Disability Insurance for Individuals as its name suggests is the type of insurance product that provides income in a situation in which a policyholder is prevented from working and earning an income due to a disability.
In the United States, individuals can obtain disability insurance from the government through the Social Security System. They can also purchase individual disability insurance from private insurers.
How Disability Insurance Works
Most times, insurance products will protect against a specific loss, such as when a property and casualty insurance plan reimburses the policyholder for the value of the stolen property.
However, in the case of disability insurance, this compensation relates to the lost income caused by a disability.
For example, if a worker earned $40,000 per year prior to becoming disabled, and if their disability stops them from continuing to work, their disability insurance would compensate them for a portion of their lost income provided that they qualify.
In this sense, disability insurance essentially covers the opportunity cost of the now-disabled worker.
In practice, there are many conditions that a policyholder must fulfill in order to receive these payouts. This is particularly true in regard to the U.S. Social Security System.
To qualify for government-sponsored disability insurance, applicants must prove that their disability is so severe that it prevents them from engaging in any type of meaningful work at all.
By contrast, some private plans only require the applicant to demonstrate that they can no longer continue in the same line of work that they were previously engaged in.
The Social Security System also requires applicants to demonstrate that their disability is expected to last for at least 12 months or that it is expected to result in death.
As with all types of insurance, disability insurance plans will always carry more expensive premiums if their terms and conditions are more favorable to the policyholder. On the other hand, plans with less generous terms will typically carry lower insurance premiums.
Some of the key features that affect insurance premiums in disability insurance plans include the length of the elimination period, which is the length of time that the applicant must wait after becoming disabled before they can begin receiving benefits accrued; the benefit period, which is how long those benefits continue to be paid; and how strict the definition of “disability” is under the policy.
The cost of Disability Insurance
On a rough estimate, disability insurance typically costs about 2% of the annual salary of the person being insured.
Of course, the actual amount will heavily depend on the insurance carrier and on policy features such as those discussed above.
Different individuals will have different preferences in terms of how much they are willing to pay in exchange for greater or poorer protections from potential disability.
To better bring home the point, consider two hypothetical workers. Worker P is a professional working in a highly specialized field.
It took Worker P ten years of post-secondary education to become qualified in their field, and this has allowed them to generate a relatively large income of $250,000 per year. Worker Q, on the other hand, is a high-school graduate who regularly switches between jobs and earns about $30,000 per year.
Worker P knows that, if they become disabled, they may still be able to work in another field, but this would very likely require a significant loss of income. For this reason, they decide to purchase a relatively expensive disability insurance plan that has a flexible definition of disability.
Because of Worker A’s high income, they can easily afford their relatively high premiums. Worker Q, on the other hand, decides to opt for a plan with lower premiums even if that plan has a stricter definition of disability.
In addition to having fewer resources available to pay for premiums, Worker Q is also less reluctant to work in an area outside of their current occupation, since the nature of their work is less specialized.
Types of Disability Insurance
- Short-Term Disability (STD)
- Long-Term Disability (LTD)
These policies have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years while Long-Term Disability policies have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of your life.
Disability policies have two different protection features that are important to understand:
Non- cancelable: it means the policy cannot be canceled by the insurance company, except for nonpayment of premiums.
This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.
Guaranteed renewable: this gives you the right to renew the policy with the same benefits and not have the policy canceled by the company.
However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.
In addition to the traditional disability policies, there are several options you should consider when purchasing a policy. Your insurance company gives you the right to buy additional insurance at a later time.
Coordination of benefits
The amount of benefits you receive from your insurance company is dependent on other benefits you receive because of your disability.
Your policy specifies a target amount you will receive from all the policies combined, so this policy will make up the difference not paid by other policies.
Cost of living adjustment (COLA) The COLA increases your disability benefits over time based on the increased cost of living measured by the Consumer Price Index. You will pay a higher premium if you select the COLA.
Residual or partial disability rider; This provision allows you to return to work part-time, collect part of your salary and receive a partial disability payment if you are still partially disabled.
Return of premium
This provision requires the insurance company to refund part of your premium if no claims are made for a specific period of time declared in the policy.
Waiver of premium provision; this clause means that you do not have to pay premiums on the policy after you’re disabled for 90 days.
Long-term disability (LTD) insurance helps protect your ability to provide for your family and make sure that you have enough money to pay for essentials if you are too sick or injured to work.
But not all illnesses or injuries qualify as disabling conditions that would cause disability insurance to kick in.
Having some long-term disability insurance examples will help you figure out how long-term disability insurance works. Long-term disability insurance benefits may expire upon termination of employment.
Long-term disability insurance examples are a good way to show the benefits of long-term disability insurance.
Because not every medical condition or injury qualifies as disabling or is considered disabling enough to trigger the payout of limited insurance benefits. examples can be used to demonstrate the types of illnesses or injuries that may qualify for benefits.
When an insurance company is evaluating whether or not your condition is considered to be a long-term disability there are many factors that go into making that decision. That’s why it’s important that you have medical records that accurately show all of your symptoms as well as medical tests and other assessments.
