Understanding Disability Insurance: Protecting Your Income

Disability insurance provides financial security in case unexpected events happen in life or career, offering a safety net.

This article explains the basics of disability insurance, its importance, different options, and RiskQuoter expert advice to help you make a great decision about protecting your income.

Disability insurance (DI) protects your income should you be unable to work due to a health issue or accident.

Both short-term disability and long-term disability insurance policies are available.

Short-term disability insurance provides benefits quickly for a limited time of three to six months.

Employers are the main providers of short-term DI. Benefits will typically start within weeks of a qualifying event.

The short-term disability insurance you receive is a percentage of your income, which will most likely be 40-70%.

Remember that your benefit may only be a percentage of your base salary, not your total income. This is important when you have a job where commissions are a large portion of your income.

Long-term disability insurance begins after an elimination period of 30-730 days.

Coverage offered through employers is typically coordinated coverage where your short-term DI kicks in initially, and your long-term DI begins thereafter so that you continue to receive an income.

It’s essential to check your benefits package, as your long-term disability may also only cover base income, not your total income.

Long-term disability benefits typically average 60% of your income.

If your company offers short-term and long-term disability insurance, you should get it. It’s usually free or cheap and worth the cost.

If your company offers the option to purchase additional coverage, you should compare that offer to our policies.

Disability insurance is crucial because it provides income when you cannot work.

It doesn’t take long to run into financial problems, and if your disability is long-term or permanent, a DI policy can keep a bad situation from worsening.

Our disability insurance clients are concerned about the shortcomings of their group disability coverage or concerned that they have no DI.

We can help by providing a complete disability insurance solution or complimentary coverage to your existing DI.

While your occupation is the number one factor considered by disability insurance companies, underwriters consider the following:

• Occupation
• Income
• Job Duties
• Education
• Health

Using the above information, disability insurers have classification codes based on the above that are used to determine the amount of coverage available, pricing, and any discounts, if available.

Some examples of occupations and how disability companies view these occupations.

• 6A – Attorney, CPA, Architects, Engineer
• 5A – Business Owner (some are 6A), Many Physicians, Marketing Professional
• 4A – Surgeons, Librarian, Dermatologist, College Professor
• 3A – ER physician, Admin Assistant, Bank Teller, Dentist, Teacher
• 2A – Office Workers, Clerks, General Contractors, Store Manager
• A – Construction Workers, Farmer, Machinist, Assembly Worker

The Bureau of Labor Statistics divides occupations into 23 major groups, which are then divided into 867 detailed occupations.

The above are general classifications. Your exact occupation and duties will determine the final classification you receive.

In addition, there are discounts and other programs available for some occupations.

Disability companies like lawyers, with companies like Principal, consider lawyers a “Select Occupation.”

The benefits of having a “Select Occupation” are:

• Premium Discounts
• Greater Coverage Benefits
• Simplified Underwriting

Some other occupations considered Select Occupations include:

The above is a sampling, with each company having its list of occupations that receive beneficial underwriting treatment.

Legal professionals understand the risk of a disabling event and are one of the most frequent purchasers of disability policies.

Most companies give lawyers their best classification due to favorable claims history.

The lawyers’ most likely outcome will be a 5A-6A classification.

Physicians are frequent purchasers of disability policies. Many times, representatives approach doctors while in their residency.

While many DI companies offer programs for early-career physicians, you may be surprised to learn that the best classifications may not be available.

While many physicians will receive a 5A classification, some will get a 3A or 4A classification.

We make sure you get the best classification possible based on your occupation.

Another concern medical professionals have center around the occupation clauses and duration of benefits. We have companies that offer “own occupation” policies with benefits available until retirement age.

Disability insurance for small business owners is about protecting personal income and ensuring business continuity.

Policies can protect your income and business costs and ensure your legacy and the livelihoods of your employees are secure.

A common concern with business owners is that their salary may not reflect their true income. DI companies recognize this as well.

Several options exist for small business owners, including:

• Income Replacement Disability
• Buy-Sell Disability Plans
• Key Person Disability Plans
• Overhead Expense Disability Plans
• Loan Indemnification Disability Plans
• Contract Guarantee Disability Income Plan

We put together comprehensive disability insurance plans to meet your insurance needs.

Understanding short-term vs. long-term disability insurance, waiting periods and benefit duration is crucial for making informed decisions.

Special considerations, such as coverage for maternity leave and pregnancy, underscore the need for policies that reflect the diversity of individual circumstances.

We’ll ask you about your health, finances, and reason for the coverage.

Health History – How’s your overall health? Have you had any health issues in the past or present? Do you take medications? Have you ever filed for disability?

Occupation – What are your occupation, annual income, bonus structure, and job duties?

Financials and Business Structure – Are you a salaried employee, business owner, shareholder, member, etc.? Who is paying for the coverage?

You have many choices when designing your disability policy, and we’ll guide you through those choices.

