Broker Check

Personal Disability

There are a number of criteria (independent of any specific company) that may be used to evaluate a disability policy. Here are four ways to judge:

1. Renewability Provisions

2. Definition of Disability

3. Residual Disability Benefits

4. Optional Benefits

Renewability Provisions:

The renewability provision is one of the key features of any individual disability income policy. The reason? This provision defines your rights when it comes to keeping your disability income protection in force.

In general, a disability contract may be guaranteed renewable only or both non-cancelable and guaranteed renewable.

If a policy is guaranteed renewable only, the insurance company agrees to keep renewing the contract for as long as premiums continue to be paid on a timely basis. While the insurer cannot change the provisions of the policy, it can increase premiums by state, occupation class, policy form or other categories with prior notification.

When the term “non-cancellable” is added to guaranteed renewable, the insurance company cannot change any policy provisions and it cannot increase the premiums. As long as premiums are paid on a timely basis – and assuming that all underwriting information is truthful and accurate – the insurer cannot cancel the contract. A non-cancellable, guaranteed renewable policy obviously provides the greatest degree of protection and therefore is the best for you to own.

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Definition of Total Disability:

True Own-Occupation
A typical True Own-Occupation policy might contain language such as: Because of sickness or injury you are not able to perform the material and substantial duties of your occupation. Your occupation means the regular occupation in which you are engaged at the time you become disabled. You will be totally disabled, even if you are at work in some other capacity, so long as you are not able to work in your occupation.

Modified Own-Occupation
A typical modified Own-Occupation policy might contain language such as: You are considered totally disabled if you are unable to perform the material and substantial duties of your own occupation and are not at work in any occupation.

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Residual Disability Benefits:

Disability isn`t always “total.” You may suffer a partial (or residual) disability that limits your ability to work and results in decreased income – or an initial total disability may be followed by an extended period of residual disability.

Residual disability benefits typically allow you to collect a portion of your benefit in proportion to your loss of income due to sickness or injury.

It is very important to understand how the residual feature works in a disability policies. In order to collect benefits on a residual claim, some policies require that you must first be totally disabled for the entire elimination period. Other contracts allow for you to be only partially disabled during the elimination period and still be able to collect a residual benefit after satisfying the elimination period.

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Optional Benefits:

The following are some items you should consider when buying a disability income insurance policy so you enhance your coverage to meet your specific situation:

Cost of Living Adjustment Rider (COLA)

This benefit is designed to help deal with the effects of inflation during a long-term claim. It is adjusted annually by a percentage and formula specified in the contract.
This benefit is not necessarily protection against increases in the cost of living.

Future Increase Options (FIO)

As you move along in your career, your income likely will increase. As such, the amount of disability income insurance you could qualify for today may very well be less than what you could qualify for in the future. The FIO option allows you to increase your coverage as your income increases without having to undergo any additional medical underwriting. Something to pay close attention to when evaluating your purchase of disability income insurance is when you can exercise your options. Some contracts may only allow you to exercise options once every two years, while others may allow you to exercise options every year.

Restrictions and limitations apply. While medical information is not required when exercising a future increase option, applications to exercise an increase option will be financially underwritten taking into consideration both the applicant’s then current income, as well as all disability insurance which is then in force, or for which the insured has applied or is eligible to receive.

Benefit Period:

Under many policies this term refers to the period of time for which total disability benefits are payable if you are entitled to benefits and remain disabled. Some benefit period options are 2-years, 5-years, to Age 65, 67 or 70. Some offer a graded lifetime benefit and some will offer a lump some benefit at the end of your policy contract.

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