For Individuals

Your income is your most valuable asset. Protecting your income allows you to continue to enjoy what it pays for - your home, your cars, your food, college and vacations - from now until the day you retire. Individual disability income insurance is the protection you need to help you maintain your lifestyle and protect your family's future if you should become too sick or hurt to work.

For Business Owners

If you are a business owner, the potential of a disability poses a triple threat:

• Keeping a roof over you and your family's heads - How long could the business continue to pay your personal salary? Individual Disability Income Insurance could help.
• Keeping your business' doors open - How will you cover your business expenses if you aren't there to bring in income? Overhead Expense Insurance could help. Keeping your investment intact - How will you get the funds to purchase a disabled co-owner's interest if he or she should become disabled? Disability Buy-Out Insurance could help.
• If you have employees, could they afford to live without a paycheck? If you provide group long-term disability insurance, it provides a great foundation for employees' income protection. However, the benefits are typically 60% of earned income before taxes. Additional coverage may be necessary to provide complete protection. In addition, when just three or more individuals with a common employer* obtain disability income insurance, all may be eligible to receive a premium discount - including you!

If becoming disabled may seem unlikely, the odds may surprise you. Nearly 1 in 5 Americans will become disabled for 1 year or more before the age of 65.

The other thing to keep in mind is that an accident or illness that keeps you out of work for a period of time can be very costly. That's because people who become disabled not only need to continue providing for loved ones, but for themselves as well. A disabling injury or illness could lead to medical bills, modifications to your car or home, or other unforeseen needs that can be quite expensive. For all these reasons, almost anyone who works ­ whether they're single, married, with children or without ­ should consider disability income insurance.

Assessing Your Needs for Individual Disability Income Insurance

Some employers provide group disability income insurance as a benefit of employment. If you are covered by a group disability income insurance policy, you should review it to see if the coverage meets your needs. Group policies may only cover short-term disabilities up to 6 months or they may include long-term coverage but at a small percentage of your normal income. If this is the case, you may wish to purchase additional coverage on your own to supplement the group coverage and to extend the benefit period when the group coverage expires. If you cannot obtain disability income insurance through an employer or another group, or if that insurance is not adequate to meet your needs, you may want to consider buying an individual disability income insurance policy.

If you are self-employed or have no group benefits, you should consider how your income would be affected in the event of illness or injury. Most people do not have enough money in savings to sustain them through a loss of income for an extended period of time. If this is your situation, you may want to consider purchasing individual disability income insurance.

The Cost of Individual Disability Income Insurance

Many factors contribute to disability insurance premiums, including: your age, gender, occupation, health status and the amount of potential lost income you are trying to protect. In general, the less dangerous your occupation, the lower the premium will be. If the policy is issued on a "Guaranteed Renewable" or a "Non-cancelable" basis, the premium may be affected.

The length of the elimination and benefit periods you choose will also affect your premium. The longer the elimination period, the lower the premiums will be. If you have enough resources to cover your expenses for 60 or 90 days, rather than the typical 30-day period, your premium will be lower. The longer the benefit period, the higher the premiums will be. If you select a maximum benefit period to age 65 rather than for five years, the premium will be higher. Any optional benefits you select will increase your premium.

Disability Income Insurance Policy Features

Disability income insurance is not intended to fully replace your income. If that were the case, there would be little or no incentive to return to work. Rather, the benefit should be sufficient to financially sustain you during your disability. The following policy provisions will impact the disability benefits you receive:

Amount of Benefit -The insurance company will review your income history to determine the disability income benefit they will offer you. The benefit may be a stated dollar amount or it may be a percentage of your income (typically 50 to 70%).

Definition of Total Disability -To receive benefits under a disability income insurance policy, you must meet the definition of total disability as defined in the policy. Most companies define total disability in two stages. At the beginning of the disability, you are considered totally disabled if your disability prevents you from performing the essential duties of your own occupation. However, at the end of a specified period (usually one or two years) you are considered totally disabled only if you are unable to perform any job suitable for your education, training and experience. Each policy is different and you should check the definition of total disability within a policy before buying it. You should also determine whether the policy pays benefits for disabilities resulting from both accidental injury and illness. An accident-only policy may not be adequate to meet your needs.

