Disability insurance is perhaps one of the most important types of insurance that a person can have next to health insurance. Personally, I often consider disability insurance even more essential than life insurance simply because the average person is more likely to become disabled than to die. All disability insurance policies work under the same premise, with only minor differences from one insurance company to another. What separates a “Long Term” disability insurance policy from a “Short Term” policy is simply the duration of the benefit.
To further clarify, there are three basic components to every disability insurance policy: the Elimination Period, the Benefit Period, and the Benefit Amount. The Elimination Period is how much time must pass after a person becomes disabled until they can begin collecting money from the insurance company. Typically this will be somewhere between 90 and 180 days, and the choice is entirely up to the client. Obviously, a lower Elimination Period will result in a higher premium, and careful consideration should be taken before making a decision.
The Benefit Period is the length of time that a client may collect from the policy before all benefits have been exhausted. Again, there are several common choices here that range from a one year duration through age 65. The smaller the Benefit Period, the smaller the cost of the policy. It’s important to note, however, that even though the Benefit Period choices are similar between most insurance companies, there is often a significant difference in how the collection of benefits affects any remaining time. Some companies will completely restore the Benefit Period to its original duration if the client stops collecting for a specified period of time, while others will not.
Lastly, the Benefit Amount refers to the actual monthly dollar amount that will be sent to the client if he or she becomes disabled. Most people opt for the maximum amount permitted by the laws of their state, but there is always the option of taking less, which will obviously lower the cost of the policy. The most common benefit maximum is between 60-66% of your current gross monthly income and many insurance companies will request proof of income prior to issuing a policy.
To summarize, the three basic parts of a disability insurance policy are Elimination Period, Benefit Period, and Benefit Amount. Each of these aspects can be separately customized to create a policy that fits perfectly within the confines of a client’s budget and fulfills their protection needs.