Disability Income and Medical Expense Insurance
Disability income
Disability income insurance replaces part of earned income when illness or injury prevents work. Benefits are usually a percentage of income, not full income, to preserve work incentive. The elimination period is the waiting time before benefits begin; the benefit period is how long benefits last. Own-occupation definitions are broader for the insured than any-occupation definitions. Residual or partial disability benefits pay when income falls but the insured can still work. Recurrent disability provisions may link related absences. Riders include cost-of-living increases and future purchase options. Business coverage includes business overhead expense and key person disability.
Medical expense
Basic medical expense covers hospital, surgical, and physician costs. Major medical uses deductibles and coinsurance with high maximums. Comprehensive plans combine basic and major medical. High-deductible health plans may pair with health savings accounts. Critical illness and accident policies pay fixed benefits for specified events.
Traps
An elimination period is not a probationary period. Benefits are not usually tax-free merely because the insured is disabled; taxation depends on who paid premiums. Own-occupation coverage is generally more favorable than any-occupation. Do not confuse residual disability with total disability.
Rule of thumb
For disability questions, identify the definition, elimination period, benefit period, and income percentage. For medical questions, identify the deductible, coinsurance, and covered expense.
Worked example
A policy pays 60% of income after a 90-day elimination period for up to two years. The insured is disabled for 18 months. Benefits begin after 90 days and continue for the covered benefit period, subject to the policy's definition of disability.