When buying a policy, make sure you understand how it can be renewed. Here are the most common phrases you will see:
1. Optional: Renews the original policy without increasing premiums to a specified age.
2. Guaranteed renewable option: the insurance company will renew your policy regularly, but it can raise premium rates at any time.
3. Conditional Renewability Option: the insurer can add additional conditions or restrictions at any time or even increase your premiums.
Definition of Disability
Each company has its own definition of partial disability and total disability. Make sure you study and understand these descriptions. The most flexible definition of total disability is “self-disability.” This means that if you lose your job because of a disability, you can work other part-time jobs and be eligible for disability benefits. There are less flexible definitions of disability, and it is important to understand the distinction.
Example – A doctor has been injured and cannot continue her job, but she is a part-time student in medical school.If she had a “disability policy in her own profession,” she would be able to earn part-time income and also receive full disability compensation. However, if she had a “disability policy with any occupation” or a “modified disability policy with her own occupation,” she would not receive any of her disability benefits because she was still able to obtain part-time work (for purposes of the policy, she would not be considered fully disabled.)
DI policy riders often have additional riders as well. Here are some of the ones you may encounter:
– Providing residual disability – If you are partially disabled, you are entitled to receive a percentage of the income lost during the disability.
For example, a practitioner who earns $6,000 a month and receives $3,000 in total disability benefits gets injured. When he returns to work, his monthly income is reduced to $3,600 (a 40% drop) because his partial disability limits his productivity. The insurance company will then pay 40% of the entire $3,000 in disability benefits. The insurance company will then pay 40% of the entire $3,000 i. e. $1, 200 per month.
– Inflation Protection – This rider is essentially a cost-of-living adjustment. The benefits of the policy are adjusted for inflation, linking the policy to the appropriate consumer price index. However, many insurers limit increases to a maximum percentage, say 4 percent per year. The company may also set an upper limit on the maximum benefit paid.
– Future Increase Option – As your income increases, this option allows you to purchase additional coverage up to a certain age without the need for additional medical exams.
– Automatic Increase Rider – This rider offers automatic increases in monthly benefits over a certain period of time (usually five years). Benefit increases are compounded at an average rate of 4%. This rider is tailor-made for those who have seasonal increases in their paychecks, as coverage also increases regardless of any changes in health, occupation, or income.
– Premium Waiver – During disability, the premium rider waiver provides a premium waiver for a period of time, usually 90 days or the length of the waiver period.
– Many disability insurance policies provide an additional “capital sum” benefit. In this case, a lump sum benefit is paid for certain specified losses, such as loss of sight in the eyes or a severed arm or foot.
To expedite your return to the workplace, many policies also offer a rehabilitation benefit. In this case, your insurance company pays part of the cost if you are enrolled in an authorized rehabilitation clinic.
– Another thing to watch out for is the cancellation or waiting period. This is the period of time, usually 30 days to one year, during which you are not eligible to receive any benefits. Not surprisingly, a longer waiting period attracts lower premiums.
– Finally, there are “policy exclusions.” This is a list of ailments that your policy does not cover. These are often pre-existing conditions and chronic disorders such as back pain, heart disease and arthritis.
Other common exclusions are disabilities due to war and injuries sustained while committing a crime or having your professional license suspended.