CFP

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.

DISABILITY DEFINED
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.


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