Life Events

For most working people, the ability to earn an income is their largest asset. Disability insurance protects it by replacing part of your pay if illness or injury keeps you from working. Policies differ a great deal, so the details matter.

Why it matters

Many people are more likely to be disabled for some period during their working years than to die young, yet they carry far less disability coverage than life insurance. Social Security disability benefits are difficult to qualify for and may not replace much of your income, so private coverage often fills a real gap.

Key features to compare

Definition of disability

An "own occupation" policy pays if you cannot do your own job, even if you could work in another field. An "any occupation" policy pays only if you cannot do any suitable work. Own-occupation language is more favorable, and often costs more. Read how the policy defines the terms and whether the definition changes after a number of years.

Benefit amount

Policies usually replace a portion of your income rather than all of it. Group coverage through an employer might be limited, so you may want individual coverage on top of it.

Elimination period

This is the waiting period before benefits begin. A longer period lowers the premium, but you need savings to cover living costs during the wait.

Benefit period

Some policies pay for a few years, others to a specific age such as retirement age, and some for life. Longer periods cost more but offer stronger protection.

Renewability

Look for policies that are guaranteed renewable or non-cancellable, meaning the insurer cannot cancel the policy or raise premiums beyond what the contract states as long as you pay.

Useful riders

• Cost-of-living adjustment, so benefits keep pace with inflation.
• Residual or partial disability, which pays if you return to work part-time.
• Future purchase options, which let you buy more coverage later without new medical review.

Tax treatment of benefits

Who pays the premium and whether the premium was paid with after-tax dollars generally determines whether benefits are taxable. Benefits from a policy you buy with after-tax money are generally tax free, while benefits from a policy your employer pays for are generally taxable. Confirm how it applies to you.

Before you buy

Check what your employer already provides, read exclusions for pre-existing conditions, and compare several insurers. Self-employed people and business owners should consider coverage that fits their situation, since there is no employer plan to rely on.

If you want help weighing the cost against your budget, contact our firm and we can talk through it.