Monthly Benefit or Maximum Available – We’ll show you the specific monthly and/or maximum benefits you may qualify for.

Elimination Period – Similar to long-term care insurance, disability policies have elimination periods before benefits begin.

Elimination periods include 30, 60, 90, 180, 365, and 730 days.

Benefit Periods – Similar to LTC, you choose how long you receive disability benefits: 2 years, 5 years, or until you reach age 65, 67, or 70.

Optional riders available include:

• Automatic Benefit Increase
• Own Occupation Rider
• Critical Illness
• Family Care Benefit Rider
• Non-Cancelable Rider
• Return of Premium Rider(ROP)
• Residual Benefits
• Cost of Living Adjustment (COLA)
• Future Purchase Riders
• Student Loan Rider

We’ll show you the options available with your policy so you can make an informed decision.

It’s essential to have a wide variety of disability insurance companies available to help you meet your needs.

At RiskQuoter, we work with the best disability carriers, including:

• Ameritas
• Assurity
• Fidelity Security
• Guardian
• Hanleigh
• Illinois Mutual
• Lloyd’s of London
• Mass Mutual
• Metlife
• Mutual of Omaha
• Petersen International
• Principal
• The Standard
• Unum

Different companies are known for different niches with disability underwriting.

High-income earners often have concerns about getting enough disability coverage to replace their income.

That is especially true if their income includes a salary, bonus, commissions, stock options, etc., structure.

Many group-based disability insurance policies may only protect your base income, not your total compensation package.

Using a combination of group disability coverage with individual policies, coverage amounts of up to $100,000 per month or lump sum amounts of up to $20 million are possible.

Some companies like Principal offer additional coverage for professionals such as

If you’ve had a significant medical issue, it can be nearly impossible to find a company willing to offer you disability insurance.

We have a couple of guaranteed issue disability insurance options for you.

One option is an individual guaranteed-issue disability policy that excludes benefits for any illness related to your diagnosis.

For example, if you have prostate cancer, this policy may exclude benefits if you are diagnosed with prostate cancer again but covers you in the event of disability due to other illnesses or accidents.

A guaranteed issue disability insurance policy is the option we choose when no other options exist.

A second possibility involves multi-life disability policies.

If we provide group disability coverage for 10-30 employees, we have a company that offers a fallback benefit of as much as $5,000 per month for an employee who has been declined for disability insurance.

Multi-life disability policies offer benefits and features that appeal to employers and employees.

A multi-life policy is usually available with a minimum number of employees (usually 10), with larger companies enjoying more comprehensive benefits.

Underwriting may be a simplified issue, and some policies may offer guaranteed issue disability benefits, which is great for employees with health issues.

Choosing the right disability insurance policy can be a little overwhelming, but there are a few things to consider that can help you make the right choice.

Firstly, you must determine your required coverage based on your monthly expenses and income.

Secondly, you should consider the elimination period of the policy, which is the time you need to wait before receiving benefits.

Thirdly, you should check whether the policy covers partial and total disabilities.

Lastly, you should review the policy’s definition of disability to ensure it aligns with your occupation and work experience.

These factors can help you choose the right disability insurance policy that meets your needs.

Disability insurance underwriting has some similarities to life insurance, with notable differences.

Disability companies review your occupation, income, and business finances in addition to underwriting your health history.

Some high-risk health conditions that are readily insurable for life insurance, such as ulcerative colitis, Crohn’s disease, and many cancers, are not as easy to insure for disability coverage.

Sometimes, we may have to look at companies that exclude conditions to obtain coverage.

With our process, we send your information to competitive companies for your health history and ensure that you have feedback from all competitive companies.

RiskQuoter does not provide legal, accounting, or tax advice. You should always consult your professional advisors for any questions.

Personal Disability Insurance – In most cases, the premiums you pay are not deductible, and the disability insurance benefits you receive are tax-free.

Business Disability Insurance – The number of scenarios is endless, as every business situation is unique.

Factors that will affect the taxation and deductibility issues of DI insurance include:

• Policyowner – who owns the policy?
  • Individual
  • Partner
  • S-Corp
  • C-Corp
• Premium Payer – Who is paying the premiums?
  • Individual
  • Shared Premiums Between Individual and Business
  • Partner
  • Sole Proprietor
  • S-Corp
  • C-Corp
• Benefit Recipient – Who is receiving disability benefits?
  • Individual
  • Sole Proprietor
  • Partner
  • S-Corp
  • C-Corp
• Type of Disability Plan
  • Disability Income
  • Salary Continuation
  • Executive Bonus
  • Key person Disability
  • Buy-Sell Disability
  • Overhead Expense Disability

Always check with your legal, accounting, and tax professionals for answers to your specific situation.

You have questions about disability insurance, and we have the answers!

Disability insurance is an important decision. Take your time to explore the options available so you choose the best disability insurance policy.

At RiskQuoter, there is never any pressure or obligation with our service.

We give you the information you need to make a great choice and will help you. Thank you.