Disability Income and Accident Insurance
Defining disability
The definition drives the benefit. Own occupation pays if the insured cannot perform their own job (broader, more expensive, often limited to 2–5 years); any occupation requires inability to perform any job for which the insured is reasonably suited (narrower, usually applies after the own-occ period). Presumptive disability (loss of sight, hearing, speech, or two limbs) pays without proof of lost income. Residual/partial benefits pay a proportional amount when income drops but the insured still works; recurrent disability provisions restart benefits if disability recurs within a stated period without a new elimination period.
Key mechanics
Elimination period (time before benefits begin), benefit period (maximum duration), benefit percentage of income (typically 50–70%), occupational vs nonoccupational coverage, waiver of premium, Social Insurance Supplement, cost-of-living, and return-of-premium riders. Business uses: key-person disability and business overhead expense.
Accident coverage
Accident-only policies pay for accidental injury, not sickness. AD&D pays a principal sum for accidental death and a capital sum (a percentage of principal) for dismemberment. Exclusions typically include self-inflicted injury, war, and commission of a felony.
Taxation trap
Disability benefits are tax-free only to the extent the insured paid the premiums with after-tax dollars. Employer-paid premiums → benefits taxable; employee-paid → tax-free.
Rule of thumb
The shorter the elimination period and the broader the definition, the higher the premium. If a question shows a cheap policy with generous benefits, look for an any-occupation definition or a short benefit period.