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Don’t Ignore Disability Income Insurance

What should you look for in a private disability income insurance policy? In addition to the cost of the policy, here are some of the key points to consider.

Definition of disability: The exact definition of what constitutes a disability can differ from insurance company to insurance company (and from policy to policy). In general, you should aim for a policy that pays benefits (1) regardless of how you were injured and (2) if you are not able to work in your chosen profession. For example, a computer technician who suffers a serious hand injury could still collect benefits if he or she performs other duties for the company.

Elimination period: Disability income insurance policies are generally available with a 30- to 90-day “waiting period” until benefits are paid. You can lower your premiums by choosing a longer length of time after becoming disabled to collect benefits. You might look into a policy that provides exemptions from an elimination period if you become disabled again. It may even be possible to waive the pre­mium if that happens.

Benefits period: There are certain types of policies that pay disability income insurance benefits until your retirement. But if you are disabled at a young age, you may not yet be entitled to retirement and Social Security benefits. As a precautionary measure, you may want to obtain coverage for your lifetime.

Renewals: Make sure that you have a renewal guarantee, so your insurer will not drop you if your health declines. In addition, purchase a “noncancellable” policy. In effect, this means that your premiums will not be raised until you reach age 65.

Partial disabilities: You might also seek a policy that makes payments to you if you are only partially disabled. Once again, the definition of a “partial disability” will differ depending upon the insurance company and the policy involved.

Proportional benefits: Suppose you are a small-business owner who is disabled for six months. While you are gone, you lose clients that provide you with about half of your income. It may be possible to obtain a policy that will pay partial benefits in proportion to your loss of income. In this case, you would receive a benefit equal to 50% of the policy amount.

Don’t think that you’re “immune” because you have never been seriously injured before.

A sudden disability can turn your life upside down. Obtain more information to see how a disability insurance policy can provide protection for your family.

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