In the event of an accident, injury or illness that prevents you from working, disability insurance provides you with a percentage of your income. But not every disability insurance policy is the same. In fact, almost all of them will compensate different percentages of your income (generally between 50 and 70 per cent), along with different elimination periods and benefit periods. Elimination periods refers to the length of time to wait before your benefits kick in. Benefits periods refers to the length of time benefits will be payable, which depends on your disability and the policy you take out.
Most plans have a start date ranging from 30 days to 120 days after a disability has occurred. Coverage generally focuses on sickness or injury, and your plan cannot change without your permission until you are 65 years old.
In general, experts agree that disability insurance is a must for people, whether you are on a group plan with an employer or you take out an individual policy for yourself. But with so many plans available, it is important to understand the differences among each. Here’s a breakdown of the major disability insurance types available:
• Group Disability Plans: This is the most common type of disability insurance plan and they are typically offered through your employer. The lowest tier of group coverage is often focused on affordability, which is beneficial, but it does mean that the benefits and payouts can vary drastically. Bear in mind that group plans generally will not cover your income levels significantly, and this can be difficult in times when you cannot work. They also often have monthly or annual caps on the dollar amount that will be paid, and set up maximum timeframes that may be shorter than what you require. Group plans should always be read carefully since you can often discover that what you may have thought you would be getting is quite different from what you actually get.
• Individual Disability Plans: If you are without a group plan or do not like your group plan, you can always opt for an individual disability insurance policy. Without a group, pricing is often very different and will be tailored to your unique situation and needs, which can be both a benefit and drawback. In general, plans are cheaper if you are young, healthy, and work a low-risk job compared to if you are older, in poor health, or work a job that is considered high risk for disability. Still, looking at your individual options means that you could find a plan that fits your needs, wants and budget more-so than a group plan. Doing the research could result in a better policy and position for yourself.
• Creditor disability insurance: Disability insurance is now commonly attached to debts, like car loans, leases, mortgages and lines of credit. With creditor disability insurance, your financial institution buys a group policy, and you become part of the policy when you take out a loan with that institution. These policies make loan payments on your behalf rather than sending the money directly to you.
While group plans are less expensive in general, individual plans offer better coverage and can be tailored to your specific needs, including better terms and conditions when compared to a group plan. Remember that premiums, terms and conditions are locked in until you turn 65, unless changes are made with your express permission. Individual plans are an excellent option for self-employed individuals, as well as professionals and executives, since they can have an “own occupation” definition of disability. That means an insurance company cannot force you to work in another occupation based on your experience and training, an important feature for many professionals. Professionals should be wary of association disability plans, since terms, conditions and rates for these group policies can change at any time, and often do.
If you are in need of disability insurance, be sure to do your research on any policy you take out or are currently under.