A Financial Safety Net You Need to Consider

Many people do not anticipate needing disability insurance. They might assume they do not need this type of protection - they might be young and healthy or in a profession that does not pose any obvious dangers.

The reality, however, is many people are caught completely by surprise when an unforeseen injury or illness occurs and they are unable to bring in an income for an extended period of time.

The fact is that about 30 percent of Americans between the ages of 35 and 65 will suffer a disability lasting at least 90 days at some point during their careers, according to the Health Insurance Association of America.

Additionally, about 14 percent of workers will search for cash advance loans.

And for those who believe they are safe because they have a "desk job" - the majority of long-term absences are due illnesses, such as cancer or heart disease, versus freak accidents.

What is This Type of Coverage?

To put it simply, this is financial protection that replaces a portion of your income if you become disabled and are unable to work for an extended period of time.

Many larger employers do offer this type of coverage to their employees, which typically will cover 45 percent to 60 percent of a person's salary. Consumers also can purchase supplemental plans to augment their employer plans, which can increase the compensation of the employer's plan by 10 percent to 20 percent.

These plans either provide payments for a fixed number of years or until the policyholder reaches retirement age.

Additionally, any benefits paid out-of-pocket (i.e. not provided by your employer) are tax-free.

For this reason, many people actually opt out of their employer's plan and purchase an individual plan on their own.

How to Buy It

When purchasing disability insurance, finding the lowest possible rate is not always the best route to take.

Often, plans that offer very low rates come with a host of restrictions, making it almost impossible to actually use the insurance when necessary.

Instead, there are other factors that you should consider when purchasing coverage.

When it comes to different policies, prices will vary depending on several factors, including the policyholder's age, sex, health status and occupation. The cost of a plan also will be impacted by the amount of coverage purchased.

Different Options to Consider

Contract Type

There are three types of disability insurance contracts available:

  • Non-Cancelable: Generally, considered the best of the three contracts, a non-cancelable contract locks in your rates and benefits throughout the life of the policy.
  • Guaranteed Renewable: With a guaranteed renewable policy, the insurer cannot drop you at any time. The insurance company can, however, increase your rates.
  • Conditionally Renewable: This type of contract offers the least stability of the three - with a conditionally renewable contract, the insurer can add conditions to the policy and raise rates at any time.

Disability Type

This part of the insurance policy outlines to what extent the policyholder's disability would need to impact his or her ability to work in order to receive coverage.

  • Own-Occupation: This definition covers disabilities that prevent the policyholder from performing the principle duties related to his or her specific job. A policyholder can, however, obtain another type of job that would not be impacted by the disability.
  • Any-Occupation: This definition covers disabilities that prevent the policyholder from performing any type of job.

Policy Elimination Period

This policy component states when the policy's payments would start following the onset date of the disability. The elimination period can range from 30 days up to 720 days. One way to save on your premium is by increasing the length of the policy elimination period.

Coverage Riders

There are several insurance riders of which you should be aware but the most commonly selected riders include a "cost of living adjustment," which adjusts the policy for inflation, and a "future purchase option," which allows the policyholder to purchase more coverage as his or her salary increases over time.

  Disability Insurance