Wealth Advisory Associates | Disablility Income Insurance

Finding the Right Disability Insurance Policy

When a professional is responsible for the income of the household due to his personal production, a disability can really create havoc, not only for the household, but for the practice as well. Disability insurance was created to replace income if a person becomes disabled and cannot produce income. There are several provisions within disablility policy that are very important to understand in order for the policy to cover the needed risks:

Renewability Provision- The policy provision that details the conditions upon which the insurance company agrees to continue to insure the disability income policy. Generally speaking, a disability policy can be Guaranteed renewable only or both Non-Cancelable and Guaranteed Renewable.

Guaranteed Renewable- Under this policy provision, insurance company agrees to renewal for as long as premiums are paid on a timely basis by the insured. Premiums may be increased with prior notification, buy policy provisions can never be changed

Non-Cancelable and Guaranteed Renewable- The renewal provision of the policy which states that the insurance company cannot change any policy provisions or increase premiums after the policy has been issued as long as the insured makes timely payments of premium. (up to age 65) This is the most preferable type of policy.

Definition of Total Disability- How your policy defines disability is one of the most important aspects of a disability policy. You need to be aware of how disability is defined in your policy as it will be the determining factor on how any claim you make for benefits will be judged. There Here are the three definitions of “disability” found in the insurance arena:

Own occupation- A term that defines the most liberal wording of the total disability contractual provision, it applies only one test, that of the ability to perform the duties of one’s own occupation, in determining disability for purposes of paying a policy benefit. You want to purchase a policy with the longest “Own Occupation” period available.

Modified “Own Occupation” – This type of disability policy is the most popular because it pays benefits if you are “unable to perform the substantial and material duties of your occupation and you are not working.”

“Any Occupation”- This is the most stringent of the three. With this definition, you are eligible to receive benefits only if you are found to be “unable to work in any occupation which you are reasonably suited to by your education, training, or experience.” The insurance company makes the determination of whether or not you qualify under this definition

Elimination Period- The policy deductible, usually the number of days from the onset of disability for which no benefits are payable. Generally, you will have a choice on how long the elimination period will be. It could be from 30 days to 1 year with the cost varying depending on the waiting period.

Waiver of Premium-A policy provision that specifies the exemption of the insured from making premium payments following a specified number of days of disability, until the insured recovers. In many cases, any premium paid during the initial days following disability is refunded.

Capital sum Benefit- Some individual disability insurance policies pay a lump sum benefit for certain specified losses. This benefit (12 times the monthly benefit) is paid in addition to any other benefit that you may qualify for under the policy.

Rehabilitation Benefit – A policy provision under which the insurance company agrees to assist in the expenses associated with a rehabilitation program that the insured enters following disability.

Disability Insurance Exclusions and Limitations – A policy provision that indicates what will not be covered under the disability income policy. These exclusions are made implicit in the policy. A universal exclusion is the “pre-existing condition”: an ailment that had manifested itself before the policy was purchased but which was not disclosed on the application. Other common exclusions are disabilities resulting from acts of war, commission of a crime, or suspension of a professional license.

Optional Riders - There are 3 riders that you should look at adding to a disability policy:

Residual Disability Rider- A policy provision or an optional benefit that promises to pay the insured a portion of the total disability benefit after a return to work based on the percentage of income loss suffered due to the disability. This benefit is usually effective until insured’s age 65.

Cost of Living Adjustment (COLA) Rider- An optional benefit that increases the disability benefit by a percentage or the latest Consumer Price Index measure. You want a COLA that is adjusted annually on a compound interest basis with no “cap” on the monthly benefit.

Future Increase Option Rider- This offers the ability to increase your disability coverage, regardless of your future health, as you income rises. It is important to know when you an increase your coverage as well as by what increments on any given option date

Tax Deductibility

Disability Insurance is 100% deductible for employees and owners in a C-Corporation and only deductible for non-owners in S-Corporations. In addition, many companies that provide group coverage write off the insurance premiums. This would cause the benefits to be taxed when received by the individual employee.

This is an overview of some of the key elements of different provisions of disability policies. To learn more, please give us a call 727-588-1540 or sign up for a free consultation or write your questions, and we’ll get back to you soon.