FAQs
Why is disability insurance important for financial planning?
Because an illness or injury could stop your income, increase your expenses, and derail your savings plan. Disability insurance protects your paycheck when you can’t work.
What does disability insurance do?
It pays you a monthly benefit to replace lost income when you’re unable to work due to a disability—whether short-term or long-term.
Isn’t group or government disability enough?
Maybe for basic needs. But for high-income earners like physicians, it often falls short. You may need individual coverage to fully protect your lifestyle and goals.
What should I look for in a disability insurance policy?
Key things include:
- How disability is defined (own-occupation vs any-occupation)
- Monthly benefit amount
- Waiting period before benefits begin
- Length of coverage
- Partial and recurrent disability coverage
- Cost-of-living adjustments (COLA)
- Option to increase coverage later
What’s the difference between non-cancellable and guaranteed renewable?
- Non-cancellable means premiums can’t go up—ever.
- Guaranteed renewable means premiums can’t rise based on your health, but the insurer can raise rates for everyone in your class.
How can I compare policies?
Ask your advisor for a side-by-side comparison showing benefits, limitations, and costs for each policy. It’s the best way to make a smart decision.
Ready to protect your future?
Get a personalized side-by-side policy comparison of the leading disability insurance companies from an independent insurance broker.
