You should be familiar with certain features of individual disability insurance policies before you decide which policy to purchase. This is one of four articles that explain the concepts that will help you make a decision. This article discusses definitions of disability. Other articles in the series deal with disability insurance benefit payments, disability insurance benefit payments coverage and inflation protection and non-cancelable versus guaranteed renewable policies.
If, once you have done your analysis, you conclude that you need to purchase additional individual disability income insurance, you need some idea of what to look for in that type of policy. This is the first of four articles that will help you with that process. Here are some of the things you need to know as you go about your search for the right insurance policy.
Definition of Disability
This is important. The definitions of disability used in insurance policies differ, even within the same company. Some policies consider you disabled and pay benefits if you are unable to perform the duties of your regular occupation. For example, if you are a radio talk show host and you contract esophageal cancer that prohibits you from speaking, you are eligible for benefits. Some policies use a different definition and pay only if you can engage in no gainful employment at all. For example, if that talk show host can no longer be a talk show host but does have the ability to produce radio shows, he would not be eligible for benefits because he can engage in a gainful occupation, just not the one he was engaged in when he became disabled. So, you do need to know the definition of disability in any insurance policy you are considering.
Residual Benefits
This is an interesting feature and a standard benefit in some policies. If you are able to work but your income is reduced because you cannot fulfill all of your job responsibilities, residual benefits help to make up the difference in your income. A residual benefit allows a partial payment based on the percentage of your loss of income. In some policies, you do not need to be totally disabled to qualify for residual benefits. The feature can be added as a rider if not part of the policy. Newer policies offer many variations on this idea.
Extent of Disability
Some policies require that you be totally disabled before residual payments begin. Partial disability is sometimes covered for a limited period of time, but usually only if it follows a period of total disability from the same cause. You may be able to find policies that do not require you to be totally disabled before partial, or “residual,” disability payments would be made. This is a variable and you will need to decide how important it is. This liberal benefit may add to the cost of the policy.
Presumptive Disability
Under some policies you may be presumed to be totally disabled--even if you can still perform some or all of your regular job duties. If so, under specified conditions, you are entitled to full benefits. These presumptive total disability conditions may include such things as loss of sight, speech, hearing or use of limbs. In such cases, the elimination period is generally waived.
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