What Type of Disability Insurance Is Right for Me?

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In the event of an accident, injury or illness that prevents you from working, disability insurance provides you with a percentage of your earnings. But not all disability insurance policies are the same. In fact, almost all of them will compensate for different percentages of your income (usually between 50 and 70 percent), as well as different qualifying periods and benefit periods. Elimination periods refer to the length of time you have to wait before your benefits start. Benefit periods refer to the length of time that benefits will be payable, which depends on your disability and the policy you purchase.

Most plans have a start date ranging from 30 days to 120 days after the onset of a disability. Coverage typically focuses on illness or injury, and your plan cannot change without your permission before age 65.

In general, experts agree that disability insurance is a must for people, whether you are on a group plan with an employer or are purchasing an individual policy for yourself. But with so many plans available, it's important to understand the differences between each. Here is a breakdown of the main types of disability insurance available:

• Group disability plans: This is the most common type of disability insurance plan and is usually offered by your employer. The lowest level of group coverage often focuses on affordability, which is good, but that means the benefits and payouts can vary widely. Keep in mind that group plans usually won't cover your income levels to any significant degree, which can be difficult when you can't work. They also often have monthly or annual caps on the dollar amount that will be paid and set time limits that may be shorter than what you need. Group plans should always be read carefully, as you may often find that what you thought you were getting is very different from what you actually got.

• Individual disability plans: If you don't have a group plan or don't like your group plan, you can always go for individual disability insurance. Without a group, the prices are often very different and will be tailored to your unique situation and needs, which can be both a plus and a minus. In general, plans are cheaper if you are young, healthy, and in a low risk job than if you are older, in poor health, or if you work in a job that is considered high risk for disability. Still, by looking at your individual options, you might find a plan that fits your needs, wants, and budget more than a group plan. Doing the research might result in a better policy and position for yourself.

• Creditor disability insurance: Disability insurance is now typically tied to debt, like auto loans, leases, mortgages, and lines of credit. With Creditor Disability Insurance, your financial institution purchases a group policy, and you become a member of the policy when you take out a loan from that institution. These policies make loan payments on your behalf rather than sending the money directly to you.

While group plans are generally less expensive, individual plans offer better coverage and can be tailored to your specific needs, including better terms and conditions compared to a group plan. Remember that premiums and terms and conditions are locked in until you turn 65 unless changes are made with your express permission. Individual plans are an excellent option for the self-employed, as well as for professionals and managers, as they may have a “own profession” definition of disability. This means that an insurance company cannot force you into another profession based on your experience and education, an important characteristic for many professionals. Professionals should be wary of association disability plans, as the terms, conditions, and prices of these group policies can change at any time, and often do.

If you are in need of disability insurance, be sure to do your research on any policy you are currently purchasing or purchasing.


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