Best Disability Insurance Guide
This article is focused on private individual disability insurance, which is essentially income replacement insurance. The two main areas of focus for anyone looking for their own individual disability insurance policy will be short term disability insurance and long term disability insurance. Let’s first cover some basic definitions to paint a clearer picture.
Short term disability insurance definition: disability insurance that kicks in immediately upon a qualifying total or partial disability due to an accident or sickness so you can have an income stream while you wait for your employer based coverage. Similarly, if you’re self employed, it provides temporary income while your wait for the elimination period to pass on your long term disability insurance.
Short term disability policies are usually renewable to age 65 or 67, and conditionally renewable to age 75. There is also an age requirement where you have to be a minimum of 18 years of age with a cut off of 60 or 61 years of age.
Short-term disability insurance can be tailored to have different elimination periods. Typically, the elimination period for accident is zero days. The elimination period for sickness is 7 days or longer, normally up to 90 days, with some carriers offering up to 180 days for both accident and sickness in order to get you the lowest rates on short-term disability insurance.
The amount of income paid through short-term disability insurance depends on a factor based on your current income. Typically, the most you can get is around 50-60% of your current income. And since you are not going to be taxed on individual disability insurance income, you don’t need 100% of your current income, making 60% a good number to keep you out of bankruptcy.
The duration of the short-term disability income payments, known as the benefit period, generally ranges from 3 months to 12 months, with some people opting for the longer offerings of 18 and 24 months.
Long term disability insurance definition: insurance policy that provides disability income paid out after the elimination period if you suffer a disability and can no longer work.
The maximum benefit available is based on your current income. Once again, since you disability income benefit is not taxed, consider 50-60% of your current income as a good rule of thumb when determining how much short or long term disability insurance you need.
The elimination period for long-term disability insurance ranges from 60, 90 and 180 days, up to as much as 365/730 days. The longer the elimination period, the more affordable the long-term disability insurance premiums will be. Longer elimination periods are a good choice if you want to save on your disability income premiums.
When an elimination period ends, you are then eligible for your income benefit. However, be aware that it starts in an additional 30 days. Your elimination waiting period ends, then benefits start the following month. Therefore, a 90 day elimination period requires actually 120 days before you begin your benefit period and start receiving your income benefit.
Longer elimination periods can be buffered when they coincide with other insurances such as workers comp, state disability or other short term disability policies. For example, you may want to combine a 1 year short term disability policy with a long term disability policy with a 1 year elimination period.
The benefit period on long term disability insurance can be 2 years, 5 years, 10 years or to age 65 or to age 67. Existing coverage can last until age 75 conditionally, although premiums increase noticeably after age 67.
Top 20 Best Disability Insurance Companies
The following providers are our picks for the best disability insurance companies in the marketplace. The carriers are listed in alphabetical order and make up companies providing individual disability insurance and group disability insurance.
|Company||A.M. Best Rating|
|Fidelity Security Life||A-|
|Mutual of Omaha||A+|
|Principle Financial Group||A+|
The Best Disability Insurance Company
Currently, there are a handful of top carriers that offer private disability insurance policy. Each company has its pros and cons, so there is no way to know who the “best” disability insurance company will be.
In similar fashion to how various life insurance companies cater to different health and lifestyle niches, disability income insurers have occupation classes that may range widely from one carrier to the next.
For example, company A may offer a lower disability insurance premium for a mechanic, than at company B. Alternatively, the company B may offer a dentist a better disability insurance rate than company A. That is why it is important to shop around for the best disability insurance rates.
Mutual of Omaha
Right now we want to give you an idea how a disability insurance product works “under the hood,” so we’re going to be using a particular policy from one of the many companies we represent, Mutual of Omaha.
As always, we recommend finding the right solution for you and this policy and company has been chosen just to gain insight, although we do believe it is a solid option for both short-term and long-term disability insurance. But a little due diligence and choosing the right agency can help you get the best short-term and long-term disability insurance quotes available.
Priority Income Protection
Named ‘Priority Income Protection,’ the policy is simple with no riders and no medical examination. It is available for a period of one, two, or three years, the elimination period is just 30 days for an accident but three times this amount for sickness. Once confirmed, the policy will pay 70% of your earnings as a benefit each month with a limit of $2,000 per month.
With Policy Income Protection, the policy will be renewable until 65 years of age, you need to be between 18 and 61 to get started, your income needs to be at least $15,000, and a pharmaceutical report will be required when setting the policy up to determine if you have any existing illnesses. There is also a 50% partial disability benefit available of for up to six months.
Disability Insurance Premiums
With the basics laid out, you can see this is a good policy and one that offers standard benefits and structure similar to most others you’ll find. Concerning the all-important disability insurance rates, these will completely depend on whether you choose the one, two, or three-year policy as well as your age at the time of issue.
