Terminology: Disability Insurance
This post covers some key Disability Insurance terms that you want to know about.
Definition of Disability
You should know which definition of total disability applies to your disability income policy. Here are the definitions of total disability:
- OO – Own Occupation (OO)
You are unable to perform your Own Occupation for the length of the benefit period
- NW – Not Working
You are unable to perform your Own Occupation and not able to work for the length of the benefit period
You are unable to perform your Own Occupation for five years and then unable to work for the remainder of the benefit period
- 4th Definition (California Only)
You are unable to perform Any Reasonable Occupation and you are not able to work for the length of the benefit period
The cost of your Disability Insurance will change based on which definition of total disability you choose.
To choose the best definition of disability for your needs, start by simply requesting a quote with the definition of disability that would be your preference. Once you have a figure to work with, you can decide if you’re happy with what you see or if you would rather adjust the definition of disability in order to decrease the required premium. If you call over the phone for your quote (702-660-7000), you can narrow down your appropriate definition of disability in a matter of minutes.
The common benefit periods on disability income policies are specified in a number of years often: 1, 2, 5 or 10, or until a certain age: 65, 67, or 70. There are a few policies that offer a lifetime benefit period, and these policies are considerably more expensive. The longer the potential benefit period, the higher the policy premium.
It is important to know that even though a 10 year disability policy has the potential to provide disability income for up to 10 years, the benefit period could be substantially shortened by your age at the time of disability. For example, you only have the potential to receive all 10 years of disability benefits on a 10- year disability policy if you are disabled at or before age 55.
Owning a disability policy that can provide income beyond age 65 may be important for you. We do not recommend that a working professional should absolutely give up their individual disability insurance at age 65 based on the assumption that Social Security Disability will automatically take over. Choosing the most suitable benefit period is a matter of balancing the longest benefit period with a comfortable premium amount.
Our Recommendation: Consider your emergency savings and other possible emergency arrangements and select your ideal benefit period for a quote. Based on this figure, you can adjust your benefit period to be longer or shorter as you desire.
How much of your normal income will be replaced by your disability policy? The short answer is only: the amount you pay for. Here are two considerations to make when deciding on what benefit amount you should settle on.
- What are your monthly financial obligations?
- If you could work a lower paying job while disabled, you may only need to replace the gap in your income. If you buy disability insurance to cover a gap in income, make sure that you choose your definition of disability (see above) appropriately.
To select your benefit amount, ask to find out what the maximum benefit can be for you in your profession. Once you have that figure you can apply for the full benefit amount or adjust it down if you prefer.
Think of the Elimination Period as a “Waiting Period”. This period is the number of days that you must wait after you have legally been disabled before you receive any disability benefits. The longer you can afford to wait before receiving disability benefits the more you will like your premium payment because the longer your elimination period, the lower your premium.
Elimination periods can range from 30 days to two years! A 90 day elimination period tends to be a sweet spot for many professionals. Diligent savers, can benefit from opting for a longer elimination period while holding over on their savings. This will allow them to save considerably on their premiums. To select the best elimination period for yourself, ask us what your options are. Ask to see a quote with the elimination period that you think would be best for you and then work from there.
There are many riders that can be attached to your disability policy to custom tailor it to your situation. Some riders provide an extra benefit for a catastrophic disability. Some riders provide a benefit that will continue paying off your student loans without reducing your monthly benefit and some riders will increase your benefit over time to keep up with the rising cost of living.
When we provide you with a quote, we’ll ask you questions about your situation so we can give you information about riders that may be appropriate for you. You are also welcome to ask us for information about all of the riders that you can have attached to your disability policy.
You can read more about Common Riders for Disability Insurance here.