How to Choose Disability Insurance: 10 Things to Consider

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When selecting a disability insurance policy to provide coverage in case of injury or illness, numerous factors need to be evaluated. Given that many disability policies reduce benefits by the amount received from Social Security disability, additional considerations may arise in the process of choosing the right disability insurance policy.

Choosing the right disability insurance policy involves sifting through numerous options to determine what’s essential. To simplify this process, we present the top 10 considerations for selecting a disability insurance policy.

Social Security Disability Insurance is different from long or short term disability insurance offered through private means

Choosing Between an Individual Disability Policy or an Employer-Sponsored Group Policy

When contemplating disability insurance, you might have the opportunity to opt for coverage through a mutual insurance company or your employer. However, it’s important to note that group plans offered by employers are often governed by federal ERISA (Employee Retirement Income Security Act) laws, which primarily protect the insurance company, offering limited rights to you, the policyholder, in the event of a disability claim. The primary benefit of these employer-sponsored plans is their affordability, as they are often inexpensive or even provided at no cost, with the employer covering most or all of the premium.

On the other hand, purchasing a personal individual policy, though potentially more costly, grants you greater legal rights to challenge denials under state laws, including bad faith and deceptive trade practices acts. These laws generally offer better protection and recourse in disputes over disability claims. Furthermore, ensuring that your coverage includes both short-term and long-term disability benefits can provide comprehensive protection against various scenarios of disability.

When opting for individual disability insurance, the cost of premiums is influenced by various factors such as how much disability insurance, your age, health status, and profession. Policies acquired on an individual basis tend to be more costly, yet they offer value proportional to their price.

The details and extent of your coverage can significantly differ based on whether your policy is purchased individually or through your employer. It’s advisable to explore and then compare quotes from both avenues thoroughly to ensure you secure the most suitable coverage tailored to your specific needs and situation.

The best disability benefits and disability coverage comes from a disability insurance company that grants disability payments and minimizes elimination periods

Understanding the Definition of Disability for Long Term Disability Insurance

The term “disability” can have various interpretations, with most dictionaries listing over five different definitions. It’s crucial to comprehend the specific definition employed by your insurance provider, as most policies adopt a two-tiered approach to defining disability.

Initially, during claims process, the criterion for disability is often based on the insured individual’s inability to carry out the duties of their “Own Occupation,” referring to the job they were doing when they became disabled. This phase typically lasts for a predefined period, commonly 24 months, after which the definition of disability evolves to a more stringent criterion.

Following this period, the definition shifts to the “Any Occupation” standard, which is more challenging to meet. Under this standard, the insured must demonstrate an inability to perform the duties of any job, not just their previous occupation. Some policies under the “Any Occupation” standard require the individual to be incapable of earning a certain percentage of their prior salary, usually between 60 to 80 percent. It’s advised not to choose a long-term disability plan lacking this provision. Ideally, seek a policy that applies the “Any Occupation” definition throughout its term.

This nuanced approach to defining disability underscores the importance of thoroughly understanding your policy’s terms before diving into the other details.

Mutual of Omaha is one of a number of companies that offer an individual disability insurance policy

Portability of the Policy

When acquiring disability insurance through your employer, one key question to ask is whether the policy is portable. Portability means that if you leave the company, the disability insurance benefits and coverage can move with you to your next job. If a policy is non-portable, you’ll lose coverage upon leaving your current employer.

The advantage of a portable policy is the assurance of continuous coverage, regardless of your employment situation. While not many employer-provided disability insurance policies offer portability, it’s an important feature to investigate. If maintaining coverage across different jobs is a priority for you, you might want to consider securing disability insurance independently, ensuring coverage continuity no matter where your career takes you.

Long term disability coverage generally comes with an elimination period

Your Premium

The cost of premiums can vary significantly across different insurance providers. Some policies offer the option to lock in your premium rate, while others do not. Additionally, there are two main types of policy options to consider: non-cancelable policies and guaranteed renewable policies.

These options have distinct differences, so it’s crucial to select the one that best aligns with your needs. A guaranteed renewable policy ensures that you can renew your coverage without any alterations, but your premiums may be subject to change.

On the other hand, a non-cancelable policy guarantees that both your coverage terms and premium rates remain unchanged, provided you continue to pay your premiums on time. It’s also important to verify whether premiums are waived during periods of qualified disability, adding an extra layer of financial protection when you need it most.

The insurance business can help through retirement age with health insurance

Cost of Living Benefits

Most disability insurance policies do not automatically include cost of living adjustments (COLA). Incorporating this rider into your policy is a critical consideration in your decision-making process for disability insurance. Cost of living benefits are designed to offer financial stability by providing an escalating benefit amount.

When opting for cost of living benefits, it’s advisable to select a rider that increases your benefits on a compounding basis. Compound interest accumulates on both the initial principal and the interest that has been added to it. This feature ensures that your benefits adjust in line with inflation over time, preserving your purchasing power even in the event of long-term disability.

Residual Benefits

Ensuring your disability insurance policy encompasses residual benefits is essential. Residual benefits provide financial assistance if you’re only able to work in a limited capacity, helping to supplement your income. This feature is crucial for maintaining your financial stability, as it compensates for the portion of income lost due to partial disability.

However, exercise caution, as insurance providers may impose restrictions on residual benefits or modify their definition to suit their preferences. It’s important to thoroughly review and understand the specific terms and conditions related to residual benefits in your policy to ensure they offer the support you need in case of partial disability.