Elimination or waiting period - The policy will specify the number of days you must be disabled before qualifying for benefits under your disability income insurance policy. Waiting periods may be anywhere from 30 to 365 days.

Benefit period - The policy will specify the length of time you will receive monthly benefits. Benefit periods can range from 1 year, 2 years or 5 years up to age 65 as defined by the contract.

Optional Benefits and Features

Many disability income policies offer supplemental or optional benefits that you can purchase:

Cost of living adjustment (COLA) - Increases your disability benefits over time based on a flat percentage or on the increased cost of living measured by the Consumer Price Index.

Increase in Benefit - Grants you the right to purchase additional coverage to increase the disability income benefit amount provided under the policy in the event your earnings increase between the time you buy the policy and the time you become disabled.

Return of Premium - Requires the insurance company to refund a portion of your premiums if no claims are made for a specific period of time stated in the policy.

Partial Disability Rider - Allows you to return to work part-time and receive partial benefits if you are not ready to return to work on a full-time basis due to your disability. This benefit is a flat amount specified by the policy and is sometimes offered as a standard benefit within the policy.

Residual Disability Rider - Similar to the partial disability rider in that it can also be offered if you are unable to return to work on a full-time basis. A residual benefit can also be paid if you return to work full-time but your income is not fully restored. For example, if you are a physician and you return to work full-time but your practice has suffered due to your absence, the residual benefit will pay because you have lost income as a result of the disability. The residual benefit is a percentage of the full disability benefit.

Waiver of premium provision - Allows you to stop paying the premium for the policy if you are disabled longer than a specific period of time, usually 90 days.

Additionally, you should look for one of the following optional protections in an individual income disability policy:

• Non-cancelable - The policy cannot be canceled by the insurance company, except for nonpayment of premiums. You can renew the policy every year without an increase in premium or reduction in benefits;
• Guaranteed renewable - The policy cannot be canceled by the company, except for nonpayment of premiums, and you have the right to renew it with the same benefits. However, the insurance company has the right to increase your premiums as long as it does so for all policyholders in the same rating class as you.

Glossary of Terms Used In Disability Income Insurance Policies

Benefit Period: The period of time for which benefits will be paid after satisfying the elimination or waiting period.

Cost of Living Adjustment: An optional benefit that increases the disability income benefit amount being paid to the disabled insured in accordance with a percentage increase in the cost of living.

Earned Income: Income that will cease when you become disabled. Income from rental property, investments or savings is not considered earned income. Individual disability income policies usually specifically define earned income that is being insured.

Elimination or Waiting Period: The period of time (usually a specified number of days) that must pass from the onset of the disabling condition before benefits will be paid.

Guaranteed Renewable: The policy cannot be terminated, except for nonpayment of premium, and benefits cannot be reduced but the premiums may increase.

Non-Cancelable: The policy cannot be terminated, except for nonpayment of premium, and the premium and benefits remain the same.

Partial Disability: A disability that prevents you from performing some of the duties of your own occupation or from performing your occupation on a full-time basis.

Partial Disability Benefit: A flat benefit paid when you suffer a partial disability. Usually paid for a short period of time, typically 6 months.

Pre-existing Conditions - Typically, a policy will not pay for a pre-existing condition for the first 12 months of coverage. If you have a severe or chronic health condition, the insurance company may exclude benefits permanently for that condition or they may refuse to sell you the policy.

Residual Disability: A disability that prevents you from performing some of the duties of your own occupation or from performing your occupation on a full-time basis (same as partial disability). A residual disability can also take place when you return to work full-time but you suffer loss of income because your business or practice has suffered as a result of your absence. This is a common benefit offered for self-employed professionals such as physicians, dentists, lawyers, and accountants.

Residual Disability Benefit: A benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.

Return to Work (RTW): The date when a disabled person returns to the workforce. This date is typically used as the official end of the disability.