Common Disability Insurance TermsCommon Disability Insurance Terms

Disability insurance is a type of insurance that will help to replace part of your income in the case you become disabled and unable to work. In this article, we will go over common disability insurance terms that you should be familiar with before purchasing a policy.

Extent of Disability

Extent of disability is the level at which you must be disabled before the policy will begin paying out benefits. Some require you to be totally disabled before they begin the benefits. Others may allow partial disability, which means you are only partly restricted from doing your job.

Disabilities Covered

This is a list of accidents of illnesses that your policy considers disabilities and will provide coverage for. Some policies will only cover you in the instance you were in an accident, but do not cover illness related disabilities. Some policies will cover both.

Residual Benefits

Residual benefits may be part of a rider. It will fill any income gap you have if you have a partial disability, and this results in reduced income.

Amount of Benefits

Typically, your benefits will cover up to 60% of your income upon disability. The insurance company bases this off your level of income at the time of purchasing the policy. It is important to note that income from social security disability and employer long-term disability insurance can affect your benefit.

Waiting/Elimination Period

Your elimination or waiting period is an amount of time you must wait after disability before your policy benefits can begin. Typically, this period is 30 days. However, the longer your waiting period is, the lower your premium will be.

Length of Coverage

The length of coverage is how long of a period you will receive benefits for. This can range from a year all the way up until retirement age. The shorter your length of coverage is, the lower your premium will be. When choosing this period keep in mind that you take the chance that benefits can run out while you are still dealing with your disability.

Inflation Protection

You can purchase a cost-of-living adjustment rider to help protect against inflation. This will gradually increase your benefit amount to help keep up its purchasing power.

Waiver of Premium

A waiver of premium exempts you from having to pay your premium from the onset of your disability until your disability ends.

Renewability

There are three types of possible renewability. First, is a non-cancellable policy. This allows you to keep your policy at the same price and coverage for as long as you are paying the premiums. Second, is guaranteed renewable. This allows your policy to renew but your premiums may increase. Third, is optionally renewable. The insurance policy can cancel this type of policy for any reason stated in the policy.

Purchasing Disability Insurance

Once you are familiar with common disability insurance terms you will be more prepared for purchasing a policy. You can also meet with an insurance agent who can help walk you through the process.

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