Best Disability Insurance

Contract – Key Terms

_

_

Non-Cancellable, Guaranteed Renewable: Included as part of the contract with most quality carriers, this terminology basically states that as long as you pay your premiums, the insurance company cannot change the terms of the contract or raise premiums on you.

_

Own Occupation: Quality carriers will include a true own occupation definition in the contract, but some companies will require you to select it by rider.  It is important to have an own occupation definition that will allow you to be gainfully employed in a different occupation and still receive a benefit from your contract because you can’t perform the material and substantial duties of you own occupation at the time of disability.

_

Lifetime Benefits Rider: Very few carriers still offer this option.  As yourself the question, if you become disabled how long do you want to get paid?  If the answer is forever, or for as long as you are disabled, you should consider the lifetime benefits rider.  Otherwise, you can choose a benefit period such as to Age 65 or to Age 67.

_

Presumptive Disability: Included as part of the contract with most quality carriers, this clause says that if you suffer total and complete loss of:

– sight in both eyes
– hearing in both ears
– ability to speak
– the use of both hands, both feet, or one hand and one foot, in their entirety

then you will be presumed totally 100% disabled and the Elimination Period will be waived. Basically you would get paid from Day 1 of the disability.  The “catch” is found in the small details of each contract.  Beware of contracts that require this loss to be irrecoverable.  Many times this feature is used with young people involving things like broken bones from accidents.  Broken bones are repairable, so a policy that requires the loss to be irrecoverable would not pay immediately in a case like that but would require you to satisfy the Elimination Period.

_

Residual Disability Rider: Under a residual disability rider, an insured receives a percentage of his or her disability benefit based on the percentage of income loss the sickness or injury has caused.  Without this rider, it’s all or none – you have to be totally 100% disabled to received your benefit.  Over 90% of claims are residual (or partial) claims.

_

Mental/Nervous Provision: This provision will be in every policy contract, but it will vary from company to company.  It is important to choose a policy that will not limit payment of benefits if they are related to mental/nervous issues.  Some companies will limit the payment of benefits to 12 months, 24 months, or 36 months.  Quality contracts will not limit payments, but rather they will pay benefits for a mental/nervous claim just like any other claim for the normal stated Benefit Period of the contract, for example to Age 65.

_

Cost of Living Adjustment (COLA) Rider: Individual disability income policies generally offer a cost of living rider that will adjust benefits for inflation during a long-term claim.  Typically, it is sufficient to choose a 3% cost of living adjustment.  Without this rider, benefits will remain flat and will pay for less and less over time as inflation and cost of living increases.  The difference between having this feature or not can potentially be millions of dollars in payable benefits.

_

Future Increase Option (FIO) Rider: This feature locks-in your health and insurability for the future.  As your income goes up, you will need to increase your benefit amount to keep pace with your income.  This feature allows you to purchase additional benefit up to a stated age without proving your health or insurability again.  You only need to provide documented proof of your income.

_

Catastrophic Disability Benefits (CAT) Rider: This feature provides an additional benefit above and beyond benefits for total or residual disability.   The CAT rider, combined with the base benefit, could replace up tp 100% of an insured’s taxable income. A Catastrophic disability is one that:
1. prevents the insured from performing two or more activities of daily living without human standby assistance; or
2. causes cognitive impairment; or
3. is irrecoverable.

_

Maternity: Most all companies will cover disabilities caused by complications resulting from pregnancy or childbirth.  However, most companies will NOT cover disabilities resulting from normal pregnancy issues.  The biggest example is back pain.  While you still must satisfy the normal Elimination Period (usually 90 days), you can collect a claim benefit afterward if it is not excluded.  Very few companies will currently cover normal maternity, but it is important to ask.