What are the coverage characteristics for disability insurance?

Answer 1

Disability insurance is intended to replace income lost as a result of an illness or accident that is not excluded by the terms of the policy. Stated otherwise, it provides a source of replacement income, for a stated period of time, when the insured is unable to work because of an illness or an accident if that illness or accident is not excluded from the scope of coverage.

Disability insurance is medically underwritten, meaning that the insurer takes into account when considering the application the health condition of the applicant, including preexisting conditions.

One applies for a stated monthly benefit and the premium is based, in part, on that amount. Disability policies also have "elimination periods", which are similar to "deductibles" on property and casualty policies. An elimination period is the period during which no benefits are payable following a qualifying disability. A longer elimination period will generally correlate to a lower monthly premium, because the insurer's obligation to pay will not be triggered until after the elimination period has passed.

The definition of "disability" contained in the policy is also significant. In an "any occupation" policy, the insured must generally be unable to perform any work for which he/she is suited by experience or education in order to collect. In an "own occupation" policy, the insured must be unable to perform the material duties of the position that he/she had at the time of the qualifying disability.

"Any occupation" policies are generally less costly than "own occupation policies". Disability coverage can be had in the form of a group policy (such as, through employment), or as an individual policy. There are also "short-term" versions of disability coverage which pay for a maximum of, for example, 90-120 days, and "long-term" policies which can, all other things being equal, pay until retirement age.