Most people have insurance coverage on their homes, autos,
etc., but many have not
realized that the value of their future earnings may far exceed
the value of their
tangible assets. If their future earnings cease because of
accident or illness, this loss
of income could present serious financial problems. Insurance
studies suggest that the
odds of a disability lasting for 90 days or more are much greater
than the odds of dying
before age 65. Disability Income insurance policies can replace
this possible loss of
income during one's working years. Some features of these
policies can include:
A. Non-cancellable, guaranteed renewal of the policy
premiums.
B. Protection against inflation for future benefits paid.
C. Various elimination periods before benefits begin
(typically 30, 60, or 90 days; 6
months; or one year). The longer the waiting period, the lower
the premium for the policy.
A person's liquid reserves and income should be considered when
selecting the elimination
period.
D. The policy definitions of disability vary. Some policies
provide "Own
Occupation" definitions and will pay benefits if the
insured is unable to work in his
or her specialized field, such as a dentist or surgeon.
E. Varying benefit periods. Some policies, for example,
offer a lifetime benefit where
the disability was caused by an accident, and to age 65 for
disability caused by illness.
Disability can last for a long time. The longer the period
covered by the policy, the
larger the premium.
F. Some policies pay benefits when earnings drop by a
certain percentage due to a
disability. Others require a physician's certification to
pay/continue benefits. Also,
some policies provide for partial, or residual disability
benefits where the insured can
perform some, but not all of his or her duties. Policy
language/provisions should be
carefully reviewed.
G. What is the dollar amount of the disability benefit? Is
the benefit based on a
percentage of earnings before disability or is there a fixed
dollar amount payable each
month during disability?
H. Disability policies may be purchased by an individual or
by a company; some may be
acquired on a group basis.
I. Other types of Disability Insurance contracts include:
Key Man or Key Woman
Disability Insurance When the employer owns the policy, the
insurance benefits can
provide reimbursement for the loss of the services of a
disabled employee, and provide
funds to hire and train a replacement. Disability Buy-Out
Funds can be provided to
effect a buy-out of a disabled owner of a business under the
terms of a Buy-Sell
agreement. Business Overhead Expense If a business owner
or professional becomes
disabled, these policies can provide funds to cover ongoing
expenses such as rent,
employee salaries, etc., to keep the owner's business/office
open during the period of
disability.