A well known insurance company will offer protection from serious illness and total disability

Collection Time

Paying attention to the collection time period of a disability insurance policy is crucial, as it can significantly influence your choice of a disability insurance company. Some policies allow for benefits collection to commence as early as 30 days following the filing of your disability claim.

The waiting period before benefits start can vary widely, ranging from as little as 30 days to over 700 days. This variance in benefit period makes the collection time a potentially decisive factor in selecting an insurance provider, as the length of time you’re able to wait for benefits to begin could directly impact your financial stability during a period of disability.

Self employed individuals can get a medical exam to qualify for long term or short term disability insurance

Coverage Changes

It’s important to be aware that many disability insurance policies grant the insurer the ability to modify the policy terms over the duration of your coverage. This flexibility allows disability insurance companies to increase your coverage rates at their discretion, regardless of whether your policy is up for renewal.

Furthermore, insurers may alter the terms of your insurance coverage without providing an opportunity for renewal. This potential for change underscores the necessity of thoroughly understanding the conditions under which modifications to your insurance can occur. Being informed about when and how your policy can be changed is vital to ensuring that you maintain the level of coverage you need and expect.

The benefit period and elimination period for disability claims are intertwined

Future Increase Option

The Future Increase Option (FIO) rider is a significant addition to consider for your disability insurance, particularly if you anticipate an increase in your income over time.

This rider allows you to enhance the monthly benefit of your policy in the future, irrespective of any changes in your health status. Without this rider, your policy may not adequately cover the growth in your income, leaving a potential gap in protection.

It’s important to note, however, that many insurance companies impose limits on the amount of additional coverage you can add each year under this rider. Understanding these limits is crucial to ensure that the rider meets your needs for future income protection.

Consult a financial professional to figure out what level of monthly income your disability insurance should pay out for you to get the maximum benefit

Renewability Provision

Understanding the duration and stability of your coverage is crucial, which is where the renewability provision of your disability insurance plays a key role.

With a “guaranteed renewable” policy, the insurer is obliged to continue your coverage without cancellation, despite any changes in your health or occupation that may increase your risk profile. However, it’s important to note that while the policy itself cannot be canceled, the insurer retains the right to adjust your premiums.

On the other hand, a “non-cancelable” policy not only ensures the continuity of your coverage but also secures your premium rate, preventing any future increases as long as the premiums are paid. The most comprehensive disability insurance policies offer both non-cancelability and guaranteed renewability, providing both stable coverage and predictable premium costs, safeguarding your financial protection against disability.

Choosing the Best Disability Insurance for You: Short Term Disability Insurance, or Long Term?

Choosing the best disability insurance policy is a multifaceted decision that requires careful consideration of several key factors. From understanding the nuances of policy definitions of the best disability insurance companies, assessing the portability and renewability of your coverage, to evaluating premium costs, coverage changes, and the inclusion of critical riders like cost of living adjustments, residual benefits, and future increase options. Each aspect plays a vital role in ensuring that your policy provides the protection and flexibility you need.

The right disability insurance policy is one that not only meets your current financial and occupational situation but also anticipates future changes and challenges. It should offer a balance between comprehensive coverage and affordable premiums, with terms that protect your income and lifestyle against the unforeseen. Remember, the goal is to secure a policy that gives you peace of mind, knowing that you’re well-protected against potential disabilities that could impact your ability to earn an income.


Q: What is the significance of choosing between an individual disability policy and an employer-sponsored group policy?

A: Choosing between an individual disability policy and an employer-sponsored group policy is significant because it impacts your legal rights and protections. Group policies, often governed by federal ERISA law, provide limited recourse for disputes and primarily benefit the insurer. In contrast, individual policies offer greater legal protections under state laws, more robust defense against denials, and ensure coverage for both short-term and long-term disabilities, albeit at a higher cost.

Q: Why is the definition of disability important in a disability insurance policy?

A: The definition of disability is crucial as it sets the criteria for benefit eligibility. Most policies transition from an “Own Occupation” standard to a more stringent “Any Occupation” standard over time. Understanding this definition is key to ensuring the policy meets your coverage expectations.

Q: What does portability mean in the context of disability insurance, and why is it important?

A: Portability in disability insurance refers to the ability to retain coverage after leaving a job. Its importance lies in providing continuous protection and peace of mind, regardless of employment changes.

Q: How do premium rates vary in disability insurance policies?

A: Premium rates vary based on features like the policy being non-cancelable or guaranteed renewable. Non-cancelable policies lock in coverage and premium rates, while guaranteed renewable policies ensure coverage continuation but may allow for premium adjustments.

Q: What are cost of living benefits in disability insurance, and why might you want them?

A: Cost of living benefits adjust benefits in line with inflation, preserving purchasing power during long-term disability. These benefits, particularly those that compound, offer financial stability over time.

Q: What are residual benefits in a disability insurance policy?

A: Residual benefits offer financial support if you’re only able to work partially due to disability, supplementing reduced income and maintaining financial stability.

Q: How does the collection time affect the choice of a disability insurance provider?

A: Collection time, the period before benefits start, is a key consideration as it affects when you can access benefits after becoming disabled, impacting your financial stability.

Q: Why is the future increase option important in disability insurance?

A: The future increase option allows for monthly benefit increases irrespective of health changes, ensuring coverage keeps pace with potential income increases and protects future earnings.

Q: What’s the difference between non-cancelable and guaranteed renewable policies?

A: Non-cancelable policies ensure fixed premiums and unchanged coverage, while guaranteed renewable policies allow for coverage continuation with potential premium adjustments. Combining both features offers the best stability and predictability in coverage.

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