Disability Insurance - Disability Income Insurance

One of the most often overlooked risk protection measures in an insurance program is the income protection in the event of disability. The risk of disability is primarily associated with the loss of income, however; one must also consider the additional costs of caring for a severely disabled individual especially if they are the household's primary wage earner. In many households today, a serious financial hardship would likely occur if a disabling accident happened to the individual that provides the primary source of income.

Your income enables you to maintain and protect your family and your lifestyle to afford items such as your home, clothing, entertainment, vehicles, and pay your bills. What would some families do if their paychecks stopped tomorrow and didn't start up again for a whole year? What if this became several years? In some cases, social security may help provide some disability income, but many claims are denied by social security because applicants simply don't qualify.

Under the social security definition, disability is a mental or physical impairment that prevents the worker from engaging in any substantial gainful employment. Such disability must have lasted for five months and be expected to last at least 12 months or result in the death of the worker. The worker is insured if they worked long enough and paid the applicable social security taxes, in addition the disability must qualify as "total disability".

Since government programs will only pay a small portion of your lost income, it is necessary for many workers to seek out individual disability policies to cover their own risk needs. These types of policies can now be obtained for those who are totally disabled and those partially disabled. For totally disabled policies, the insured must meet the definition of disability set forth in their policy. The definition of disability used by most insurance companies is one or a combination of own occupation or any occupation.

Own Occupation
Under "own occupation" disability, the insured is unable to work at his or her own occupation as a result of an accident or sickness. This type of policy is the most expensive and more difficult to qualify for. These types of policies are very popular with professionals that look to insure a skilled trade. For example, a heart surgeon many wish to obtain an own occupation disability policy in the event of loss of use of one or many of their fingers.

Any Occupation
The "any occupation" disability policy provides the inability to engage in any reasonable occupation for which you might be suited by education, experience training, or for which you could easily become qualified. These policies are less expensive and easier for most individuals to qualify for. From our previous example, a heart surgeon that loses use of a few of his or her fingers my no longer be able to perform the duties of a heart surgeon, but could most likely still consult in the medical profession or work in a family practice environment. This type of policy will only pay the income benefit, if gainful employment is prohibited.

Hybrid Policies
Many forms of disability policies are sold today with options that allow the insured to cross an "own" occupation with the "any" occupation features. A common example would be a policy issued with two years of own occupation, then the years to follow under any occupation. One reason policyholders may elect this feature is to lower policy premium costs to an affordable level.

Benefit Periods
Related Articles
  1. Investing Basics

    Fee-Only Financial Advisors: What You Need To Know

    Are you considering hiring a fee-only financial advisor or one who is compensated via commissions? Read this first.
  2. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  3. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  4. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  5. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  6. Entrepreneurship

    Creating a Risk Management Plan for Your Small Business

    Learn how a complete risk management plan can minimize or eliminate your financial exposure through insurance and prevention solutions.
  7. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  8. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  9. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  10. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  1. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  2. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  3. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  4. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  5. Gross Exposure

    The absolute level of a fund's investments.
  6. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  1. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Why are mutual funds subject to market risk?

    Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
  4. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  5. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
  6. Do financial advisors work only in banks?

    While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>
Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center