Disability insurance can save your life

Variables in coverage

Insurance is always complicated, and disability is no exception. There are all kinds of disability policies and permutations. However, the basics are simple. The first variable is the amount of monthly benefit. Most disability policies have a fixed monthly benefit that does not increase with time. You can purchase extra coverage, or riders, that offer higher payment schedules.

The second variable is the definition of disability -- whether it is "own occupation" (the inability to perform the duties of your specific occupation) or "any occupation" (the inability to perform the duties of any job for which your education and training make you qualified).

The third variable is the waiting period, or the amount of time you must be disabled before benefits kick in. These waiting periods can range from one week to two years. The longer you wait, the less your disability policy will cost.

The fourth variable is the benefit period, or how long you will receive monthly benefits once your policy starts paying. The benefit period can range from six months to life, depending on what you choose and what your insurance company is willing to offer you.

Other options

In addition to these variables, there are other coverage options, as well as a variety of riders. The most important is a rider that pays if you can return to work only part time.

The Social Security offset rider guarantees that if you qualify for disability payments under your insurance policy but not for Social Security (a frequent occurrence), your disability policy will pay what Social Security should have.

You may also want to consider the additional-purchase option, which guarantees you the right to buy additional disability insurance in the future, regardless of your health at that time.

Start with your employer

So, you've decided to evaluate your disability-insurance needs. The first place to check is with your employer. Just like other types of insurance, group coverage is much less expensive than individual policies. Your employer may pick up part or all of your disability premium.

When you check out your employer's coverage, keep these rules in mind: If it doesn't cover at least 60% of your income, doesn't pay benefits to age 65 and has a waiting period longer than your savings can last, you need to look into private insurance as well. Individual disability policies are not cheap, but you can't afford not to have them if you need them.

Buying on your own

Individual policies can vary enormously. The monthly amount for which you can qualify, the price and the benefit period amount all depend upon the hazards of your occupation. If you are an attorney, your disability insurance is going to be cheaper than if you are an electrician. Your physical and mental health are factors as well. Even a few visits to a therapist for family counseling may make you ineligible for a policy without a "mental illness" exclusion. (See "Prozac: Hazard to your health insurance.")

Individual disability insurance is getting harder to obtain, but here are some rules of thumb:

• Get the highest monthly benefits for which you can qualify.

• Try to get "own occupation" coverage for life. Many insurers now only offer the "any occ" coverage, which could force you into a new line of work.

• Get the longest waiting period you can afford. A policy with a six-month waiting period is much less expensive than one with a two-week waiting period.

• Get coverage for the longest benefit period possible. The goal is age 65 or even for life, but if your choice -- imposed by the insurance company or by your pocketbook -- is a higher monthly income or a longer benefit period, opt for the longer benefit period.

Updated Aug. 20, 2008

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