Known by various names, disability insurance, explained simply, is an income protection policy that promises to provide you with an income when you are not able to earn it through regular means. This generally happens when one meets with accidents or illnesses that strike abruptly, without any warning. Regardless of the variety of terms, the basic function of this policy remains the same.
But this does not imply that people with the same income grade, age or work profile, etc will receive the same coverage for their respective policies.
Instead, there are numerous factors, each playing a crucial role in determining who gets what.
Amongst this diversification, here are the 5 major factors that affect disability insurance benefit levels and coverage.
The nature of the work you are into decides a lot about the kind of benefits provided by the disability insurance policy.
For eg. If you are into a profile that calls for hazardous risks, then the premium for his policy would automatically be higher than that of a person who primarily sits at a desk. Similarly, people involved in jobs that require significant physical engagement like that of a beautician, dental assistants, etc need to pay higher premiums as compared to the people pursuing accountancy or law, etc. This is understandable because even minor damage to the people belonging to former profiles can force them to discontinue their occupations, therefore affecting their source of income.
Age and health
Next in line come two very crucial factors that play a major role in deciding upon the cost of premium and coverage for disability policies.
These factors determine that a person who has a history of illnesses or physical ailments would usually be required to pay more for disability policy, than those who hold a rather healthy background.
On similar lines, young people are offered lower premium rates than those who are old since aged people are more susceptible to suffering disability traumas or sicknesses.
Likewise, it is also common for the insurance agencies to demand the status of your current health for screening potential risks to your health owing to smoking, obesity, etc., and determining the pricing according to any chronic medical conditions such as diabetes hypertension, etc.
Benefit period refers to the period of time for which one can avail the benefits of his/ her disability insurance policy. Generally speaking, the benefit period does include age 65, or 67 or 70.
As obvious as it may sound when asked to make a choice, most people would prefer their disability policy benefits to continue till the time they make a comeback to their work profile. But in such cases, one ought to know that the longer the benefit period, the higher will be the cost and vice-versa. You can refer to the below-mentioned description for a clearer idea.
Short-term disability insurance– This kind of policy covers sufferings inflicted within two years of the disability.
Long-term disability insurance- A long-term policy generally delivers the benefits up till the age of 65. However, if the policyholder chooses to work beyond that age, then the benefit period may decrease as per the scenario.
The elimination period can be defined as the waiting period one must be disabled for before the benefits are payable.
To illustrate: if you have signed up for a policy that mentions 90 days as the elimination period, then it is required that your disability remains sustained for at least 90 days before you can finally receive the remuneration.
This waiting period may extend to weeks or months, starting from the day of your injury/ illness.
In common cases, the limit for the elimination period may vary from either 30, 60, 90, or 180 days. And unlike the benefit period, the shorter the elimination period the higher will be your premium cost. Likewise, the longer the elimination period, the cheaper would be its pricing.
Therefore, one can freely alter the cost of their policy by opting for the most suitable choice.
Total and Partial Disability
While calculating the premium costs for the disability policy, it is definite for the agencies to categorize the disability as total or partial.
Total disability: This disability is can be better understood with the help of a further classification:
Own occupation: This refers to the benefits paid when the policyholder is unable to perform any duty from his own job profile, on a full-time basis.
Any occupation: This refers to a stricter face of the policy wherein the benefits are paid when the policyholder is not able to work for any given profile even after being qualified for it.
If an individual policy covers both total and partial disability, then its pricing would be higher than those covering only either of them.
With this discussion, one can conclude, that the agencies must decide upon the cost of a policy by carefully evaluating the above-mentioned factors.
However, these factors are not the end of the story.There are plentiful other factors that contribute to the final policy suitable for the respective policyholders.
Therefore, it is definitely suggested that such kind of decisions ought to be made under the guidance of a qualified financial advisor. These advisors help the policyholder become familiar with their rights regarding their income protection.
They not only help you purchase a policy that works to provide you with the maximum gains, but also let you understand that a cheaper option may not necessarily be the best option for you. So give yourself ample time to understand what’s best for you and choose a coverage that actually protects your income and secures your future.