Disability Insurance Decision Points

As clients consider their disability income insurance options ti may be best to lay out these options in terms of decision points. Insurance lends itself easily to this forumula of "A" versus "B". Disability coverage especially fits this selection method since it is an elective employee benefit, either "A", the cost benefit is there and easily seen or "B", it would be nice, but not necessary considering the cost.

Let's take a closer look as here are some considerations for workers weighing their company plans and other options and disability dollars now.

Employer-provided versus private

This is a tough call. If the employer pays for coverage there’s no reason the employee should not take it, particularly since disability insurance costs are rising. And Andrews says corporate plans and are more full-featured than privately-available ones. But if the employer wants employees to pay for the coverage, a good broker will weigh the benefits offered by private plans and determine what is best for their client.

Richard Quadrino, a Garden City, New York, attorney who represents consumers whose disability claims have been rejected, suggests that private coverage can be superior. If an individual buys their own coverage, any benefits collected are tax-free; and if they end up collecting from an employer-paid policy, the client will have to pay income tax on those benefits.

When to start, how long they will last

Short-term disability insurance typically covers benefits starting within a few weeks to three or six months. Long-term disability coverage, which offers benefits until retirement age, typically starts at three to six months. The longer the waiting period, the cheaper the premium.

Clients can save money if you they buy long-term coverage, but rely on savings or other sources of cash for short-term disabilities. And they can save about 10 percent to 12 percent of the premium by going from a six-month waiting period to a 12-month waiting period to start benefits, says Lundquist.

Disability Coverage Options

Producers, agents, brokers, and insurance company staff need a thorough understanding of the nuances of the various definitions of disability to know how benefits are ultimately paid to clients who incur a disabling injury or illness. Own Occupation

From an insured's perspective this is the most desirable definition. When "own occupation" is the basis for contractual benefits the insurer will pay benefits if the insured is unable to perform the substantial and material duties of her regular occupation because of illness or injury.

Any Occupation

This definition is more restrictive as benefits are only paid if the insured is unable to perform the duties of any gainful occupation for which he is suited by education, training, or experience.

Partial Disability

Under this policy benefit, the insurer pays a benefit when the insured is only able to return to work (as authorized by his doctor) in a partial capacity. The concept is that an insured who is able to perform some, but not all of the duties of his occupation, is entitled to some benefits.

Residual Disability

This benefit encourages employees to return to work, at least part-time, following an injury or illness. A residual disability is one that results in the inability for an insured to perform some of the duties of her own occupation full-time, leading to a loss of income and therefore a benefit is paid.

Be aware, however, that even long-term disability may not last as long as the client might expect. The typical length of a disability claim is two-and-a-half years. Its in insurers best interests to do whatever they can in terms of rehabilitation and job training, to move beneficiaries back to work. And though Cadillac policies (and most privately-sold ones) offers “own occupation” coverage — meaning that the client will receive benefits unless they’re able to go back to work in your chosen field — many employer-paid plans only cover “own occupation” benefits for the first two years. After that you’ll be expected to try to find work in any field.

How big a benefit can you collect?

It’s typical now for companies to pay for long-term coverage that would pay workers 50 percent or 60 percent of their income, and to allow workers to pay for another 10 or 20 percent of their monthly benefit. But be aware that many policies also limit total monthly coverage — the median weekly maximum is $1,154, according to Mercer.

Clients may need more money than that, especially because Mercer reports that two in five employers will kick you out of their health insurance plan while you’re out on disability. The disability income insurance should cover 60% of the individual's salary.