Important Disability Insurance Terms to Know

Monthly benefit: This is the amount of money the insurance company will pay you each month you are disabled. The benefit is paid at the end of the month and is typically paid to you tax-free.

Maximum benefit period: When you become disabled, benefits are paid to you as long as remain disabled, up to the maximum benefit period. Benefit period options are 2 years, 5 years, to age 65, to age 70 and to age 65 with lifetime extension. The longer your benefit period, the higher your premium.

Elimination period: This is sometimes referred to as a waiting period and is the length of time you must wait after you become disabled before your monthly benefit will paid. Options are 60, 90, 180 and 360 days. The most common benefit period is 90 days.

Definition of total disability: The definition of total disability determines when you are considered disabled. The best polices consider you disabled if you are unable to perform the duties of your current occupation. This is referred to as “own occupation”. The least desirable definition is a policy that considers you disabled only if you are unable to work in “any occupation”.

Guaranteed renewable and non-cancelable: This means that, as long as you pay you premiums when they are due, insurance company cannot cancel your policy, change your policy provisions or increase your premium (up through age 65). The benefit to you is that once you qualify for the initial policy, your rates will never go up and the insurance company cannot change or terminate your contract.

Residual (partial) benefit rider: This benefit begins when you begin recovering from a disability and are returning back to work. The Residual benefit pays you a partial benefit if you have a partial disability. What this means is that if you get sick or injured and suffer a partial loss of income, you’d receive a benefit equal to the percentage of your lost income. Most disability insurance claims turn eventually become a residual or partial claim.

COLA rider: The cost of living adjustment, or COLA, increases your monthly disability payout during a period of disability to offset for inflation. This is important if you are suffering a lengthy disability to offset for inflation. This is important if you have a lengthy disability claim.

Guaranteed Insurability Rider: This rider provides a guaranteed option to buy additional disability insurance in the future without health requirements (no medical exam/questions). Financial underwriting is required, but any changes in health will not prevent you from purchasing additional insurance. The option is especially important to professionals who experience a large increase in their future income – such as medical residents/fellows.