For example, if your pain level is high and that makes it impossible to sleep so you have fatigue in addition to other symptoms that could be more disabling than just the original injury or condition that you have.
As a general rule, conditions that are recognized by the Social Security Administration as disabling should also qualify as disabling conditions for long-term disability insurance purposes, although that may not be true for every condition.
The Social Security Administration (SSA) maintains a list of the conditions it considers disabling that contains more than 200 conditions and any special requirements that must be met.
The conditions and requirements are published in the SSA’s Blue Book, which you can search through online to see if the condition that you have is listed in the book.
When the Social Security Administration is evaluating whether or not a condition is disabling when the person doesn’t meet all of the requirements that are in the SSA’s Blue Book they look at factors like:
Your age: If you’re older and become sick or injured it may be harder for you to go back to work than it would be for a younger person, so your age plays a factor in whether or not your condition is considered disabling.
Your education: If you haven’t had any formal education in any other field than the one you’re currently working in, you will be less likely to be able to pivot to another type of work. If you can’t do the work that you were educated to do, it’s more likely that you’ll be considered to be disabled.
Your work history: If you have been working in the same type of job your whole career or for more than ten years and you have no training in any other types of work when you can no longer do that kind of work, it makes your case that you are disabled stronger.
Your medical condition: If you develop a progressive illness that will only get worse as time goes on, that will impact whether or not you’re considered disabled because it means that you won’t recover and be able to go back to work.
No matter what your medical condition or injury is if it’s something that is progressive it’s disabling because there is no chance you will recover and be able to work again the way you did before your condition began.
What medical conditions typically qualify for long-term disability insurance?
When people think about not being able to work for a long time or becoming permanently disabled they usually think about being injured in a car crash or some other kind of accident.
But there are many illnesses that are typically considered disabling, especially if they make it impossible for you to continue doing the only type of work you’ve ever known.
What medical conditions qualify for long-term disability?
There are dozens of health conditions that may qualify someone to receive disability benefits from their long-term disability insurance.
Autoimmune disorders like Chronic Fatigue Syndrome, Lupus, and Fibromyalgia can be permanently disabling. So can diseases like HIV/AIDS, Degenerative Disc Diseases, and Crohns’s Disease.
Mental health conditions like Depression and Bi-polar Disorder also can qualify as permanently disabling if they are severe enough.
There are also conditions that can directly impact someone’s ability to work, like Osteoarthritis, which are considered permanently disabling in some circumstances.
There are medical conditions in every branch of medicine that typically qualify as permanently disabling like:
Neurological Disorders: Neuropathy, Parkinson’s, Traumatic Brain Injury, Stroke, Alzheimer’s (early onset), Bell’s palsy
Respiratory Disorders: Asthma, COPD, Emphysema, Sarcoidosis, Pneumonia, Chronic lung infections.
Cardiovascular Disorders: Chronic Venous Insufficiency, Hypertension, Congestive Heart Failure, Heart Attack, Coronary Artery Disease, Stroke, Periphery Artery Disease, Musculoskeletal Disorders, Back pain Carpal Tunnel Disorder
Fractures: Herniated Disc, Arthritis, Spina, Bifida, Tendonitis Sciatica
Other medical conditions like burns, vision loss, macular degeneration, and hearing loss may be considered to be disabling if they meet certain criteria.
Disability Insurance Benefits
There are other conditions and injuries that are considered disabling too, like some types of cancer. What illness qualifies for long-term disability depends on factors like the severity of the condition and how much medical evidence you have.
Whether or not a condition is qualified as disabling often depends on the details of your unique situation.
If your cancer is treatable then you might qualify for disability insurance benefits while you are in treatment and can’t work but you might be expected to go back to work once the treatment is successfully finished.
But the same cancer in another person might not respond to treatment and then that person would be permanently disabled.
That’s why it’s critically important to have as much medical documentation of your condition as you can get.
Make sure that you have multiple copies of any test results like MRIs, or blood tests, or PET scans. Biopsies, X-rays, and other medical test results will help prove that your condition is going to make it impossible for you to work.
Save all of the medical documentation that you are given by your doctor or the hospital and request your medical history from your primary treatment facility so that you will have a copy on hand.
What other scenarios qualify for long-term disability insurance?
If your medical illness is a pre-existing condition long-term disability insurance may not pay out any benefits.
It’s very important to get a long-term disability insurance policy in place as soon as you can so that if you do develop an illness, it’s not diagnosed before you buy insurance. Anything that is diagnosed before the long-term disability policy is active is considered a pre-existing condition and may not be covered.
How to apply for long-term disability insurance & Insights
All insurance is designed to help protect you against things that might happen, but long-term disability insurance can only help you protect you against qualifying illnesses or injuries that you don’t have yet.
Pre-existing conditions or injuries aren’t covered. Buying a long-term disability insurance policy now while you are healthy is the best way to prepare for a future where that might not always be the case.
If you haven’t already purchased long-term disability insurance you shouldn’t wait to get a policy. You can get a long-term disability insurance quote from your broker so that you apply immediately. You can sign up after you might have studied and understood the terms and conditions of the policy document.