- One-Year – With this first option, those between the ages of 18 and 24 will pay a little under $14 per month while this steadily increases with age to $42 for those between 55 and 61.
- Two-Year – Between 18 and 24, premiums will start at just over $18 before then increasing a few dollars each time. While those between 40 and 44 can expect to pay $34 per month, this increases to $69 for the oldest age group.
- Three-Year – Finally, the youngest age group can pay premiums as little as $21 per month, and this increases to $70 for those between 50 and 54 before then finally reaching $90.
Disability Insurance Riders
There are several disability income insurance riders. Below are a few of the more common options:
Own Occupation Rider: extends the own occupation total disability definition from two years to a longer specified period.
Non-Cancelable Rider: Non-cancelable means the disability insurance premiums remain fixed for the duration of the policy.
Residual Disability Benefit Rider: If you have a residual disability and cannot make more than 80% of your income, this rider will pay you a percentage of your disability benefit.
Waiver of Premium: If you are disabled, and after the elimination period, the company will pay your premiums for the coverage and any additional attached policy riders.
Terminal Illness Benefit: If you are diagnosed terminally ill, you can get up to 12 months of your disability benefit at once.
Future Insurabilty Option: You can add additional coverage down the road without evidence of insurability.
Critical Illness Benefits rider: Pays a lump sum benefit if you are diagnosed with a qualifying critical illness.
Cost of Living Adjustment rider: increases existing benefits 4-5% a year while disabled.
If you lie on your application, and the carrier finds out, good luck trying to get anything out of them.
Also, if you have a pre-exisitng condition and the disability is due to that pre-existing condition, you won’t receive any benefits, unless the policy has been in force for 12 or 24 months. Check your policy under “pre-existing conditions” for more. The policy will list any of your pre-existing conditions as exclusions for future benefits. For example, applicant had a back injury in the past. So your back is likely excluded for a potential future disability claim.
Also, if your disability occurs due to a pregnancy or child birth, the company may not pay if the disability occurs in the first 10 months of the policy from the effective date of coverage.
You also can’t intentionally harm yourself and you can’t be under the influence of drugs or alcohol when the disability occurs.
There are more exclusions but those should give you a good idea of what to look for and consider when taking out a policy.
When looking for either short-term disability insurance or long-term disability insurance, you need to read the fine print. Don’t just take an agent or company’s word for it. At TermLife2Go, we can pair you up with an agent that will help explain your policy to you, to make sure you “get it” enough to feel comfortable signing on the dotted line.
What is Disability Insurance?
With some insurance companies boasting 125 years of experience in the industry and others offering 20 years but bringing fresh ideas to the table, it’s fair to say the life insurance niche is in a healthy position right now. As a result, we have more specialized products available and one that has grown in recent years has been disability insurance. With different insurers offering different products, it’s now easy to find one that matches your needs.
Often called ‘disability income insurance’ this is a policy that will pay out whenever disability forces you away from work due to illness or injury. When people are forced to leave their job for awhile, this can create a difficult situation at home because income cuts in half for couples, or maybe income is gone altogether. If there are children involved, bills can’t get paid, and it becomes a struggle even to buy food.
Disability insurance has been designed to replace income should a qualifying injury or sickness occur. Although policies won’t always replace the full income, they can allow you to recuperate around 50-60%, which is usually enough to continue paying bills while maintaining the same standard of living.
When you apply for disability insurance, the insurance provider will run a background check. One database they check is the MIB Medical Information Bureau, which accomplishes two important goals. One, it allows the insurer to determine if there is a potential of the applicant being over-insured due to other disability policies in existence. And two, if helps the insurer determine the applicant’s health status.
Along with life insurance, we have a topic that everybody likes to avoid because it involves considering our death or disability in the future. If you don’t have insurance in place, you risk crippling the financial future of your family, and we’ve seen it happen time and time again.
Types of Disability Insurance
There are two main types of policy on the market. On the one hand, we have private disability insurance, where an individual or company will search the market and invest in the best policy for their needs. Although the most common, you’ll also find government insurance where the state or federal government provides coverage.
Individual Disability Insurance
In the past, we’ve reviewed dozens of insurance companies, and these all offer private insurance to everybody across the US. Within this niche, you’ll come across specialized group policies, standard group policies, individual policies, group association policies, and many different riders that allow you to mold the policy to your needs.
Compared to group insurance, the benefits with private coverage will typically be more extensive, and this is because we’re more likely to invest a little more in our own policy. Over the years, we’ve come to learn that individual policies have the most benefits which are then followed by group policies.
