Disability insurance is one of the most important types of insurance you can buy. Where life insurance, for example, provides for the future of your family after your death, disability insurance provides for you and your family by protecting your income now. If an injury or illness were to prevent you from being able to work, if you owned disability insurance you would receive a percentage of the income you would be receiving if you were able to work in the form of a month benefit.
Ideally, a disability insurance policy’s monthly benefit should allow you to maintain your lifestyle at the time you became disabled and unable to work. You would still be able to provide for your family and pay for living expenses.
Disability insurance policies, like any other insurance policies, are complex contracts whose content and protection vary from insurance provider to insurance provider.
There are two types of disability insurance coverage:
Short-Term Disability
This type of disability is frequently provided by an employer. When an individual becomes injured or ill and is covered by short-term disability, they receive an income during the early period of their injury. Depending on the insurance provider, the individual may receive disability benefits for 2 weeks or up to 2 years.
Long-Term Disability
Long-term disability may be offered by an employer or purchased separately by an individual. This type of disability replaces income during an extended period of time, normally for 2 years, 5 years, or until the disabled recipient turns 65.
The best type of disability insurance coverage to obtain is long-term, which provides the most coverage and policy options.
An important aspect of a long-term disability policy is how renewable it is. Renewable, when speaking in terms of a disability insurance policy contract, means whether or not the policy is subject to changes.
There are two policy types that affect how renewable a policy is: non-cancelable and guaranteed renewable.
A non-cancelable policy means that the premiums will never be raised, and the policy will never be cancelled, as long as the premiums are paid.
A guaranteed renewable policy is characterized in these ways:
– The policy can never be cancelled, as long as premiums are paid;
– Premiums may be raised, but only if it effects a group of policyholders, not a single policyholder.
A guaranteed renewable insurance policy is the most common. They are also the type frequently provided by employers as part of a benefits package. Employee-provided coverage is called group coverage. This means your employer purchased one disability insurance policy for everyone in your company or workplace. In other words, the “group of policyholders” that could be affected by a change in their policy would be you.
Insurance providers and experts say both types of polices provide valuable coverage. However, more often than not, a non-cancelable policy is the type to aim for. If coverage is provided to you solely through your employer, you may not have an option.
A guaranteed renewable policy still has desirable qualities. Initially, it is much less expensive than a non-cancelable policy. A guaranteed renewable policy can never be dropped or your options changed unless you wish them to be. Still, your insurance company reserves the right to raise your premiums-but only if it effects every policyholder in your group, such as your place of employment or professional association.
When obtaining a disability insurance policy characterized by a guaranteed renewable contract, ask your insurance agent or provider how this will affect you. If the answers are not satisfactory, you have the option of purchasing a different type of policy on your own. Chances are good though, that a guaranteed renewable disability policy will still provide you with adequate coverage.