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, as a result, you can't earn as much?
Having disability income insurance gives you choices. The challenge is getting enough of it to maintain your lifestyle. Also, 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 maximum permitted policy size will vary from carrier to carrier based on a complex array of factors. Certain features can result in 100% income replacement, although carriers don't want people to be too comfortable and so they try to keep base benefits more modest.
The size of the policy will typically remain constant over time, even if future earnings decline. This simplifies administration and budgeting since there is no need to track a moving target. It is possible for an individual to receive a monthly benefit exceeding 100% of earnings if earnings decline after the policy is issued.
Eligibility / Qualifying for a Policy
To qualify for an individual disability insurance policy, insurers want to see that the candidate is:
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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, although a few carriers allow 20.
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Under age 61, although a few carriers go to age 64.
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A U.S. citizen or green card holder.
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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, 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.
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're disabled from.
Most individual disability income policies are Guaranteed Renewable to age 65 or so, after which time an annual attestation is required affirming that you are still working full time. Before that time, no periodic check-in or other re-qualification is involved, even if you change your occupation or stop work.
Alternative Products That Are Easier to Qualify For
If Disability Income (DI) insurance is not available for qualifying reasons, alternative products that transfer risk more selectively may be worth considering. These include: