Disability Insurance Basics

Individual Disability Insurance

Disability Insurance is the foundation of financial planning and is offered to Residents when they start their training. Policy language is vital to an "Individual" contract and it starts with a "Base Policy" along with "Optional Riders" that allows for customization to cover all financial obligations that one may be committed to. Keep in mind that a 'Rider' from one company may be part of 'Base' coverage from another.

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Features of a competitive BASE POLICY:

1. Non-Cancellable Guaranteed Renewable: This feature indicates that as long as premiums are paid, the policy cannot be cancelled, premiums cannot increase and coverage cannot change. 

2. Waiver of Elimination Period:This feature waives the premiums on your policy while you are out on claim. Disabling events that last more than six months where benefits are paid, the elimination period for any subsequent disability of 30 days or more that occurs within 5 years will be waived.

3. Definiton of Disability: Is the heart of a Disability Insurance contract and this definition lies on your ability to work.  The interpreted definition will determine if you qualify to collect and for how long.  "Liberal" definitions of disability favor the policy holder whereas "Restrictive" definitions of disability are less favorable.  Common definitions of disability are as follows:

• Any Occupation - most restrictive ​definition of disability.  Benefits may not be paid out if your eligible to work in another occupation.

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• Modifiied Own Occupation - less restrictive definition of disability. Benefits are paid if you're not able to work in your own occupation and not gainfully employed elsewhere.

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• True Own Occupation - most liberal / favorable definition of disability to the policyholder. Benefits are paid even if you're employed in another occupation.

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RIDERS are optional policy features that augment BASE coverage and may or may not increase premium cost.  The following RIDERS should be considered to enhance coverage:

1.  Residual Disability - This feature provides benefits if you are not totally disabled and are still working. The company your policy is with will deteremine what your benefit will be based on a certain percentage reflected by  loss of time , loss of duties and loss of income.

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2.  Presumptive Disability - This feature allows for benefits to be paid out immediately and most often will not require additional medical exams to be prove the disability continues to disable an individual.  This rider protects against drastic disabilities that occur suddenly and result in loss of hearing, sight, speech or use of any two limbs.

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3.  Catastrophic Disability - This feature will allow you obtain more that 60% of your pre-disability earnings as is the case with most insurance companies in the event you are unable to perform two or more of the activities of daily living, loss of sight or hearing, or have suffered cognitive impairment.

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4.  Cost Of Living Adjustment (COLA) - This feature keeps pace with inflation by adjusting your monthly benefit each year while you are out on claim.  Usually the adjustment can be increased by by 3% or 6% each year which allows you to keep up with expenses.  

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5.  Retirement Protection Plan (RPP) - 

This feature allows for the contributions you would have made to a defined contribution plan while you're disabled.

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Remember: Retirement plan contributions CANNOT be funded through Disability Income proceeds.  

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6.  Future Income Option (FIO) - Allows policyholders to increase their insurance coverage annually during policy anniversary as their income increases.  No medical underwriting is required and this additional coverage may increase premiums.

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7.  Student Loan Protection - This feature adds additional coverage to the monthly benefit amount that can be used for student loan obligation. Coverage goes directly to the provider and is usually capped at $2,000-$2,500 per month.