The possibility of becoming disabled isn’t something someone would normally plan for, yet it happens every day.
A disability, whether it’s sudden or because of a degenerative condition, can rob you of your ability to earn a living.
To ensure you’re protected in case of an accident leaving you unable to perform your day-to-day activities, disability insurance has you covered.
It's important to make informed decisions when evaluating disability insurance. In the following, the top 8 FAQ about disability insurance for small business owners are presented.
1. Why do you need disability insurance?
Disability insurance provides an income if you are no longer able to work. If you become disabled, most of your expenses will still exist. Mortgage payments, car payments, household expenses; they all have to be paid. In fact, you may find you have extra costs, such as drugs, medical care or perhaps special requirements. Disability can be very expensive.
2. When is the right time to purchase disability insurance?
If you need it, then right now! It will never be cheaper for you than it is right now because the cost increases with age. If you’re in good health, you should easily qualify for a policy – and can lock in better rates at this age. However, if your health declines, you may no longer be insurable at an affordable premium.
3. How much disability insurance do you need?
Typically, the amount of disability income insurance required is about 60% of your salary. With most disability insurance providing a tax free benefit, 60% represents close to full replacement of your current earned income. Insurance carriers will of course impose a maximum limit of coverage so as not to reward you for staying off the job.
4. I already have disability insurance under a group plan, is that enough coverage?
Generally speaking, no. Group disability insurance policies will impose more limitations and include exclusions to coverage. It’s recommended that you review your group disability insurance to identify any limitations and consider personal coverage to complement any shortfalls.
5. What is the elimination (waiting) period?
The elimination period is the amount of time you have to wait from the first day you get ill or injured to when you start receiving benefits. Disability policies can carry elimination periods of 30, 60, 90, 180 or 365 days. Generally, the longer the elimination period, the lower your premiums will be. But keep in mind a few important things:
Most policies are designed to be most cost-effective with at least a 90-day waiting period.
Individual policies usually pay at the start of each month – so if you have a 90-day elimination period, you will not receive your first claim check until the 90th day.
You should look at your financial situation to determine how long you can be without an income to decide what elimination period is best for you.
6. What features should I have on my disability policy?
We’ve recommended below key features a good-value disability policy should have. These recommendations are based on our extensive research and lean toward more comprehensive coverage so you’re covered when you need it most.
Good-value disability policies should always have:
“Regular occupation” - How a disability is defined in relation to your occupation is one of the most important features of a disability policy. A "regular occupation” policy defines a disability as the inability to work at your regular occupation and, as such, you are not forced to work outside of your field.
Non-cancelable coverage - This feature is a rate guarantee and ensures the carrier can never raise rates on the policy or cancel it (unless you stop paying premiums).
Residual benefits - Under a residual benefits disability provision (either in the policy or available by rider), you’ll receive partial benefits if your illness or injury has reduced your income but you’re still able to work (for example, if you’re only able to work four out of five days, a residual benefit will make up for the income loss).
Additional insurance option - This feature gives you the option to increase your coverage as your income rises over time, regardless of any changes to your health.
7. Will I need to take a medical exam?
For an individual disability policy, you will probably have to submit some medical information as part of the underwriting process. Depending on your health history, your age and the amount of insurance applied for, you may also be required to take a paramedical exam. This exam is paid for by the insurance company and scheduled at your convenience. Usually, the exam involves basic measurements (of height, weight, pulse and blood pressure) and may also require blood and urine samples for analysis.
8. Do I have to pay more if I purchase a disability policy through an insurance advisor?
No. Buying a policy through an independent broker/advisorwill not cost you more than if you purchased directly from the insurer. In addition, an independent advisor will be able to give you recommendations from a number of carriers so that you can compare policies, features and price and make an informed decision.