Group Disability Insurance
Anytime you can share the cost burden with a large amount of people rather than just going it alone you will save money. However, if you are a high income earner or a key person employee, having your own private disability insurance policy is the best route to take for total peace of mind.
Government Disability Insurance
Social Security Disability Insurance, i.e. SSDI, is perhaps the biggest example of government disability insurance, but there’s also Workers’ Compensation and many other forms of disability insurance. In some areas, disability insurance programs are mandatory for every employee, and this includes Hawaii, New York, California, New Jersey, and Rhode Island.
If you currently work as a military service member, a local government employee, a civil service worker, or in any other local, state, or federal role, you’re entitled to choose between the several disability insurance options available.
For the most part, the coverage is limited, and they cover a wider group as opposed to meeting the needs of each. In our opinion, you should pursue an individual policy even if you’re covered under a government policy because you’ll need the income after becoming disabled.
Do I Need Individual Disability Insurance?
Nowadays, we know that life insurance is essential because it helps with income replacement, final expenses and paying the mortgage while arranging a move and sorting out the next stage in the beneficiary’s life.
Considering a disability lasting longer than three months is more common than premature death, you should consider disability insurance too. If you suffer a disability and cannot work and produce income, your life insurance premiums may not get paid, your mortgage payment may not be paid, your retirement savings may be depleted, and on and on.
And don’t think you are immune to the common causes of disability. The main reasons people use disability income is for arthritis, complications with pregnancy, cancer, accidents, heart disease, bad backs, etc…that is a lot of stuff that can affect anyone at anytime…including you.
In years gone by, the need for disability insurance was questionable because we didn’t have the equipment or medication to deal with health issues. People just died. Now, thanks to technology and medical advancements, this has changed, and more ailments are treatable than ever, which is why people are living longer than ever. So your chance of being disabled is probably higher now than generations past.
So long answer, Yes, you need long-term disability insurance. Does that mean you’re going to get it? That’s up to you.
Some questions to consider when deciding if private disability insurance is for you
Do You Work?
If you currently live alone or with a friend and are single, what will happen if you’re struck down with an illness or injury and can’t work? As a husband or wife, how are you going to pay the bills and even support children while one-half of the household’s income gone?
Regarding the occupation itself, people tend to think you need to have a dangerous job to warrant this insurance, but it isn’t the case at all. Instead, accidents can happen in the comfort of your own home or even on the road. Regardless of whether you work as an accountant and slip in the shower, thus breaking a bone or get injured from using a power tool at work, disability insurance can be invaluable.
Do You Own a Business?
If so, there are some reasons why disability insurance will be helpful for you as an individual as well as a business owner in the future.
First and foremost, you need to protect your income as we’ve already discussed.
After this, key person insurance will protect against losing a key employee to a disability. Whether it’s a co-owner, manager, or any other relevant employee, losing them to disability can be detrimental to your business, and this form of insurance allows you to receive benefits whenever this happens; this could be to hire a replacement or just keep the business running as it should.
Reason number three is that developing a salary continuation program reduces all income taxes while also keeping valuable employees protected.
Fourth, you can protect your health with regards to your business. Rather than you receiving the benefits as we saw with the first option, business overhead expense insurance will have the company receiving the benefits just in case you get sick or injured.
As the fifth and final opportunity, disability insurance can be used to buy out any partners in the event of their disability (and vice versa). If they’re in a position where they can no longer contribute to the business, physically and financially, disability insurance allows for a seamless takeover, and you can proceed with the best interests of the company at the forefront of your thinking.
The Inner Workings of Disability Insurance
Step 1: Accident or Illness
For the process to begin, you’ll become ‘disabled,’ and there’s often confusion surrounding the term. Thanks to science and technology, we’ve been allowed to learn more about medical conditions and disabilities which is why the term now covers more than just physical injuries. When it comes to insurance, a disability generally refers to any physical or mental issue that prevents us from working and performing as expected.
For the insurance company to pay out for the disability insurance, the condition will need to be medically certified and long-lasting.
Plus, there are additional questions and terms to know, such as what is “own occupation” and do I have to go find another job if I can still work?
Own vs Any
Your “own” occupation is the job you trained for and were currently working in when your disability occurred. Some policies disability insurance policies will require you to find a new job. But you can get a policy that will pay a benefit if you can no longer materially or substantially pursue your “own” occupation.
There is also the term “any” occupation, which covers just about anything you are suited to do based on your education and experience. That is a rather broad definition.
You might also consider a transitional occupation rider if you considered a white collar occupation class. You can get up to 100% of your income if you are not able to work in your “own” occupation but you work in another occupation.
Once again, ask questions and read your policy before singing on the dotted line. There are a lot of good policies out there but you have to know who and what to ask. Our agents are ready to help you, so why not give us a call today?
