We have all hear that most Americans are one paycheck away from living on the streets. As a result, becoming disabled is one of the greatest risks that face most working Americans. Yet most Americans do not purchase disability insurance. This is probably because most American workers do not fully understand what disability insurance is or how to evaluate disability insurance policies. This article will briefly address both issues.Disability insurance is a policy that replaces a portion of a worker’s earned income when the worker is unable to work because of injury or sickness. The benefit paid is a fraction of the worker’s income prior to the injury or sickness. Occupational injuries and illness are generally not covered.

Here are some important factors to consider in comparing disability insurance policies: Some disability policies require the worker to be totally disabled for the benefits to be paid. For some policies, disability is defined as the workers “own occupation” and disability is defined in other policies as “any occupation.” It is more difficult to claim benefits under “any occupation” policies because conceivably there are jobs that even the most disabled person could do (just think about Steven Hawkins, who is able to very successfully carry on an occupation despite his physical limitations). Other policies have a combined definition of disabled, where after a period of time the worker will be considered totally disabled if they cannot return to their “own occupation.”

Other policies also impose an earnings test. This type of test specifies that a person is not disabled unless their earned income drops by a certain percentage.

Almost all policies have some disabilities that will automatically qualify the worker for benefits, such as loss of one of the five senses and loss of both hands, feet, or a combination of hand and foot.

Disability policies generally cover partial disability as well. In those cases the policies specify that the benefits are to be reduced and are to be paid out for a shorter period of time.

Disability insurance policies are written with a maximum benefit amount and benefit period. That amount is typically no more than 75% of the worker’s earnings. The benefit period is set out in the policy. These periods can be until a specific age (e.g., 65 or 67), for a number of years (e.g., 10 or 20 years), or for life. Generally, professionals qualify for longer benefit periods than laborers.

Many disability insurance policies impose a waiting period, which is a period of time after a disability where benefits will not be paid. These periods are usually 30, 60 or 90 days.

Policies may also contain waiver-of-premium provisions. These provisions specify that workers do not have to continue to pay premium payments after they become disabled or a period of time after they become disabled.

Many policies allow the worker to add certain riders or extra terms. For example, workers can often add guaranteed insurability riders, cost-of-living adjustment riders and even Social Security riders.

Given the risk associated with becoming disabled, most Americans should talk to their financial advisors and their employers about obtaining disability insurance coverage.

By: Robert Klein
Klein & Klien Insurance Consultants
1811 Santa Fe
Houston, Texas 77703