| How
much does disability insurance cost? |
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| Like brain surgery and parachutes, price
should not be the first consideration when
it comes to disability insurance. The cost
of the policy will depend on many factors: |
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Does the policy consider
you disabled if you can’t work
in any occupation, or if you can’t
work in your occupation? |
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Is the policy non-cancelable
and guaranteed renewable, or can the
insurance company raise the premium
or cancel your policy? |
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What are the financial
strength ratings of the insurance company? |
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Age |
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Gender |
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Health |
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Occupation (specialties
with invasive procedures will pay more) |
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Optional benefits added
to the policy such as inflation protection,
residual benefits and the ability to
increase your policy at a later date
with no medical exam. |
|
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| You can expect to pay between 1% to 4% of
your annual gross income for a good policy.
The main thing to remember about disability
insurance is that you get what you pay for
(cheaper is not always better). |
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| Why is disability insurance so expensive? |
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Disability insurance is expensive because of the high
likelihood of benefits being paid. Disabilities are the number one cause
of mortgage foreclosures in the United States. According to the Commissioners
Disabilities tables, one in every seven workers will suffer a five year or longer
disability before reaching age 65.
Consider this
breakeven analysis. If a person were to pay a premium of $373/month for
five years on a policy that pays an $8,000/month benefit during disability and then become disabled,
a short three month benefit payment would repay the cost of the policy.
In addition, when you compare the cost to insure other items of much lesser value
(like your home or car), disability insurance looks like a bargain.
Consider this example.
|
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| When
is the best time to buy a disability policy? |
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| Because premiums are based on age and health
status, the best time to buy a disability
policy is when you are young and healthy (probably
today!). |
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| What’s
the difference between an individual disability
income policy and a group policy? |
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| There are two major types of disability
insurance available to employees; group long
term disability (LTD) insurance, and individual
disability insurance. A group long term disability
insurance plan typically is designed to replace
60% of base salary to a monthly maximum spelled
out in the policy. Bonus income, as well as
commission income is often not covered. Rates
can change at any time; the policy can be
canceled or changed at any time. |
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| Group
Long Term Disability Insurance |
| |
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Less expensive than individual
coverage |
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No medical exam to qualify
for benefits |
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People with poor health
can get coverage |
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Benefits are taxable if
your employer pays the premium |
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More restrictive definitions
within the policy |
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No rate guarantees |
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Partial disability may
not be covered |
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Policy can be changed
or canceled at any time by the insurance
company or your employer |
|
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| Individual
Disability Insurance |
| |
|
Benefits are received
to you tax free if you pay the premium
|
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More liberal definitions
within the policy to pay you more money
in more claims scenarios |
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Higher monthly benefits
|
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Rate guarantees to age
65 |
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The policy is owned by
you and can be taken with you to a new
job or occupation |
|
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| How
do I compare different disability policies? |
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| Different policies can be
compared based on the contractual definitions
found in the policy. |
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| How
do I choose the right company? |
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| It’s extremely important
to find a strong, financially stable insurance
company that will be able to pay your benefit
should you need it. Insurance company ratings-available
for most major carriers--are tools that can
help you evaluate the financial strength of
an insurance company. |
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| Who
rates insurance companies, and how do they
come up with their ratings? |
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Insurance companies are rated
by five major rating services: A. M. Best
(which specializes in insurance only), Fitch,
Moody's, Standard & Poor's, and Weiss.
Some of these services rate only a few hundred
companies, while others rate thousands. Each
service has its own criteria and philosophy
for judging insurance companies. Most services
base their ratings on both qualitative and
quantitative factors, such as debt, claims-paying
ability, investment portfolios, financial
reports, and historical performance.
Each of the rating services uses a variation
of an A through F scale to rate insurance
companies. However, an “A” from
one rating service does not necessarily equate
to an “A” from another rating service.
For instance, an “A” rating from
A. M. Best is an "excellent" rating,
while an “A” rating from Moody's
is only "good."
Click here for a
detailed ratings chart
Rating services stress that their ratings
are not a guarantee of the financial strength
of an insurer, nor are they recommendations
to buy a policy or product from a particular
insurer. Ratings are merely opinions based
on data as interpreted by the insurance industry
and financial experts. They should not be
used as the sole measure of a company's quality.
Other factors, such as reputation, claims-handling
procedures, and customer satisfaction, are
also important. |
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| Where
do I find insurance company rating information? |
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Rating information is available
from a variety of sources. The easiest way
to get rating information is to contact the
rating service directly, either through its
website or by calling its customer service
department. Most rating services provide free
rating information to consumers, although
you may have to pay if you need more than
a few ratings. Ratings are also published
in books and magazines that can be found at
your local library. If you don't want to look
up the information yourself, ask your insurance
agent or financial planner to do some research
for you.
Contact information for the major rating services:
A. M. Best Company
Ambest Road
Oldwick NJ 08858
Phone: (908) 439-2200
Internet: www.ambest.com
Standard & Poor's Corporation
55 Water Street
New York NY 10041
Phone: (212) 438-2000
Internet: www.standardpoor.com
Fitch, Inc.
One State Street Plaza
New York NY 10004
Phone: (212) 908-0800
Internet: www.fitchratings.com
Moody's Investors Service
99 Church Street
New York NY 10007
Phone: (212) 553-0377
Internet: www.moodys.com
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| What
is the application process? |
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| After you've made a decision
on which policy you would like to apply for,
someone from our office will call you to gather
additional information and schedule a medical
exam. The exam can be completed at your home
or office at no cost to you. Our insurance
advisors will assist you with the process
and make it as easy and simple as possible.
Completed forms are sent or e-mailed to you
for your review and signature. Once we receive
all completed forms the application is then
sent to the insurance company to go through
underwriting. |
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| What
is underwriting? |
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| Underwriting is the process
by which an insurance company examines, accepts,
or rejects insurance risks so as to charge
the proper premium for the coverage. The company
classifies the accepted applicants into different
risk categories to charge the proper premium.
|
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| How
long will underwriting take? |
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| The underwriting process generally
takes anywhere from three weeks to two months
from the time we receive all completed paperwork.
The average time period is one month. |
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| What
do I need to know about the medical exam? |
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| Depending on the proposed
insured's age, the amount of insurance the
insured is buying, or other factors, a medical
exam may be required after the application
has been completed. The exam may include a
physical exam, blood work, and EKG. Typically,
the exam is performed by a licensed health
professional that works for the insurance
company. The insurance company pays for the
exam and any lab work. The results are sent
directly to the underwriter for review along
with the proposed insured's application, although
the proposed insured may request a copy. |
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| Common
Questions about the Medical Exam |
| |
| How
long will it take? |
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| The medical exam will take
approximately 20-30 minutes. |
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| Where
and when is it done? |
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| The exam can be performed
at home or in your office Monday though Saturday.
|
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| Who
does the exam? |
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| Licensed paramedical examiners
in your area complete the exam. |
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| What
is included in the exam? |
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| A typical exam consists of
height, weight, blood pressure, blood sample,
urine sample and brief medical history. With
larger amounts of insurance an EKG or treadmill
test may be required. |
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| What
kind of medical history will be asked? |
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| The examiner will ask about
surgeries, treatments and other medical conditions.
They will ask for the names and addresses
of any doctors you have seen in the last five
to ten years. To speed up the process, you
will want to have this information handy.
|
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| How
can I best prepare for the exam? |
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| Blood pressure and pulse can
be artificially raised by stress, alcohol,
caffeine and tobacco. |
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Get a good night's sleep
the night before the examination. |
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Abstain from alcoholic
beverages for at least eight hours prior
to the exam. |
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Do not smoke or chew tobacco
for at least one hour prior to your
examination. |
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Avoid drinking coffee,
tea or caffeinated soft drinks for at
least one hour prior to your |
| |
examination. |
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Limit salt intake and
high cholesterol foods 24 hours before
your examination. |
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You should not engage
in strenuous physical activities 24
hours before the examination. |
|
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| Advise your paramedical examiner regarding
any medication you are taking, even if nonprescription
medications. |
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Have available your physician's
names, addresses, dates of past visits,
names of any |
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prescribed medications
and any information regarding injury
and major illness during the previous
five years. |
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If you belong to Kaiser
or any other prepaid medical plan, have
your medical record number available. |
|
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| Drink a glass of water an hour or so before
your appointment. This will help in obtaining
a urine specimen. |
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| What
are residual benefits? |
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| If you have a residual definition
or rider on your policy, the policy will pay
you a benefit if you have a loss of earnings
(usually 20 percent). You do not have to be
totally disabled to collect benefits. |
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| What
happens to my policy if I change jobs or occupations? |
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| If your policy is non-cancelable
and guaranteed renewable, the policy benefits
typically will not change. |
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| If
I'm disabled, can I see my own doctor? |
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| Most companies will allow
you to see your own doctor if you are disabled. |
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| What
are some common policy exclusions? |
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| Common exclusions are: |
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Mental/Nervous Disorder
(sometimes companies will restrict how
long they will pay for this) |
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Act of war |
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HIV |
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Pregnancy. |
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Active Military Duty |
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Foreign Travel |
|
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| Are
benefits taxable? |
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| If you pay your premiums with
after tax dollars, your benefit is tax-free.
If you deduct the premiums or your employer
pays the premiums, the benefit may be taxable
to you at the time of claim. |
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| What
waiting period should I choose? |
| |
| This decision is based on
what premiums you can afford and how much
you have in savings; the longer the waiting
period, the lower the premium. |
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| I
have medical problems, can I still buy coverage? |
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| It depends on the type and
severity of the medical problems. The insurance
company has three options: |
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|
Charge a higher premium
for the policy |
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Exclude the condition
form the policy |
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Decline insurance altogether |
|
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| Can
I have my employer pay for my coverage? |
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| Your employer can pay for
your disability insurance coverage but it
may cause the benefit to be taxable to you
at the time of claim. |
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| What
if I leave the country? |
| |
| Depending on the policy, some
policies will cover foreign travel. Some policies
will suspend the contract while you are abroad.
Check your policy. |
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| What
if I'm pregnant or thinking about becoming
pregnant? |
| |
| Pregnancy can be covered under
a disability insurance policy. If you are
in your third trimester, you will need to wait until you
have delivered your baby and have returned
to work to obtain disability insurance. If
you are considering getting pregnant, it may
make sense to buy a policy prior to conception.
Check the policy to see if complications of
pregnancy are covered. |
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