Disability Income and Medical Expense Insurance
Disability income mechanics
The purpose of DI is income replacement (typically 60-70% of gross income). Key definitions: own occupation (cannot perform the duties of your specific occupation - broader, more favorable) versus any occupation (cannot perform any job for which reasonably suited by education and experience - stricter). Total disability, partial/residual disability (proportional benefit for lost income), and presumptive disability (presumed total for loss of sight, limbs).
The elimination period is the waiting period before benefits begin (like a deductible in time); the benefit period is how long payments continue. Longer elimination periods and shorter benefit periods lower premiums. Know occupational vs nonoccupational coverage, guaranteed renewable/noncancellable classification, Social Security offset, and waiver of premium at disability.
Specialized contracts: business overhead expense (covers rent, payroll - not the owner's salary), business buy-out/disabled partner, and key person disability.
Medical expense and supplemental policies
Understand hospital indemnity (pays a fixed amount per day), critical illness (lump sum on diagnosis such as cancer, heart attack, stroke), specified disease, dental/vision, and Medicare supplement (Medigap) plans, which fill Medicare's coinsurance gaps rather than replacing it. HSAs pair with high-deductible health plans, offering pre-tax contributions, tax-free qualified withdrawals, and portability.
Trap: disability income benefits are generally tax-free to the insured only when the insured paid the premiums; employer-paid premiums produce taxable benefits.
Worked example: $5,000 monthly income, eliminating 90 days, 60% benefit. A covered disability starting June 1 means the first check arrives after August 29, at $3,000 per month.