Disability Income and Medical Expense Insurance
Disability income
Disability income insurance replaces part of earned income, often 50% to 70%, and is not designed to replace all income. Key definitions include own-occupation, which pays if the insured cannot perform their own occupation, and any-occupation, which pays only if the insured cannot perform any reasonable occupation. Own-occupation is broader and usually more expensive. The elimination period is the waiting period before benefits begin; a longer elimination period lowers premium. The benefit period is how long benefits last. Residual or partial disability benefits may pay a reduced amount for reduced earnings. Benefits may be offset by Social Security or workers compensation.
Medical expense and long-term care
Medical expense insurance includes hospital, surgical, major medical, and managed care plans. High-deductible health plans may pair with health savings accounts. Long-term care insurance covers qualified custodial care, often with an elimination period and a benefit period. Critical illness policies pay a lump sum on diagnosis of a covered condition.
Traps
Elimination periods are not benefit periods. A shorter benefit period and a longer elimination period reduce premium. Disability benefits are taxable only when the employer paid the premium.
Worked example
An insured earning $6,000 monthly has a 60% benefit and a 90-day elimination period. The monthly benefit is $3,600, but no benefit is paid during the first 90 days of disability. Rule of thumb: longer elimination and shorter benefit periods lower the premium.