What You Should Know About Disability Insurance

Definition of Disability
The most important thing to know about your disability insurance plan is what's meant by "disability". There are many variations, and there may be different definitions depending on how long your claim lasts.

An "own occupation" definition means that you're considered disabled if you can't perform the duties of your usual job. For instance, a dentist would be disabled if he or she broke an arm, but a lawyer probably wouldn't be. "Own occupation" definitions are generally only found in policies sold to professionals.

"Regular occupation" definitions are commonly used, and are similar to the "own occupation" definition except that your disability ends if you go back to work at a new occupation. However, as long as you're not working because you can't do your regular job, you're considered to be disabled. You'll often find income replacement plans that provide a "regular occupation" definition but only for the first 2 or 5 years of a disability. After that, the definition may switch to an "any occupation" definition.

An "any occupation" definition is stricter since you'll only be considered disabled if you are unable to work at ANY job (generally for which you are qualified).

When will the benefit kick in?
After you're hurt or get sick, there will usually be an "elimination period" or "waiting period" before the benefit starts. With a long waiting period, you'll need some other source of income before your benefit begins.

How long will the benefit last?
You'll usually want a "benefit period" to age 65 just in case you are severely disabled and can never return to work.

What about recurring disabilities?
What happens if you have a chronic condition like colitis? Do you have to meet the waiting period each time you're sick?

Exclusions
Always check your plan carefully or ask your broker about any circumstances where your claim would NOT get paid. Generally speaking, you want to be sure that you have 24 hour protection for all types of injuries and illnesses.

Offsets or Reductions
Be sure you know whether any disability payments would be reduced (and by how much) because of other sources of income or limits in your plan.

What if you can work part-time?
It's quite common that an illness or injury might make it impossible for you to work full-time but doesn't completely incapacitate you. Does your income replacement plan have a "partial" or "residual" benefit? A plan with "residual" benefits pays you a disability benefit in proportion to how much your income drops.

Guarantees
Does your plan guarantee the premium rates and/or the policy provisions? Some individual income replacement plans are "non-cancelable" and the insurance company cannot raise the premiums or restrict the benefits.

Portability
"Portability" means that you own your income replacement coverage wherever you go. This is a downside of employer-provided disability plans because if you quit or lose your job, you might be without any kind of income protection. And, you might not be able to qualify for an individual income replacement plan - insurance companies generally require that you be working steadily (sometimes for a year) and be in good health.

Adjustments for Inflation
Does your coverage keep pace with any increases in your income? More importantly, will your benefits grow over time if you're disabled? Say you had to stop working at age 40 because of multiple sclerosis -- without any cost of living adjustments you would have to live on a fixed income till age 65.

Did You Know?
State law requires insurance companies to assist you, the policyholder, in determining the amount the insurer owes you. This includes disclosing to you all benefits, coverages, time limits or other provisions of your insurance policy that may apply to your claim.

Upon receiving any communication from a claimant that reasonably suggests that a response is expected, every insurance company claims adjuster or agent must furnish the claimant with a complete response within 15 days.

State law requires every insurance company, upon receiving notice of claim, acknowledge receipt of such notice, provide you with necessary forms and assistance for proof of claim, and begin any necessary investigation within 15 days.

It is illegal for any insurer to discriminate in its claims settlement practices based on your race, gender, income, income, religion, language, sexual orientation, ancestry, national origin, or physical disability, or upon the territory of the property or person insured.

State law provides that upon receipt of proof of claim (separately defined in the Regulations) every insurer shall accept or deny the claim or give written notice regarding additional information that is needed.

State law requires that upon acceptance of a claim and, when necessary, a properly executed release, the insurer shall tender payment of the undisputed amount within 30 calendar days.

State law prohibits an insurer from delaying or denying the settlement of a claim with its policyholder on the basis that the responsibility for payment should be assumed by someone else.

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