Jul 24, 2009
Jamie Fleischner

Jamie Fleischner

24 Jul, 2009

When is the best time to think about purchasing a disability policy?
The earlier you begin the process, the better, since you can only obtain a policy if you are healthy. Also, premiums are based on your age so disability insurance is less expensive if you are younger. Once you start earning an income, it is important to consider protecting it.

What does a disability policy typically cost?

Depending on your age, gender, amount of group coverage, riders on the policy, and amount of benefit purchased, it will generally cost between 1-4 percent of your annual gross income.

How do I compare one policy with another?
It can be difficult to compare policies as most policies have different definitions and premiums.  We help simplify this process by providing a side by side comparison from multiple companies and can walk you through the process.

How long does the underwriting process take?
Typically three to six weeks. It can be delayed if there is a request for attending physician statements from your doctor.

How do I know I am getting a policy with a good company?
Look at the company’s third-party ratings (A.M. Best, Standard & Poor’s). Make sure the company has a strong foundation and track record.

How long will I need a disability policy?

As long as you are dependent on your income, you will need to keep your policy. Once you are financially independent or retired, you may not need the coverage anymore.

What is Own-Occupation definition of disability? Why is it so important?
Own-occupation covers you in your occupation or specialty EVEN IF you are working in another occupation or medical specialty. This is the most liberal definition. There is no penalty or offsetting benefit amount if you decide to work in another medical specialty or occupation when you are on claim.

What determines if I’m disabled?
The definition of disability in your policy is what is used to determine if you will qualify for benefits.

What are residual benefits?
If you have a residual definition or rider on your policy, the policy will pay you a benefit if you have a loss of earnings, usually 20 percent. You do not have to be totally disabled.

If I’m disabled, can I see my own doctor?
Most companies will allow you to see your own doctor if you are disabled. The company usually requires that you are seeing an appropriate doctor for your condition.

What are common policy exclusions to look out for?
Common exclusions are:

  • Mental/Nervous Disorder (sometimes companies will restrict how long they will pay for this)
  • Act of war
  • HIV
  • Pregnancy
  • Active Military Duty
  • Foreign Travel

Are disability insurance benefits taxable?
If you pay your premiums with personal money (after tax dollars), your benefit is tax-free. If you deduct the premiums or your employer pays the premiums, the benefit may be taxable to you at the time of claim.

Can I have my employer pay for my coverage?
Your employer can pay for your disability insurance coverage but it may cause the benefit to be taxable to you at the time of claim.

How do I determine the best waiting period?
This decision is based on what premiums you can afford and how much you have in savings. The most cost effective waiting period tends to be 90 days. (The waiting period is the amount of time that must elapse after you become disabled before you start receiving benefits.)

Which are the common riders that I can put on my policy?
Residual Benefit
Cost of Living Rider
Future Increase Option Riders
Lifetime Extension Riders
See your policy to see what other riders are available or may be suitable for you.

Can I get coverage through my association?
There may be discounts available to you through your association. However, don’t assume that just because your association is endorsing the product that it is the best available. You’ll still want to make sure that it has the best definitions for you.

What if I have medical problems?
It is important that you disclose this to your broker before you begin the process. It may save you time or there may be a different recommended plan or company for you.

What if I change jobs or occupations?
If your policy is noncancelable or guaranteed renewable, the insurance company can’t change your contract if you change jobs or occupations. As long as you continue to pay your premiums, they must cover you in the occupation/job you were doing just before your claim.

What if I’m pregnant or thinking about becoming pregnant?
Pregnancy can be covered under a disability insurance policy. If you are pregnant, you can apply up to your 2nd trimester. The current pregnancy would most likely be excluded. Otherwise, you will need to wait until you have delivered your baby and have returned to work to obtain disability insurance. If you are considering getting pregnant, it may make sense to buy a policy prior to conception. Check the policy to see if complications of pregnancy are covered.

What if I already have a group disability policy?
If you have a group policy, you will probably still be eligible to supplement the income provided with the group policy. Group policies are limited in the amount of benefit they can offer, the benefit is usually taxable since the employer pays the premiums, and you usually can’t take the policy with you if you leave the employer.

What if I start a business and/or my income decreases in the future?
If your policy is noncancelable, guaranteed renewable, as long as you pay your premiums, the policy will pay you at the rate of benefit you are at now, even if you had a decrease in pay.

