Disability Income Insurance
Defining disability
The definition drives everything. Own occupation pays if the insured cannot perform the duties of their own occupation; it is generous, so it is often limited to two years before switching to an any occupation standard (cannot perform any job for which reasonably suited by education, training, or experience). Split and loss-of-income definitions also appear.
Benefit structure
The benefit period is how long benefits last (2 years, 5 years, to age 65, or lifetime). The elimination period is the waiting period before benefits begin (30, 60, 90, or 180 days). Longer elimination periods and shorter benefit periods lower the premium. Benefits typically replace 60% to 70% of gross income because overinsurance would discourage return to work; the insurer may offset Social Security or workers' compensation. Residual or partial disability benefits pay a reduced amount when income drops. Presumptive disability pays full benefits for specified losses such as sight, hearing, speech, or two limbs. Recurrent disability treats a relapse within a set period, often six months, as a continuation of the prior claim.
Underwriting categories
Noncancellable means the insurer cannot cancel, raise premiums, or change terms. Guaranteed renewable means the insurer cannot cancel but may raise premiums by class. Conditionally and optionally renewable offer less security. Occupational coverage includes work-related injury; nonoccupational coverage excludes it, usually coordinating with workers' compensation.
Related coverages
Business overhead expense reimburses business costs while the owner is disabled. Key employee disability protects the business. Disability buy-out funds a buy-sell agreement.
Traps
Benefit amounts are based on income, not expenses or need. Own-occupation coverage is usually time-limited.
Rule of thumb
A longer elimination period means a lower premium.