DISABILITY INCOME INSURANCE

When a person becomes disabled and unable to work, at some point their

income will stop. It might be sooner or later, but unfortunately, life goes on and

daily living expenses continue to mount.

Disability income insurance is available to continue at least a portion of

ones income while unable to work. It’s sad, but most people give more attention

to life insurance than they do about income replacement should they become

disabled.

Disability income insurance is available individually or sometimes as a

portion of a group benefit provided by an employer in their group package.

Individual policies are most often sold to self-employed and professional

people. The amount of the benefit relates to earnings and is matched as close to

after tax income as possible. Generally it is up to 60% of monthly net income and

there is usually a cap on the amount.

When included as part of a employee group benefit package, disability

income policies are usually more liberal than individual plans as far as limitations

and exclusions. It is also much easier to acquire coverage. As a general rule,

group plans are much less costly to all parties.

Disability income protection should be an element of your entire financial

planning. The importance cannot be overestimated because it relates to your

overall family finances. Whatever you situation may be, disability is one of the

most important factors when you consider you inability to work and produce

income.

Some things to consider when determining disability income needs are:

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pay into the retirement ends.

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workers compensation.

Some thought needs to be afforded to the possibility of “total disability.”

That definition is important as it is always defined in a policy and different

companies may use different definitions.

Interpretation is important as it pertains to the insured’s own occupation

and any occupation the insured may be qualified to perform.

The first method used to determine total disability concerns the

occupation that the insured is normally engaged in. In this case total disability

might be defined as “the insured’s inability to perform any or all of the duties or

his or her own occupation.” This is determined by the insured’s occupation at the

time that disability begins.

The second method is more restrictive defined as “the insured’s inability to

perform the duties of any occupation for which he or she is reasonably qualified

by education, training or experience.”

In other words, while you may no longer be able to conduct the duties of

your current occupation you may be able to perform activities in a related field.

There are some disability income policies that use another criterion to

classify total disability. This is called presumptive disability and automatically

qualifies the insured for total disability classification. These conditions are:

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Presumptive disability may also be decided by using a loss of income test.

If the earnings after disability significantly drop below pre-disability earnings by

a given percentage the insured may be considered totally disabled.

Usually short-term policies cover non-occupational disability but most

long-term policies cover both occupational and non-occupational sickness and

accidents. Bear in mind, however, that occupational benefits are usually reduced

by benefits received form workers compensation and social security.

Other considerations are the probationary period, elimination period and

the benefit period.

Some disability policies use a probationary period that begins when a

policy goes into effect and no benefits are paid during this period. It varies but is

often 15 or 30 days and sometimes up to 60 days for long-term policies.

In addition to the probationary period some policies also include an

elimination period. It begins when the policy goes into effect and can last for any

length of time even up to a full year. This is usually left to the insured to decide

as it is based on how long the insured can go without income after becoming

disabled.

The primary advantage to a long probationary period is a low premium

and allows the insured to use premium dollars to purchase a benefit that best

suits their needs.

The benefit period, which is the length of time, can vary depending on the

needs of the insured. They can be as short-term as 13 weeks up to long-term as

long as age 65.

As a general rule the longer the benefit period, the higher the premium.

Same as everything in life, we get what we pay for.

Benefit amounts for both short-term and long-term policies range from

50% to 66 2/3% of earnings with a cap on the maximum amount to be paid.

Other disability categories are confining vs. non-confining, partial,

residual, recurrent, delayed, combined accident and sickness and non-disabling.

We won’t cover definitions of each category here, but do be aware of their

existence and check your policy for a definition of coverage for these types of

disability.

Most companies offer optional short-term benefits for an additional cost.

A typical disability income policy might include all, some or none of the items

below so it is important to discuss these with your agent. These options are:

Supplemental income – sometimes called an additional monthly benefit

rider, provides additional income during the first several months of a long-term

disability.

Hospital income – pays a stipulated amount per day when hospitalized

extending for a certain period and can be up to 12 months.

Elective benefits or indemnities – provides lump-sum payments for

certain injuries like fractures, dislocations, sprains or amputations of toes or

fingers and is elected by the insured in lieu of weekly or monthly benefits stated

in a contract.

DIFFERENT TYPES OF HEALTH INSURANCE POLICIES

Health insurance is a legal contract between two or more parties that

promises certain performance in exchange for considerations. A health insurance

policy is considered a unilateral contract. This is because only one party (the

insurer) is required to fulfill their obligation. While a policy owner may decide to

terminate premium payments, as long as the payments are paid the insurer must

meet their responsibility under the contract.