If I have an elective surgery and have complications, is it covered?
Some policies have a feature that will still pay benefits even if you are sick due to complications of elective cosmetic or transplant surgery.

What if I leave the country?
Depending on the policy, some policies will cover foreign travel. Some policies will suspend the contract while you are abroad. If you become disabled while abroad, most companies would require you to return to the US within one year of the claim date to be paid benefits.

If I get injured at work, do I get a disability insurance benefit?
Most policies will pay you over and above any worker’s compensation benefits paid. Therefore it does not matter if the injury happened at work or elsewhere.

What if I am severely injured but still working in my job?
Some policies have a presumptive total disability feature. It will pay you your full benefit amount if you lose a limb or eyesight, for example (there is a list of injuries in this category in the policy), even if you are still working in your job.

Can the company ever raise my premiums?
If your policy is noncanceleable, the insurance company can never increase your premiums, typically to age 65.

Can the company ever cancel my policy?
If your policy is guaranteed renewable, it can never be cancelled your policy. The company may cancel your policy if you have not paid your premiums.

Do I have to pay premiums when I’m on claim?
Typically no. Some companies reimburse premiums paid during the elimination period.

What if I go back to work after I was on claim and then have a recurrence or another disability?
Some policies will allow you to go right back on claim and will pay you right away (no elimination period) if the disability occurs again. Policies can vary on this anywhere from six months to five years.

Will my policy benefits keep up with inflation when I’m on claim?
If you have a cost of living rider, your benefit will increase by a percentage every year you are on claim.

What if I am diagnosed with an illness/disease and become uninsurable? Can I still buy more benefit in the future?

If you have increase options on your policy, you only need to show that your income has increased and no medical questions are asked.

How can I cancel my policy?
You can cancel your policy at any time by submitting a request in writing.

I’m moving to another state. How will this affect my policy?
Your policy definitions are based on the state where you originally purchased your policy and will remain so after your move.

What type of life insurance policy should I buy, term or permanent?

It’s impossible to say which is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. But generally speaking, term offers the greatest coverage for the lowest initial premium and is a great solution for people with temporary needs or a limited budget. Permanent insurance may make more sense if you anticipate a need for lifelong protection and like the option of accumulating tax-deferred cash values. Also, it doesn’t have to be either one or the other. Oftentimes, a combination of term and permanent insurance is the right answer.

What are the various kinds of permanent insurance?
There are four main types. Whole life insurance is the most traditional form of “permanent” insurance. With it, the face amount (the death benefit) and the premium (the amount you pay for protection each year) are fixed at the time you buy your policy and stay the same even as you age. You also get a guaranteed rate of return on your cash values. Of course, any guarantee relies on the claims paying ability of the issuing insurance company. By contrast, the cash value in universal life is linked to interest rates, and the cash value of variable life and variable universal life is linked the performance of the underlying investment options you choose to invest in and fluctuate with market conditions.

These two types of insurance products are offered via a prospectus, as such, you should always request a copy of a current prospectus, as it contains information you need such as the investment objectives, risks, and charges and expenses of the investment. The cash value of universal and variable policies is not guaranteed, although some policies set a minimum death benefit. With universal policies (universal life and variable universal life) you can reduce or increase the amount of the death benefit and vary the amount or timing of premium payments, subject to certain limitations. If you’re having a hard time understanding the differences between these policies, don’t despair. Contact us and we can take the time to walk you through your various options.
What are accelerated death benefits and how do they work?
Many policies contain a provision that allows a terminally ill person to collect a significant portion of his or her policy’s death benefit while that person is still alive. The money can be used to get one’s family finances in order, pay for uncovered medical expenses, or simply do certain things for your family or friends while you still can. It’s important to note that the amount you take out while still living will be subtracted from the death benefit payments to your beneficiaries along with an interest charge to account for early payment of benefits.

By using medical tests are insurers trying to eliminate any applicant likely to develop a serious health condition?
Medical tests provide accurate and current information about an applicant’s health, thus enabling insurers to charge premiums that reflect the level of risk an applicant represents. Because some health conditions are easily managed through proper medication, therapy or lifestyle changes, medical information makes it possible for insurers to cover applicants with certain health conditions. More serious or incurable conditions present a very significant risk that some insurers simply may not want to assume.

What should I consider in naming life insurance beneficiaries?

1.    Always name a “contingent,” or secondary, beneficiary, just in case you outlive your first beneficiary.
2.    Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your family immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
3.    Be very specific in wording beneficiary designations. