Most people’s income and future earnings potential is their most valuable asset. Indivudal Disability insurance protects your income if you become disabled and can no longer work. Even if you are perfectly healthy today, you never know when you may be injured or become ill. In fact, it is estimated that 1 in 4 people will become disabled and unable to work before they reach normal retirement age.

While many employers offer group disability insurance to their employees, some do not. Even if your employer sponsors a group disability benefits plan, it likely only protects a portion of your income. In that case, you may want to purchase individual disability insurance on your own.

How Much Disability Insurance Do You Need?

Disability insurance is an income replacement benefit if you can no longer work. Therefore, the amount of disability insurance you need and qualify for depends on your monthly income and expenses. Most employer-sponsored disability insurance plans will cover between 50-70% of your monthly income, less other income benefits you may be entitled to receive, including Social Security disability benefits. That means those other benefits will be deducted from what the insurance company would otherwise need to pay you. Some group disability policies also only calculate your monthly benefit based on your base salary, while others factor in bonuses, commissions, tips, etc. Thus, you will have more control and certainty regarding your monthly benefit amount if you have your own disability insurance.

If your employer does not offer disability insurance or it does not insure enough of your income to cover your monthly expenses on an ongoing basis, then you may need to purchase your own individual disability insurance. Generally speaking, the larger the monthly benefit, the more your premiums will be. Other factors can also affect premium prices, which are discussed in further detail below.

What Other Factors Should You Consider When Purchasing Individual Disability Insurance?

While it is crucial to ensure you have enough disability insurance, there are other factors to consider as well. If you purchase your own disability insurance, you should have greater flexibility in getting the specific coverage that best fits your needs. Other critical disability insurance features include the following:

Definition of Disability

The definition of disability can vary significantly between policies. For example, many individual disability insurance policies are occupation-specific, and may even be tailored to your specialty within your profession. In that case, disability will be defined as the inability to perform your own occupation. In contrast, many employer-sponsored disability plans determine disability based on your inability to perform any work in the national economy; or, if there is an occupation-specific definition of disability, it will only apply for a short period of time – typically the first 12, 24, or 36 months – and then switch to an any occupation standard.

Benefit Limitations

While disability insurance policies generally cover you until you reach retirement age, many group disability plans contain contractual limitation periods of 24 or 36 months for specific conditions. Those commonly include mental illnesses, substance use disorders, and medical conditions involving pain and other alleged “self-reported” symptomology. If you buy your own disability insurance, you may be able to avoid those arbitrary benefit limits or negotiate coverage that does not include them.

Residual Disability Benefits Coverage

Residual disability benefits cover a portion of your income in the event your medical condition renders you partially disabled – such that you must reduce either the number of hours you work, or you can no longer perform all the regular duties of your occupation – and you experience a reduction in earnings. Some group disability plans provide a partial disability benefit, while others do not. If you are interested in adding coverage for a partial disability, you should be able to negotiate that as a feature of your individual disability insurance policy.

Cost of Living Adjustments

A cost-of-living adjustment (COLA) provides for an annual increase in your disability benefit amount to account for inflation. The COLA is typically determined based on the Consumer Price Index (CPI) or something comparable. The COLA is an additional benefit feature that is rarely included in employer-sponsored disability insurance plans, but is commonly added to individual disability insurance policies. It can provide additional financial security to account for economic changes over time.

Elimination Period

The elimination period – also referred to as a benefit waiting period – determines the time you must be continuously out of work or experience a significant reduction in earnings due to your medical condition before you can start receiving disability benefits. Typically, long-term disability (LTD) and individual disability insurance policies include a 6 month elimination period. However, that period can be potentially reduced to 60 or 90 days if you are negotiating your own disability insurance coverage and want to start receiving benefits sooner.

Maximum Benefit Duration

Most group disability plans provide for the payment of benefits through age 65 or your normal retirement age under the Social Security Act. Some policies limit disability benefits to a shorter duration, such as 24 or 36 months in total. If you want to extend your disability insurance coverage until at least retirement age and potentially longer, purchasing your own disability insurance should allow you to do that.

Governing Law

Finally, most group disability plans are subject to the federal benefits law called the Employee Retirement Income Security Act of 1974 (ERISA). The ERISA law can limit the damages and legal remedies to which you are legally entitled. In contrast, individual disability insurance policies are governed by state insurance law. Depending on where you live, you may be entitled to bad faith insurance damages if your claim is denied. You will also be entitled to full discovery and a jury trial, which are typically unavailable under ERISA. Therefore, having your own disability insurance will provide you with greater legal protection if your claim is denied.

Do You Need Advice Regarding Individual Disability Insurance?

Are you considering purchasing individual disability insurance for the first time and need guidance on what to look for? Do you have individual disability insurance and are considering filing a claim? Or have you already submitted a claim for disability benefits, but your insurance carrier wrongfully denied it? If so, you may need to consult with legal counsel. The disability and insurance bad faith attorneys at DeBofsky Law, Ltd. are here to help you understand and protect your benefits.

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