Individual Long Term Disability Insurance
If you could not work because of sickness of injury, how would you maintain your standard of living?
If you’re like most people, your ability to earn an income is your most valuable asset.
Long term disability insurance helps replace income for an extended period of time. It is a fact that one out of three (3) working adults will have a disability that lasts longer than 90 days in their lifetime. Long term disability insurance is a vital component in any individual and family’s future financial security.
Features of Disability Income Insurance
Most individual policies are either noncancellable or guaranteed renewable. With a noncancellable policy, premiums can never be increased. Under a guaranteed renewable policy, premiums cannot be raised based on an individual’s circumstances, but they can be increased for an entire class of policyholders. A guaranteed renewable policy may define how a class is determined for example, all policyholders in a state who own the same type of policy might constitute one class.
The amount of income you would receive when disabled varies by policy. However, benefits from all sources are usually limited to 70-80 percent of your monthly salary. Policies that pay 50-60 percent of salary are most common.
If you purchase your own policy, your disability benefits typically are not subject to income taxes. Benefits are taxed, however, if your employer pays for the disability insurance coverage.
Policies have different waiting periods (called elimination periods) before you begin receiving benefits. You can lower the premiums you pay by waiting 90 days, six months, or even longer before starting to receive benefits.
Some policies offer cost-of-living adjustments in the amount paid to the insured as an optional benefit.
Most companies review an individual’s medical and financial history and consider any other disability coverage that person has before issuing a policy.
Factors Influencing Cost
A number of factors determine the cost of an individual disability income policy, including:
Occupation: Professionals, Executives, and “White Collar” occupations will have the broadest coverages and the lowest rates. Blue Collar will have the most restrictive benefits and higher costs.
Age: Younger persons pay less per year for a policy than those who are older and more likely to become disabled.
Definition of Disability: A policy that pays benefits if you are unable to perform the duties of your own occupation is more expensive than a policy that pays benefits if you are unable to perform the duties of any job for which you are reasonably qualified.
- Benefit amount
- Elimination period (waiting period before benefits begin)
- Benefit period
- Recurrent disability (relapse provision)
- Cost-of-living adjustments
- Your current health status
- Smoker/Tobacco. Smokers pay more
- Mental health/substance abuse provisions
- Exclusions or other coverage limitations
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