Individual disability insurance is a simple concept. It is an insurance product designed to replace anywhere from 45 to 60% of your gross income on a tax-free basis should a sickness or illness prevent you from earning an income in your occupation. Every disability insurance policy from every insurance company is very different so it may not be adivisable to simply shop for the most competitive rate.
Many of us have never had a major medical problem but the truth is that about 30 percent of Americans age 35 to 65 will suffer a disability lasting at least 90 days sometime during their careers. Should you ever need the protection a disability policy can offer you'll be glad you took financial precautions now. Without coverage, an unexpected disability can easily drive you into serious debt if not bankruptcy.
Many people have a disability plan through our employers but most company-issued disability insurance programs only provide you with 60% of your salary and sets a monthly maximum of $5,000 to $10,000, which can be even less than 60% of a highly compensated employee's salary. And there's another problem; those benefits are also fully taxable, which means you're actually getting a lot less than 60% of what you're used to. Details like this make it clear that everyone should be mindful of their company-sponsored programs while looking for any opportunities that may be better.
When considering a disability policy you will want to ensure that it is renewable.
There are three options:
1. A non-cancelable and guaranteed renewable policy
2. A guaranteed renewable policy
3. A conditionally renewable policy
While the price for a non-cancelable policy can be a little steep it by far the best option as it locks in your rates and benefits. The insurance company can not make changes unless you request them.
A guaranteed renewable policy is the second best choice. After you enter in to this type of policy, your insurer doesn't have the right to drop you, but they reserve the right to raise prices for specific reasons such as making a claim or reporting an injury that could increase the odds of making a long-term claim.
The least preferable choice is conditional renewable policy. If possible, avoid conditionally renewable policies as the insurer can put any conditions on your policy or raise rates at any time for any reason.
