DISABILITY INCOME INSURANCE
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Disability Income Insurance
There are two basic types of disability insurance:
Short term disability insurance policies offer a worker a portion of their salary if they are unable to work for a short period typically three to six months.
Long term disability insurance offers a worker a portion of their salary if they are unable to work for a longer period—typically a period of over six months.
Both short term and long term disability policies have a period that a person must be disabled for before that individual is able to start receiving disability benefits. That period of time is called an elimination period. If a person becomes disabled, they must wait until the elimination period is over before they start receiving benefits. If they are able to work before the elimination period is over, the person will not receive a benefit.
Disability insurance comes in many forms and can be obtained through a wide range of providers for a wide range of prices. The price of a disability insurance policy depends on the length of the elimination period, the benefit period, how long a person is able to receive the disability benefit, and how strict the definition of disability is under the policy. Each policy can have its own definition of what qualifies as “disabled,” so it is important to understand these rules before buying a policy.
The two most common definitions are “own occupation,” where a person is considered disabled if they are no longer able to perform the occupation they had prior to becoming disabled, and “any occupation,” where a person is considered disabled if they are unable to perform any job at all. Obviously, the “any occupation” definition is stricter. All else equal, the policy with the stricter definition of disability will be the cheaper policy because there is less of a chance of an insurer having to pay benefits under a stricter policy.
