Disability Coverage Policies Can Make Good Sense.

Disability Coverage Policies Can Make Good Sense.  We insure our house, our car, and our life.  What about our ability to earn an income?

 Disability Insurance Polices are a frequently misunderstood protection commodity.  The possibility of a short term incapacitation rendering you unable to work for some period of time during your working lifetime is about one in four.  Pick four friends, four family members, four fellow workers, and the statistical probability is that one of the four are going to suffer some type of disabling period.  The chance of fire on your home may be one in 10,000, an accident in your car, 1 in 300, but the chance of disability is one in four.  The risk associated with a short term inability to work, say one to four weeks is not worth insuring.  You probably have some sick days allowance, some savings, and a fall back cache of wealth to take care of a couple of months.  The big risk is long term in nature.  What about that risk?

In its most basic form, disability insurance is acquired to replace some portion of income that you are incapable of earning during a brief or extended period of incapacitation.  What is covered, when it becomes covered, what is paid, for what period all impact the type and cost of the policy you buy.

 There are two kinds of disability coverage:  Specific occupational coverage, and general occupational coverage.  Think of it this way.  Specific occupational coverage states that you are covered or insured if you cannot perform your specific occupational pursuit.  So if I am a dentist, and I suffer an accident or sickness that leaves an arm paralyzed, I am disabled from my specific occupation, and therefore the company pays me a percentage of my compensation for the period of disability.  General occupational coverage only pays if you can do no work whatsoever.  So back to our illustration.  If I am the disabled dentist, but I can get a job collecting tolls in a highway toll booth or a city parking lot, the general occupational policy will not pay me, because I am capable of getting some type of employment.  Minimum wage does not replace a Dentist's practice income.

 Additionally, some policies require that you be completely and totally disabled before receiving any benefits.  The test can be very demanding, and often, any mobility, or even partial use will invalidate a claim.  Remember, an insurance company does not go into the business of insuring claims to pay claims but to make money.  Therefore, with the history of fraud specific to disability claims, often the feature of television news programs, insurance companies will want to be sure you are actually disabled before they send you a check. 

What will the policy pay?  It is possible to buy a policy that actually pays 100% of your lost professional income, but it is cost prohibitive.  Generally, policies that pay 50-70% of your lost income are more affordable, and therefore much more practical.  Some expenses go up if a person is disabled, but other expenses may be significantly reduced as a result of the disability.

 Are there other sources of assistance?  There is a limited coverage available through Social Security, and other coverage is available through State sponsored plans.  The best planning takes into account all resources, and maintains a safety net.

 How do you save money on disability coverage and have peace of mind?  Self insurance through the first six months or year is a sure way to cut your premiums dramatically.  In that most disabilities of a temporary nature are over within six to nine months, by extending the "deductible" period to not cover the first six months of a disability, you have released the insurance company from first dollar coverage, and therefore significantly lowered your expense.  If you possibly can, take a year deductible, get at least sixty percent of your professional income, and you can have a policy in place that addresses the ultimate risk of a disabling experience:  The cost of a lost lifetime of income. 

Talk to your agent or to your employer's agent about the mix of time deductibles and benefits to come up with a plan to insure this risk without sacrificing your financial health to obtain this important coverage.

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