Types Of Disability Insurance Coverage
Given that disability coverage benefits are determined by an
insured's occupational class which in turn determines the length
of the elimination period, benefit pay-out period, and any
exclusion rider/riders that may be attached to the policy, the
following disability insurance types may be found in the
insurance industry.
Group Short Term Disability
Employer sponsored short-term disability programs are for non
work related disabilities. They provide at partial income
protection. The chance of that an employee becoming disabled and
unable to work for a short period is higher than the chances of
becoming totally and permanently disabled.
Therefore, short term disability insurance is a more common
group disability benefit than long term disability.
Like other employer paid group benefits, an employer's shot term
disability program may not cover all employees. Groups may be
established by job classification. Eligibility may require an
employee to work at least 30 hours per week, and to have been
employed for a certain period of time. Short-term disability
coverage usually has an elimination period of eight days.
Common benefit pay-out periods pay to
a maximum of 26 weeks for each period of continuous
disability at 2/3 of the insured employees income.
Group Long Term Disability
Long Term Disability insurance provides participating employees
with income protection against disabilities occurring from a
covered physical illness, injury, pregnancy or mental disorder.
Employers can usually customize their group long term disability
benefit coverage programs: -
Up to 70 percent salary replacement
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Maximum benefit amount up to $25,000 per month
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Benefit waiting periods ranging from 30 days to two
years
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Definitions of disability covering own occupation, any
occupation and "zero-day" partial disability
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One, two, three, five-year and to age 65 own occupation
periods
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Own Specialty Definition of Disability for physicians
and attorneys
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Employee Assistance Programs are usually included for
groups with 15 - 2500 covered lives
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Assisted Living Benefit (usually an option)
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Housing Assistance Benefit (usually an option)
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Lifetime Security Benefit (usually an option)
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Medical Expense Benefit (usually an option)
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Child Care Benefit (usually an option)
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Long Term Disability Plans usually include a number of
features that help to encourage employees to return to work. -
Rehabilitation plan provision
usually pays for some or all of the expenses incurred by
an employee for approved training and education; family
care; and job search and other job related expenses that
support a return to work.
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Reasonable accommodation expense benefit:
Reimburses employers up to $25,000 for approved
worksite modifications that are made on behalf of a
disabled employee and enable the employee to return
to work.
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Return to work incentive:
Provides employees with an incentive to return to
work by enabling them to earn up to 100 percent of
their pre-disability income through a combination of
monthly benefits and work earnings during the first
12 (or optional 24) months after returning to work.
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Return to work responsibility:
Establishes a clear expectation for partially
disabled employees to return to work if they can
earn at least 20 percent of indexed pre-disability
earnings.
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Temporary recovery:
Allows employees who suffer a relapse and become
disabled again from the same cause or causes to
reopen their claims without serving a new benefit
waiting period.
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Taxation On Group Disability Benefits
If the employer
pay for the coverage the benefits are taxable to the employee.
However, if the employee pays for the coverage as in a voluntary
short term / long term employer group disability plan,
then the benefits received at the time of disability are tax
free.
Individual Policy Coverage
Short Term
Coverage
Short Term Disability coverage usually pays benefits to a
maximum period of 6 months.
Short Term Disability Insurance
is a supplemental insurance policy that starts paying monthly
benefits after the time between your injury or illness occurs
and the start of benefits. This is known as an
elimination period.
The amount of monthly benefits
the insured receives depends on if the insured is totally or
partially disabled and the level of benefits the insured chooses
when the policy is purchased. Benefits usually continue as
long as the insured is under a doctor's care and is unable to
return to work and will continue for the benefit period chosen.
One should consider purchasing short term disability
coverage if: |
1. |
one is without emergency savings equal to 6 months of expenses? | |
2. | savings is set aside for long-term financial goals and is not an
option to use for a disability? | |
3. | one has large debts that require monthly payments: mortgage, auto or
credit card
loans balances are examples? | |
4. | one is family’s sole bread winner? |
Other forms of shot term disability coverage may be available in
group or individual form. A hospital indemnity policy,
were the insured is paid while in the hospital is just one
example.
Long Term Coverage
When you decide you need
Disability Income Insurance, here's where to start...
First, look for the signs of quality coverage.
Non-cancellable coverage:
What good is an insurance policy if
it can be cancelled just when you need it most? To avoid
this possibility, choose a policy that's non-cancellable
and guaranteed renewable to age 65 as long as you keep
paying premiums on time. That also means that
premiums are guaranteed until age 65.
Guaranteed renewable for life:
Although premiums may
increase after age 65, your policy should be conditionally
renewable for life, as long as you are at work full time. The
very best coverage has no age limit
for renewability.
Next, look for the kind of coverage that's right for you.
There
are two basic kinds of DI insurance available, Income
Replacement and Own-Occupation ("Own-Occ").
Income
Replacement
This kind of insurance pays benefits if you suffer a loss of
income due to a disability.
The
drawback to this type of policy is that it does not cover
you for the loss of a skilled profession, such as
architecture or law, which requires years of specialized,
difficult and expensive training. These professionals may
be able to earn a significant income teaching or writing, for
example, if they are disabled but feel they should be
compensated for the loss of the career they invested
in so heavily. This is why many professionals and
business owners choose the other type of DI insurance,
Own-Occupation.
Own-Occupation
This type of disability insurance policy
pays benefits if you can't perform "the material and
substantial duties of your occupation" because of
sickness or injury. "Your occupation" means your regular
occupation at the time you become disabled. With
Own-Occ coverage, you are considered totally
disabled and receive benefits accordingly as long as
you are not able to work in your own occupation even if you are
performing unrelated duties in a different
occupation.^
The Total Disability Benefit The Total
Disability Benefit
will be paid at the end of each month while you
are totally disabled, after what is known as "the elimination
period" has elapsed.
Terms You Should Know:
Elimination Period and
Accumulation Period
An
elimination period functions somewhat in the way a deductible
amount does on other types of insurance. Rather than making you
responsible for paying a certain
dollar amount before coverage starts, however, it is a period of
time you must wait after you become disabled
before your benefits begin.
Choices of elimination periods are generally from 1 month, 2
months, 3 months, 6 months, 1 year 5 or 2 years.5
The longer the elimination period, the lower the cost of
your coverage.
For each elimination period, there is a corresponding
"accumulation period."
Starting with the first day of disability, the accumulation
period is a set period of
time during which you need to accumulate enough
days, weeks or months of disability to satisfy your elimination period. For example, if you return to work after a period of
disability that's shorter than your elimination period but then
become disabled again while you are still in the accumulation
period, the time you
were originally disabled still counts toward the
fulfillment of your elimination period. For instance, if your
policy has a three-month elimination period, you'll have seven
months in which
to accumulate those three months of disability.
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