Disability Insurance (DI)

  1.   Product & Services / Health & Life Insurance / Disability Insurance (DI)

Disability Insurance, often called DI or disability income insurance, or income protection, is a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work.

There are two types of disability insurance

  • Short term disability insurance policies offer a worker a portion of their salary if they are unable to work for a short period-typically three to six months.
  • Long term disability insurance offers a worker a portion of their salary if they are unable to work for a longer period-typically a period of over six months.

Both short term and long term disability policies have a period that a person must be disabled for before that individual is able to start receiving disability benefits. That period of time is called an elimination period. If a person becomes disabled, they must wait until the elimination period is over before they start receiving benefits. If they are able to work before the elimination period is over, the person will not receive a benefit.

How Disability Insurance Works?

Disability insurance comes in many forms and can be obtained through a wide range of providers for a wide range of prices. The price of a disability insurance policy depends on the length of the elimination period, the benefit period (how long a person is able to receive the disability benefit), and how strict the definition of disability is under the policy. Each policy can have its own definition of what qualifies as "disabled," so it is important to understand these rules before buying a policy.

How Disability Insurance Works?

When you're unable to perform your normal job duties because of an illness, illness, or other condition-whether or not it's permanent-disability insurance replaces a certain percentage of your gross monthly income. It won't completely replace your pay, but it provides enough so you can afford food and other necessities without drastically changing your lifestyle.

Like other insurance policies, you pay a monthly premium to keep your DI policy in effect. If something happens and you cannot work, you file a claim with the insurance company so you can receive a monthly payment, called a benefit. The benefit amount varies by type of plan, but it is generally 60% or more of your gross monthly pay. Benefits will pay out for a certain length of time, called a benefit period. Your benefit period depends on the type of plan you have.

Before you can apply for benefits, you have to go through the policy's elimination period, also called the waiting period. The elimination period for a short-term disability is typically one or two weeks, and the most common elimination period for a long-term disability is 90 days. Policies with shorter waiting periods are typically more expensive (higher monthly premiums) and less-expensive policies have longer waiting periods.

Disability insurance vs workers' compensation!

Workers' compensation is covered entirely by your employer. Unlike disability insurance, which can cost a couple of hundred dollars per month in premiums, you don't need to pay anything for workers' comp. However, there are two important reasons to consider disability insurance in addition to workers' comp.

Disability policies cover you regardless of where or how you sustain an injury (as long as you meet the policies definition of disability) but workers' compensation only covers work-related injuries and illnesses.

Most disabilities happen off the job and therefore wouldn't be covered by workers' comp. For example, disability insurance would likely cover injuries from a car crash if they keep you out of work, but workers' comp would not cover you unless the accident happened as part of your job.

Disability insurance riders

Disability insurance riders are optional add-ons that allow you to customize a policy to meet your specific income needs. Adding a rider may increase your monthly DI premiums, but it allows you to increase your benefit payment in certain circumstances. The following are common types of DI riders:

  • Cost of living adjustment (COLA): Adjusts the value of your monthly DI benefit based on inflation
  • Future increase option (FIO): Allows you to increase your monthly benefit in the future if your income increases, but your premiums will also increase
  • Automatic benefit enhancement (ABE): Automatically increases your benefit each year, for a certain number of years, based on common income increases that a healthy individual can expect
  • Partial or residual disability benefits: Your policy can continue to pay partial benefits after you go back to work if you've lost earning power because of your disability