Disability Insurance: What Kinds Can You Get?

“Noncancelable” vs.”Guaranteed renewable”
I think the most mystifying insurance terms are those used to describe policy renewal provisions.  If you have a non-cancelable policy, the insurer cannot cancel your coverage unless you fail to pay the premium.  Your premiums and benefit terms cannot be changed without your permission.  These policies usually cost more than “guaranteed renewable” policies.

With a guaranteed renewable policy, the insurer can raise the premium if there’s a change in your status (e.g., you make a claim) or it can raise the premiums of an entire category of insured individuals.  You’re guaranteed to be able to renew your coverage, but your premiums and benefits may change.

Long-Term vs. Short-Term Disability Coverage
Short-term disability coverage usually lasts for less than 90 days but may provide coverage for as much as two years; usually benefits aren’t paid until a waiting period has elapsed.

Long-term benefits often last until age 65, but the benefit period can vary from a few years to life.  Waiting periods can be as long as six months.

Sources of Disability Insurance
I mentioned earlier that most people who pay Social Security taxes are eligible for disability coverage, but the criteria for Social Security Disability Insurance benefits are quite restrictive.  Some states also provide disability coverage as a form of social welfare.

Employers may provide disability coverage as a paid benefit, through group coverage that can be purchased by employees, or as a blend of the two.  Individuals can also purchase disability coverage on their own.

If you need disability insurance, the first place you should look is your employer.  Some of my clients aren’t even aware that their employer provides disability insurance until they check.  Alternatively, if an employer lets you buy coverage through a group policy, that’s often cheaper than anything that you can buy as an individual. Puerto Rico, New York, New Jersey, California, Hawaii, and Rhode Island require employers to provide some disability coverage to their employees.

Professional organizations are another potential source of disability insurance coverage.  Such groups sometimes offer group disability coverage that is much cheaper than individual coverage.  Generally speaking, insurance purchased through a group (either through your employer or a membership organization) is less expensive than comparable coverage purchased privately.

Finally, you may be able to buy an individual disability insurance policy.  Insurers find that the risk of fraudulent claims for policies purchased through groups is lower than that for individually-purchased coverage, so premiums for individual policies tend to be higher.  Insurers may decline to provide individual coverage to people with certain health conditions.  In some cases, a health condition might disqualify you for a group policy, but often employer-provided coverage is given without regard to prior health issues.

One other thing to keep in mind is that employer-provided disability insurance is usually not portable (cannot be continued after you leave a job) and might be canceled by your employer.

About the author

Thomas Fisher, CFP®

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