Very recently, California Insurance Commissioner Dave Jones issued a bulletin advising consumers about the importance of understanding their options when considering disability income insurance.  Here is what he had to say:

“In a down economy many people may not think their most valuable asset is their ability to work,” said Commissioner Jones. “But if illness or injury were to keep you from earning a living you would still need to pay your bills. Disability income insurance could be a viable option for people and their families, and that’s why consumers need to take the time and evaluate their options closely.”

According to the U.S. Census Bureau, one in four of today’s 20-year-olds will become disabled before reaching retirement age; however, only 32 percent of U.S. private industry workers have long-term disability income insurance as part of their benefits package.

An individual may obtain disability income insurance coverage in two ways – either through a group-sponsored setting or purchased as an individual. Group insurance is available through an employer or an association, and these policies may offer short-term and long-term coverage. Short-term disability income insurance typically replaces a portion of the policyholder’s salary up to a year following the disability, while long-term disability income insurance may begin six months after the disability and can last a few years or even until retirement.

Individual insurance is coverage that can be purchased from any insurance company that offers it. The terms of the policy, length and type of coverage are negotiated between the individual and the insurance company and are generally subject to underwriting requirements.

Comparing Disability Policies – When considering disability income insurance policy options there are definitions and benefits consumers should carefully compare.

Definition of disability – the definition varies from policy to policy.  Some may pay benefits if you cannot perform the duties of your own occupation, while others may require that your disability keep you from performing tasks of any occupation you are reasonably expected to perform based on your age, education, training and experience.

Extent of disability – Some policies may require you be totally disabled before it pays benefits, while others may pay a limited amount or for a limited time if your injury limits you to performing only part of your job.

Disabilities Covered – The list of covered injuries or illnesses considered disabilities under the policy will vary. Coverage for pre-existing conditions may be limited or excluded.

Residual benefits – This coverage fills in a gap in come if you are partially disabled, you return to work, and your income is reduced because you can’t perform  all of the duties of your job.

Determining How Much Coverage You Need

Before purchasing disability income insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.

Becoming disabled can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount and type of coverage you could need.

The amount of benefits you receive is based on a percentage of your pre-disability earned income. The benefit amount received can be reduced by other sources of disability support such as Social Security disability payments, employer long-term disability insurance, among others.

If the long-term disability income insurance coverage your employer offers is not enough to cover your needs, there are options for purchasing additional coverage”.

As a corollary to this article, you may by wondering: what are the advantages of buying disability insurance?  What should you be looking for in a disability policy?  McKennon Law Group PC partner partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance in his article: Buying Disability Insurance:  What You Should Be Looking For

If you have any questions about your disability coverage, your disability claim or ERISA disability claim, please contact us.  Insurance consumers can learn more about insurance by visiting the California Department of insurance web site at www.insurance.ca.gov.