It pays to be an educated consumer, especially when understanding your disability income insurance. The best way to learn about your coverage is to read your policy’s fine print. Here you’ll find such details as benefit amounts, any exclusions that apply, and the criteria necessary to be considered disabled by your insurance company. Arguably, this definition of disability is the most crucial aspect of your policy because it will govern whether you qualify for disability benefits at the time of need.
The most basic definition of “disability” is the inability to earn an income due to sickness or injury. However, different insurers break down that broad definition into more specific circumstances:
- Own Occupation – Defines disability as the inability to handle the fundamental duties of your occupation. This means you can be considered disabled and receive benefits while working in another field. Rates are highest for this type of policy, and generally, this coverage only makes sense for individuals employed in highly skilled occupations such as surgeons, dentists, etc.
- Modified Own-Occupation – The most common definition found in policies written today. Pays benefits if you cannot perform your occupation’s substantial and material duties and are not working in another occupation.
- Any Occupation – A policy of this type defines disability as the inability to perform the duties of any occupation. Qualifying for benefits means you must be completely unable to handle working at any job.
- Combination (Short-Term Own Occupation Coverage) – If you purchase this policy, you will generally receive your occupation coverage for two years. When that period lapses, you must show that you cannot perform the duties of any occupation to continue receiving benefits.
- Presumptive Total Disability – Certain catastrophic conditions automatically render you disabled in the eyes of most insurance companies, regardless of whether they were caused by injury or illness. They include the loss of sight in both eyes, hearing in both ears, speech, the use of both hands, the use of both feet, or the use of one hand and one foot. Becoming disabled by one of these conditions not only entitles you to receive immediate benefits, but it also allows you to receive benefits even if you can resume working.
- Residual Disability (Income Replacement Coverage) – This type of coverage pays benefits if you can work part-time but your income has decreased due to your disability. The benefit amount is calculated by determining the percentage of your current part-time income about your former full-time income. Some insurance companies require a period of total disability before you are eligible to receive residual benefits.
- Partial Disability – This coverage also pays benefits if you can perform some, but not all, of the duties of your occupation.
The Insurance company might have a different meaning
In addition to understanding your insurer’s definition of disability, you should also know whether your policy provides a reduced benefit if you receive benefits from workers’ compensation, Social Security, or other government programs.
Disability income insurance can be instrumental in helping a disabled person and his or her family maintain some quality of life economically if they are unable to work. But policies are all legal contracts that need to be understood before the time of need.