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Disability Insurance

Disability Insurance 101

Disability insurance is an important type of insurance for individuals, especially so for the primary wage earner in a family. Long-term disability can be disastrous for a family’s finances unless there is some form of disability insurance protection. 

Disability insurance can replace a portion of the salary you were making before you became disabled and unable to work after a serious injury or illness. But before you seek coverage, you should first understand the different types of disability definitions used by insurers.

One is generally considered disabled by most insurance companies if he/she is unable to perform normal duties pertaining to any occupation that they have been trained, educated and have previous work experience doing.

However insurance companies are pressing to adopt the definition that one be considered disable when they cannot perform the duties of their own occupation for a specific time period and with any other alternative occupations after that period has passed. In other words, being disabled from one’s primary occupation does not mean that one is disabled for all time as there are other occupations that a person with a disability can adopt to with new training.

In either case a disability insurance policy will pay out benefits to the insured in the event that they cannot fulfill their occupation’s functions due to injury or illness.

Before buying a disability insurance, read carefully the policy fine print and do not just accept what the sales agent says.

Buying disability insurance

Many companies offer disability insurance through a blanket policy to their employees. Group disability polices tend to be cheaper and have simpler underwriting requirements than individual policies. However most policies offered by employers will end if you leave you place of employment. These plans may pay out benefits only for a specific time period or place caps on the amount paid out. Benefits paid out are taxable if your employer pays the premium. Non taxable if you paid the policy premium yourself.

As is the case with other insurance products, disability insurance providers base their premium on the level of risk in the applicant’s occupation, general health condition and past health history. The riskier you career, or if you have a history of illnesses and dependence on prescription drugs, the more likely the policy will be rated and your premium will be fixed at a higher cost. You may even be declared non insurable if the insurer decides you are a poor risk for the company.

Insurers use an elimination period as a form of deductible before they will payout benefits. In some cases it is 30, 60, 90 days or even longer. The longer the period the less expensive the policy premium. Disability policies come with a probation period during which you may not file a claim. This is meant to prevent fraud or recovering from an earlier illness or condition.

There are added riders available for an additional premium cost such as guaranteed insurability, which basically says the insurance company cannot refuse to continue insuring you on the basis of deteriorating health conditions. 

Another rider is a cost of living adjustment to your benefit payout to match the rate of inflation when you are permanently disabled.
There are two types of disability coverage. Short term disability which benefits paying out from 6 months to 2 year.

Long term disability, with benefits paying out from longer than 6 months to age 65 or life.
There are certain exclusions and restrictions on disability policies and they can vary from one insurer to another.
Two-year maximum benefit period for mental or nervous disorders.

One-year maximum benefit period for alcohol or drug abuse related claims. Another exclusion for payment of a disability claims is, if injury or disability occurred during the commitment of a crime. There may be others so be sure to read your policy fine print thoroughly.


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