Protect earnings with a personal policy that doesn't depend on an employer
Disability Income Insurance Products
Our focus will be on some type of own-occupation coverage without having to ask for it.
Exactly how disability will be defined depends on your occupation, which products are available to you, and the possible configuration options. Due to the importance of precise language, this question is best left unanswered until your options are narrowed down.
To learn about the general types of definitions of disability out there, read this blog post: 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.
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: