Disability Income Protection Policy Benefits Definitions
Earlier, we looked at the most important definitions of what disability is and how professionals will want to make sure their policy defines it for their situation. Now we will look at how disability insurance most commonly defines how benefits are paid out and what determines how much the benefit will be.
What professionals will be interested in are two portions of this dynamic. These are most commonly referred to in policies as the residual (or partial) benefits and return-to-work benefits.
The important point to look for is what the residual and return-to-work benefits are based upon: income or the ability to work. If they are based upon your ability to work, then you will be compensated with benefits until such time as you can return to work full time. If they are based upon your income from work, then they will pay out based upon your return to full income.
That’s an important distinction for most professionals. Especially those who are members of a practice, are self-employed, or otherwise are in a position where their income is dependent on a client base and contracts.
As an example, if the payout is made until such time as you return to work, then a lawyer with a practice and regular clients would receive benefits until she can return to the office and work at her career again full time. Whether her clients or business has returned to its previous level after her absence or not.
If the payout, however, is based upon a return to previous income levels, then the benefits will pay based upon missed income until her practice has returned to normal levels of income and work flow.
That distinction could mean returning to work only to find that your income suddenly drops (no benefits) and you have to struggle through recovering your business without that income. So for many professionals, it’s an important distinction to make.
Group, Individual, and Supplemental Policies
If you’re employer provides disability insurance, you probably think you’re covered. If you purchased a self-employed policy through a group plan from a union or professional association, you likewise probably consider yourself covered.
Group Policies
If you’re employed by a company providing disability insurance, you will want to review that policy, its coverages, and how much the payout is. Most are surprised to find out how little these policies often actually cover.
Most group policies through an employer only pay about 60% of income in benefits and have pretty strict definitions of what “disabled” means. Most will also have a 120 day grace period before they kick in to pay and almost all of them have a monthly or yearly cap on how much they will pay in total.
These are all important aspects, as they can decide your benefit: when it pays, how much it pays, and for how long. Most common group disability policies will cap at around $60,000 per year, cover only salary lost (not bonuses) and most pay only 60% of your total salary up to that cap.
In this case, a supplemental policy is a very good idea to ride over that group coverage. A supplemental policy can ad an additional 20% to the payout (making it 80%), can cover more situations under the definition of “disability,” and can raise the salary cap for payments. They can also extend the total time the benefits will pay. Most group policies are 3 year policies, meaning they will only pay disability for three years from the first claim and supplemental insurance can extend that to five years or more.
Individual Policies
These policies are usually of better quality than group insurance, but can still have some limits that you may want to review and change or negotiate. If you can’t cover yourself for a full 120 days and would prefer the policy to kick in sooner, you can lower that number to 60 days, for instance. This will cost more, of course, but it will be worth it if you need the coverage.
Supplementary Coverage
In either group or individual policy situations, adding supplemental coverage may be a better option for increasing your benefits. It can often cost less and be easier to get than changing an existing policy or upgrading a group policy through an employer.