Comparing disability insurance quotes takes more than just comparing premiums. You have to dig in and read the contracts. We outlined below some of the more important disability insurance contract provisions.
Disability means different things to different carriers. They are also different among policies and contracts. Whether you will receive benefits depends directly on how your carrier defines disability for your policy.
There are three common definitions of total disability:
Own Occupation: With own occupation, you are considered totally disabled if you cannot perform the material and substantial duties of your own occupation, even if you can be gainfully employed outside of your own occupation.
Modified Own Occupation: With modified own occupation, you are considered totally disabled if you cannot perform the material and substantial duties of your own occupation, and you cannot be gainfully employed outside of your own occupation.
Any Occupation: With any occupation, you are considered totally disabled if you cannot perform the duties of any occupation.
Partial (or Residual) Disability
Residual disability is an industry jargon for partial disability. It's typically added as a rider to an individual disability policy. Unlike total disability, you are partially disabled when you cannot perform some of your duties. Most carriers will consider you partially disabled if your loss of income is at least 20%. Interestingly, some carriers will pay 50% benefit for the first six months even if the income loss is less than 50%.
Conversely, a loss of income from partial disability above a certain percentage will be considered total disability and you will receive 100% of benefit. It varies from company to company, but typically, a residual benefit rider considers income loss of 80% or more to be total disability and will pay 100% of claim.
Recovery and Transition Benefits
Even if you recover from disability, it might take many months or years before your income recovers to the pre-disability levels. You may have lost your clients or patients, and it might take a while before you build up your client base and revenue. The recovery benefit allows you to buy time by paying you benefits during your income recovery period. Some carriers limit the time of benefit while other pay indefinitely up to the end of the benefit period.
Just like health and auto insurance have deductibles, disability insurance has elimination period. Instead of dollar amounts you have to foot out of pocket, you have to wait for some period of time before you can start receiving benefits. For example, you must be disabled for 90 days before your benefit kicks in.
Some contracts require consecutive days of disability. Such contract keep resetting the clock for the elimination period if you return to work after a short-term disability but not long enough to satisfy the full elimination period.
Other contacts allow you to add up intermittent disability days within a preset period of time toward the elimination period. For example, a contract might consider you satisfied its elimination period as long as you were disabled for a total of 90 days out of 180 days, even if those 90 days were not consecutive 90 days--10 days here and 15 days there until finally, your doctor tells you that you are too sick to work. Clearly, this is a more favorable contract.
Maximum Benefit Period
Maximum benefit period is the maximum time (or age) of disability benefits. Although there is a wide range of maximum benefit periods--from a few years to lifetime--the most common benefit period is to age 65. However, with people living longer, age 67 and 70 are becoming more common.
Cost Of Living Adjustment (COLA)
With COLA, your disability benefit amount (after you are disabled) keeps up with inflation. Younger policyholders should consider adding this rider because of the longer duration of their working years.
Automatic Increase Option
While COLA helps benefit to keep up with inflation (after you are disabled), automatic increase option helps your coverage amount to keep up with inflation (before you are disabled).
Future Increase Option
Your income can—and often does—increase much faster than inflation. In this case, you can add the future increase option rider. This rider allows you to buy a certain amount of additional coverage without additional underwriting.
Mental And Nervous Limitation
While most policies limit mental-, nervous- or substance abuse-related disability benefits to two years, there are a few companies that do not, especially for a certain group of professionals such as physicians.
Elliott Bay Insurance