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What Is Disability Income Insurance?

Disability income replaces lost income in the event of injury or illness that prevents you from being able to earn a living. If your lifestyle would be adversely affected by a disability, you probably need disability insurance.

For individuals with income up to $100,000 at the time the policy is issued, most insurance plans will replace up to 60% of your income. For higher salaries, the benefit amount goes up but the replacement percentage goes down. The current monthly benefit limit for professionals and executives is $20,000.

The Benefit Period is the length of time that a policy will pay benefits. The average claim is about 5 years in length.

How the policy defines your occupation is extremely important since there are various definitions. Some allow you to receive benefits while working in another type of occupation while others don’t consider you to be disabled if you have the ability to work in another occupation.

The Elimination Period is how long you have to wait from the onset of the disability until you are eligible to receive disability income. This period can vary but is often 90 days.

There are typically various “riders” (options) you can purchase with your plan to cover or allow for additional scenarios, such as a Cost of Living Adjustment rider to keep up with inflation while on claim.

Disability policies have two different protection features that are important to understand:

1)     Noncancellable: Policy cannot be cancelled by the insurance company, except for nonpayment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.

2)     Guaranteed Renewable: This gives you the right to renew the policy with the same benefits and not have the policy cancelled by the company. However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.


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