A health insurance policy can provide just one or any combination of

certain benefits:

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an accident

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also be referred to as “loss of income” or “loss of time”

An accident is an injury that occurs accidentally. A sickness is an illness or

disease that is not the result of an accident. Knowing the difference is important

because policies may have different provisions that apply to accidents or sickness.

Also, there are some companies that sell a separate accident policy that does not

include sickness.

The terms accident and sickness are widely used and often

interchangeable in any discussion of health insurance. They are often

abbreviated as A&H and A&S. Health insurance is also referred to as medical

insurance.

As we discussed above, health insurance is designed to protect again two

types of economic loss. Loss of income and expenses for medical care which

places them in either of two broad policy categories:

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Disability income policies can also be referred to as loss of income, loss of

time or replacement income. This type of policy will pay benefits to an insured

who is disabled and can no longer work to earn a regular income. Payments can

be weekly or monthly depending on the policy.

Medical expense policies are represented by a wide range of coverage from

very minimal to comprehensive packages with multiple coverage. Some include

both accidents and illnesses, various hospital expenses and other costs pertaining

to medical care such as:

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Any of these policies might cover various combinations of the above and may be

paid in a lump sum.

Accident Policies. Some policies cover only accidents and not illness. As

you might imagine, policies like this are very specific about what is considered an

accident.

It is important to understand what is defined as an accident as it pertains

to the health insurance industry. . .an accident is an event that is unforeseen and

unintended.

Keep in mind that any discussion of this type of policy also applies to any

type of policy that includes accidental coverage not just accident specific policies.

Accident benefits are most commonly paid for accidental loss of life (also

called accidental death), accidental loss of limb or sigh (dismemberment), loss of

time and/or income, hospital expenses, surgical expenses, and medical expenses

like visits to the doctor.

Let’s expand a bit on dismemberment. As we said, this would be loss of

limb or sight, however, different states have statutes that define dismemberment

and they can vary from state to state. This is a subject that you need to discuss

with your insurance agent to determine what actually constitutes

dismemberment in your state.

Accidental Death Benefit can also be referred to as “principal sum.” This

type of coverage should not be confused with life insurance. There is a world of

difference between the two. Life insurance policies will generally regardless of

the cause of death. An accidental benefit is paid ONLY if the death is accidental

as opposed to a death by natural causes or illness.

The person who received the death benefit is called the beneficiary. The

policy owner has the right and responsibility of naming beneficiaries. Usually

there is a primary beneficiary however he/she can assign a second and even a

third beneficiary.

The primary beneficiary is the first person in line to receive the benefit in

the event of the death of the policy holder. They can also name a second

beneficiary who would receive the benefit in the event the primary beneficiary

dies before the insured. Some policies can include a third beneficiary who would

be in line after the first two.

There is much more to be learned about accidental death policies, but we

would like to mention one important element before we move on. An accidental

death may not be instant. A person can die as a result of an accidental injury

months after the accident occurrence. Read your policy carefully because most

stipulate that the accidental death benefit will only be paid if death occurs within

three months of the accident.

INTRODUCTION

If you want to spark a spirited debate at your next social gathering, just try

bringing up the subject of health insurance. You will undoubtedly set off a

firestorm of opinions.

Years ago, acquiring your first health coverage was almost a right of

passage. You began your career and you were automatically enrolled in your

employers health plan after your first 90 days of employment.

That still takes place today but the health care industry has

metamorphosed into a gigantic monster gobbling up resources everywhere it

travels. Rates keep going up at an astounding pace and more employers are

cutting back on their plans or doing away with their health benefit packages

entirely.

Naturally, no one document will tell you everything you ever wanted to

know about health insurance. When it comes to health insurance there is no “one

size fits all.”

However, what will do is provide with enough knowledge to weigh the

options and make informed decisions regarding your own circumstances.

The most important tool you can have when looking for good health

insurance is knowledge. Unfortunately there aren’t too many places where you

can obtain that knowledge without having to spend months wading through the

small print.

So, before discussing the various plans that are available, we must first

grasp an understanding of the complex nature of health insurance. Therefore,

our first chapters are written specifically to help you understand the terminology

and different components involved so that you can make those informed

decisions and present it in plain English. Let’s get to it!