Step 2: Complete Application
Once the disability has occurred, you can then file a claim with your insurer. In contrast, for SSDI, you would apply for benefits, rather than file a claim.
However, each company will have an elimination period, and this is the period you must wait before applying for the benefits. With private insurance, this can be anywhere between 30 and 720 days. Typically, most companies will choose 90 days.
For Social Security and many other government policies, the elimination period will be six months. As soon as the elimination period ends, a monthly disability benefit will be received and, depending on the insurer, and the policy in question could replace between 50% and 70% of your income. Of course, your business will receive this if you’ve got a business policy instead of an individual policy.
Step 3: Policy Limitations
In the market today, some superb policies allow for lifetime coverage, but this can be extremely expensive which puts most people off. Therefore, most choose a short form of insurance, and this usually allows for benefits to be paid for a maximum of two years. With the longer-term policies, they’ll tend to pay benefits for a set number of years or until the age of 65 (whichever comes first).
With some illnesses and partial disabilities, you might be encouraged to try and get back to work by receiving partial benefits. Nowadays, most private and government policies offer this option, and they’ll reevaluate your condition on a regular basis to see whether you’re ready to return full-time and whether your benefits are still required. Most of the time, these policies will pay for your rehabilitation and training too as long as it has been medically advised by a professional.
Benefits of Individual Disability Insurance
Before we provide some general tips as well as looking into a policy example, we first want to explain the benefits and considerations of disability insurance because this should allow you an overview of the idea and whether it would help you or not.
Tailoring to Needs
Unfortunately, government disability insurance policies can be rather restrictive in their coverage and benefits. On the other hand, individual policies are available from many different insurance companies which allows you to assess the market and find the policy that actually looks after your needs.
When starting your search you want to work on the base policy and locate the policy that gets close to what you’re seeking. From here, you have an opportunity to add riders and craft the policy you need both now and long into the future. With this sort of freedom, it shouldn’t be too hard to walk away from the process confident and with a smile on your face.
Protects the Finances
As the second benefit we have here today for disability insurance, it’s something we’ve discussed previously, and this is the protection you receive. Not just the protection from injury and illness, but the security this policy provides for your future finances (and the finances of your family members and children).
Without group or individual disability insurance, the household income will immediately drop while the expenses suddenly increase. With this deadly combination, families without insurance are forced to take out a loan, borrow from friends and relatives, and find other routes just to survive.
Considerations of Disability Insurance
Although we certainly wouldn’t call them drawbacks, because we know how important disability insurance can be, we do have some considerations you need to make when looking for a policy and assessing your options.
Difficulty in Making a Claim
With other types of insurance, the proof is relatively easy to obtain whether this comes through a death certificate or a police report of an incident. With disability, there’s very much an issue with ‘extent’ as well as proving that your injuries and sickness will outlast the elimination period.
Before actually receiving benefits, you could end up waiting several weeks. Even after this, mental health claims are harder to make because the issue of ‘extent’ gets even more severe.
Expensive to Purchase
If you were to ask the majority of those with no policy why they haven’t yet purchased, a significant portion would suggest the cost as the main reason, and we sympathize. With government insurance, taxes can pay a percentage as can your employer but individual policies need to fit within a budget.
Details are Complex
Finally, we also believe that some avoid disability insurance because it’s too complicated to understand. With the extent of injuries and illnesses playing a significant role today, insurance companies have placed high restrictions on individual policies, and this leaves potential buyers confused. Rather than doing a little research, a good amount of people just avoid disability insurance altogether.
Disability Insurance for Employers
As a business, there are three areas of concern for both you and your employees and this is where your focus should be when looking to offer the very best solution for all employees.
As we saw earlier, this is the time that should pass with a disability before having access to benefits. Generally speaking, the cheapest policies will come from those with a high elimination period, because more ailments and injuries would have healed in this time which reduces the need to claim.
While we appreciate your need to save money, we believe we can find a balance with the elimination period. For some companies, they offer a salary continuation period which comes to an end just as the insurance starts paying benefits so maybe this could be an option for you. Elsewhere, other companies will have the salary continuation fall just short of the insurance policy benefits to encourage people to come back to work sooner.
As the second important feature for employees, they need to know how much is covered and what benefit they can receive when injured or diagnosed with an illness.
For example, can they receive 50% of their income in benefits or will it be closer to 70%? Depending on the industry and how much you’re willing to pay, the maximum benefit will vary once again so find that magical balance.
Finally, the third important insurance feature for employers and employees alike is the length for which employees can receive payment after illness or injury occurs. Regarding long-term disabilities, the average claim is currently around 34 months so you’ll need to weigh up the benefits and drawbacks of this extended income protection. If you wanted to save money, reducing the benefit payment period is one of the most effective ways of doing so.