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Disability insurance: better safe than sorry


With American families pressured by the financial demands of the 1990s, no one likes to think about worst-case scenarios.

Disability, however, is a difficult possibility worth pondering.

The sale of disability insurance is on the rise these days, as more breadwinners decide it's better to be safe than sorry. Self-employed individuals are buying it, as are workers concerned about the restricted nature of disability coverage offered by their employers.

Disability insurance is designed to pay monetary benefits when an illness or injury prevents the earning of an income. Understanding such coverage isn't an easy task, however, and policies differ. The price tag for this form of family security can easily run $1,500 or more annually.

"Disability coverage through your employer is less expensive and typically designed to provide 50 to 60 percent of income beginning in three to six months and ending in two years," explains Daniel Thomas, associate director of the Health Insurance Association of America, an industry trade group.

"On the other hand, individually purchased disability insurance has higher premiums and is tailored specifically to the individual, potentially providing coverage of up to 70 or 80 percent of your current income for a period of years or until retirement age is reached."

Buying disability coverage is different from purchasing life or car insurance.

"Disability insurance is the one coverage that insurance companies do not oversell, since they don't want a sick or injured person to have more than his current income and therefore turn into a malingerer," observes J. Robert Hunter, president of the National Insurance Consumer Organization, a nonprofit consumer group that does public policy research on insurance issues.

Companies want you to have incentive to return to work. They know, for example, that if you become disabled and rely on personal disability insurance, you usually don't have to pay income tax on the insurance money received. This brings the money retained closer to the amount of salary you had before your disability, and may reduce your drive to get back on the job.

Do your homework. Buy a policy that can't be canceled, has level premiums to age 65 and is offered by a firm with a solid background in such coverage, say the experts.

"The most important questions are whether the insurance company has the right to cancel the policy for certain reasons; whether it can change rates and in what instances it can; and how the policy actually defines disability," advises Barry Lundquist, senior vice president of sales for Paul Revere Life Insurance Co. in Worcester, Mass.

"Some policies define disability as the inability to perform one or more important duties of an occupation, while some say it is the inability to perform any occupation, and that's a crucial difference."

In fact, a particular policy's definition of disability may be the inability to perform duties of the individual's usual occupation; of any occupation for which he or she has the necessary education, training and experience; or the inability to work at all.

Know when and for how long you're entitled to receive benefits, since disability policies have designated waiting times -- known as elimination periods -- before they pay benefits. Common elimination periods are 90 days, but you save more if you go to 180 days or longer.

A disability policy from Paul Revere for a 45-year-old nonsmoking professional male with a $4,000 monthly benefit and 90-day waiting period would cost about $2,161 annually, says Lundquist.

For a higher premium, you can also add a cost-of-living provision to make sure benefits keep up with inflation. Be sure to pay premiums in a timely manner to avoid the possibility of cancellation. Learn the time limits for filing a claim for benefits with the company. Also keep in mind that having disability

insurance doesn't mean you should neglect putting aside regular savings for an emergency.

Insurance firms doing the largest disability business, in order, are: Paul Revere, Provident Cos., Northwestern Mutual Life, UNUM Cos., Equitable Life Assurance, Massachusetts Mutual Life, Connecticut Mutual Life, New York Life, Royal Maccabees Life and Mutual Life of New York.

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