The disability income (DI) marketplace has undergone significant transformations in the past 20 years. Luckily, newer DI policies are far superior to their older counterparts. Read on to learn about how these policies have changed for the better in recent years.
A quick history lesson
The disability income marketplace was forced to make significant changes in the 1990s when there was a surge in fraudulent policy claims. Many critics blamed the rampant fraud on the policies’ loose definitions, lenient requirements, and underpriced premiums. In response, U.S. insurance carriers tightened up by reducing limits and benefit amounts.
Today’s typical DI coverage
Today, the most common type of DI coverage is group long-term disability insurance. Although many U.S. employers offer their workers this coverage, these policies have some downfalls.
First, covered workers must meet strict requirements before they can receive benefits. Additionally, monthly benefits typically cover 60% of a worker’s salary and are generally capped at $10,000 to $15,000 monthly. Many workers, specifically those with higher salaries, don’t receive enough benefits to cover their expenses. As a result, highly compensated employees must purchase supplemental DI coverage to maintain their lifestyle if they cannot work due to sickness or injury.
The DI marketplace is finally making some advances. Insurers are now offering new and improved DI policies that include riders and other attractive benefits.
Here are a few of the valuable features available with some of these new DI policies:
- More coverage: Some insurers are offering higher coverage limits.
- More extended benefit periods: An innovation is the graded lifetime benefit which pays a level benefit until the insured turns 65 and, assuming the insured remains fully disabled, a reduced benefit after that.
- Own-occupation riders: An own-occupation policy pays the insured if they cannot perform their current job duties but choose to take on a different job. After the fraud crisis in the ’90s, many insurance carriers ended these contracts saying they carried too high a risk for claims. However, this type of coverage is making a comeback. This rider is particularly valuable for doctors, other medical professionals, and attorneys.
- Catastrophic insurance rider: This benefit can provide clients with additional monthly income for necessary equipment, nursing, or minor home improvements if the insured loses two or more activities of daily living (ADLs) due to their disability.
- Retirement protection: This benefit provides the insured with continued retirement contributions to a tax-deferred annuity or trust account to replace their forfeited 401k and profit-sharing plan contributions if they become disabled.
With all of these new advances and benefits, it’s clear that the DI marketplace has come a long way. If it’s been a while since you last reviewed your existing DI coverage or if you have no coverage currently, give us a call to learn more.