What is Disability Insurance and Do I Need It?

Disability insurance (DI) is a form of income protection that pays you a portion of your monthly income if you can’t work because of an illness or injury.  Depending on the type of Disability Insurance, it could cover 60-80% of your income for a set period of time if you are unable to work.

What is a disability?  Believe it or not, this is a legal question and not necessarily a medical one.   It is important to read and fully understand the definition of disability used by your provider.

This much we can say.  Disability insurance can cover short-term and long-term situations. 

     The most common reasons for short term disability are¹:

• Pregnancies (22%)
• Musculoskeletal disorders affecting the back and spine, knees, hips, shoulders, and other parts of the body  (19.9%)
• Injuries such as fractures, sprains, and strains of muscles and ligaments  (11.6%)
• Digestive disorders, such as hernias and gastritis   (7.8%)
• Mental health issues including depression and anxiety  (7.1%)

      The most common reasons for long-term disability claims include¹:

• Musculoskeletal disorders (29.7%)
• Cancer (14.8%)
• Injuries such as fractures, sprains, and strains of muscles and ligaments (12.3%)
• Mental Health issues (8.6%)
• Circulatory (heart attack, stroke) (8.1%)

There are different ways that someone can get disability insurance, e.g., through your employer or through individually-purchased policies; each with its own limitations.  We’ll go over some of those options here.  If you choose to purchase your own disability policy, and we suggest that you do, Desert Mountain Insurance is an independent broker.  That means we can research a multitude of carriers to compare quotes and walk you through the details so you get the coverage you want, you know what is and is not covered, and you understand your policy completely.  

Types of Policies

Many people are covered by workers comp through their employer and think that it’s enough.  It’s important to remember that while a workers comp policy covers disability, it only covers work-related injuries and illnesses. An injury outside the workplace would not be covered.   An individual disability policy will cover you regardless of where or how you sustain an injury as long as you meet the definition of disability within your specific policy. 

The Social Security Disability Insurance (SSDI) is another form of insurance that you get through your employer.  It’s paid for through your payroll taxes.   It can certainly be a help if you find yourself disabled but it may not be something you want to rely on for immediate assistance.   Here’s some facts from the Social Security Administration  

• It generally takes three to five months from time of application for SSDI benefits to get an initial decision². The backlog of appeals cases was more than one million in 2017, with associated processing time averaging more than 18 months³.
• The average SSDI benefit as of January 2018 was $1,197 a month⁴. That equates to $14,364 annually — barely above the poverty guideline of $12,140 for a one-person household, and below the guideline of $16,640 for a two-person household⁵.

Some employers also offer disability policies outside of workers comp.   Make sure you read the policy well as they may be offering only short-term disability and would not help you should be need something longer.

You can also purchase a disability policy on your own which is the best way to get enough coverage and the coverage that you want.

What Do I Need to Know When Looking for a Disability Policy?

There are several things you should consider when you are looking for personal disability policy: 

• Know the definition of disability used by the insurer and what options are available.  Many insurers offer multiple options from which to choose.
• You should know what your disability policy covers.  Are you allowed to work while you’re on disability and in what capacity?  Some plans will specify “own-occupation” while others specify “any occupation.”  The difference is that “own occupation” will provide coverage if the insured is unable to perform the majority of the occupation duties they have been trained to perform, while “any occupation” would provide disability benefits if the insured is unable to work in any occupation.  Pay special attention to the specific definitions in the policy.
• If you purchase a disability policy through your employer, be sure that it is portable so can take it from one job to the other.
• Premiums, of course, vary from one provider to another.  Some may be willing to lock in a premium, while others do not.  You may also be able to get a non-cancelable policy or a guaranteed renewal policy.   All of these options will affect your premium.
• How soon can you collect after a disability claim has been filed?   The collection time can vary greatly from one carrier to another.
• You will want to know if your policy includes Residual Benefits.  Residual Benefits will supplement your income if you can only work part of the time.
• Cost of Living Benefits would help your policy keep up with inflation even after your disability.  They are not included in most policies but may sometimes be added as a rider to a policy.
• You should know when and how the insurer can make changes over the course of your coverage.  Can they change your coverage rate or terms at any time?
• Some carriers will allow you to add a rider called a Future Increase Option for a fee.  With this additional rider, you are able to increase the amount of your monthly benefit as your income increases over the years. The amount of increase and how often it is allowed is set by the insurer.
• Can you renew your policy?  Some policies can be guaranteed renewable policies and cannot be canceled even if a change in your situation puts you at greater risk.  Note:  A guaranteed policy does not mean guaranteed premium; your premium can change.   A non-cancelable policy offers a guaranteed future premium.  The best disability insurance policies will be non-cancelable and guaranteed renewable.

 

Purchasing disability insurance is a very personal decision and there’s a lot of information to consider.  Give us a call at 480-348-2200 and we can help you understand what is available so you can make an informed decision in safeguarding your future.

 

 

 

¹According to the report by the Council for Disability Awareness, “The State of Disability Coverage in America”

²Social Security Administration, Factsheet https://www.ssa.gov/disability/Documents/Factsheet-AD.pdf

³ Social Security Administration, Age Distribution of Pending Hearings, (FY 2015 – FYTD 2019 Quarter 1), https://www.ssa.gov/appeals/ charts/Age_Distribution_Pending_Hearings_FY2019_1st_Qtr.pdf

⁴ Social Security Administration, Monthly Statistical Snapshot February 2019 https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/2019-02.pdf, Table 1.

^`ASPE Poverty Guidelines 2019, https://aspe.hhs.gov/povertyguidelines

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