As you build a life, a certain amount of money has to come in the door every month, no matter what. But what if your health doesn't hold up and you are forced to change how you work or retire early?
Having disability income insurance gives you choices. The challenge is getting enough of it to maintain your lifestyle and, if you have a good career, you will want a particular kind of policy that allows you to stay in control of how you work, if at all.
Disability Income Insurance Products
Exactly what defines "disabled" determines how much choice you have to work on your own terms. The better your career, the more important it is to control your own destiny with a high quality definition of disability.
Your occupation will influence which carrier and definition type will be recommended. Learn more about how to choose the definition of disability you need in a Disability Income policy
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How the Benefit Amount is Determined
Individual disability income policies are structured to pay benefits as a fixed dollar monthly indemnity amount, such as $10,000 per month. You can select any policy size you want, but it cannot be greater than the amount you financially qualify for, which depends on:
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earnings history
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other coverage currently in-force
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insurance company guidelines
The monthly amount you apply for should be roughly 60% of your total gross compensation, regardless of type, knowing that you will have an opportunity to finalize it after underwriting is complete. How much of that is insurable varies from carrier to carrier, which is one of the many reasons for filling out an intake form before a carrier is selected.
Future earnings have no bearing on the potential benefit amount, unless it's a partial disability claim.
Eligibility
How is eligibility for individual disability insurance determined?
To qualify for an individual disability insurance policy, insurers want to see that you are:
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Not currently disabled.
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Employed or self-employed in an insurable occupation.
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Actively at work full time, which is generally defined as 30+ hours per week in a typical week. A few carriers allow 20.
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Under age 61. A few carriers go to age 64.
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A U.S. citizen or green card holder (with some exceptions).
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Not routinely exposed to extreme hazards, unless applying for a special risk product.
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Dependent on work earnings, as opposed to being in a position to comfortably retire.
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Under-insured relative to earnings (meaning you don't already have so much coverage from all sources combined that you would be financially better off disabled than working), and
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Healthy within guidelines.
Matching you up with a carrier that is friendly to your circumstances is one of our most important functions, and is where the process begins.
Changes in circumstances after the policy has been issued will not affect the underlying guarantees until the Guaranteed Renewability period expires, which is typically to age 65. The transfer of risk against future changes is the whole point, after all, especially as it relates to health. The transfer of risk applies to other types of life changes as well.
For example, if you later decide to take a less stressful job or work fewer hours and make less money, you would at that point be at a financial advantage for having purchased a large policy in the past, therefore you may very well end up collecting more in benefits than your pre-disability earnings. Unlike group LTD, disability benefits under an individual policy (not counting riders) are paid as fixed dollar monthly indemnity amount. In other words, the benefit amount is pre-determined at the time of policy issue, not subject to calculation at the time of claim.
Again, the insurer takes on the risk that policyholder circumstances may change throughout the Guaranteed Renewability period.
In general, disability is measured against the work you were performing immediately prior to claim, even if the policy was originally acquired while working in a different occupation. In the event of unemployment, the policy itself doesn't change. However, if disability occurs during a long enough stretch of unemployment, there could be some question as to what exactly you are disabled from.
Most policies are Guaranteed Renewable to age 65 or so, after which time an annual attestation that you are still working full time in some form for employer or yourself is required in order to renew. Before that time, no periodic check-in or other re-qualification is involved. This guarantee is a significant difference compared to group insurance or worksite insurance.
Alternative Products That Are Easier to Qualify For
If you are certain that qualifying for Disability Income (DI) insurance is not in the cards, consider these alternative products that transfer risk more selectively.