Shopping for Disability Insurance can be tricky. There are so many companies, options, and add-ons that it can be confusing. In this article, we will go over six things to look for when shopping for disability insurance. These will help you to sift through some of your options.
Definition of Disability
Each policy will have its own definition of what qualifies as a disability. When shopping for disability insurance, you want to find a policy with the best definition of disability possible. The best policies define disability as not being able to perform your specific job. However, these are becoming harder and harder to find. It is more likely that you will find a policy that defines disability as being unable to perform a variety of jobs that you are suited for by education and/or experience. Carefully read over any policy’s definition of disability to make sure it is not too broad, as this could limit your ability to draw benefits.
Waiting Period
An ideal policy will have a six-month waiting period. This means that you will have to wait six months from the disability occurring before you will begin to receive benefits. Choosing any shorter of a waiting period will greatly increase the price. Often, a shorter waiting period is not necessary. Many people have access to a short-term policy through their employer that will cover them for the first six months.
Long Benefit Period
When shopping for disability insurance, it is important to find the longest benefit period possible. Most disability policies offer benefit periods of 2-3 years. But it is important to remember that a disabling event can occur at any age and may be long-term or permanent. Due to this fact, it is recommended that you find a policy with a benefit period that lasts until you turn 65. This will help to cover your bases and provide you with the necessary coverage.
Large Monthly Benefit
You cannot expect a disability policy to cover 100% of your previous income. This is the case because companies try to discourage people from taking advantage of the provision. Instead, you should look for a policy that will replace 50-60% of your income. This will give you a reasonable premium and a good-sized monthly benefit.
Protection Against Inflation
Inflation will start to reduce the value of your insurance policy over time. Many policies allow you to add on inflation protection. This will raise your benefit amount annually by a preset amount. Such an add on can help to reduce the effects of inflation. However, this add-on will result in a premium increase and should only be utilized if it fits in your budget.
Renewability
There are 3 types of renewability features offered by disability insurance providers. The first, and the one that should be avoided is conditionally renewable. It may offer the most attractive premium price now, but it will end up costing you in the future. Conditionally renewable policy allows the insurer to raise your premiums or cancel your policy altogether if they determine you are a high risk.
Guaranteed renewable is the second best choice. The policy cannot be canceled on you. But the insurer can raise the premium. This is only permissable if they are doing so for a large group of policyholders. Finally, the best type of renewability is non-cancellable. With this type of policy, your insurer cannot raise your premium and cannot cancel your policy.
Successfully Shopping for Disability Insurance
It is possible to successfully shop for disability insurance. By looking out for the 6 features we mentioned and utilizing a knowledgeable insurance agent, you can find a good policy that fits in your price range.
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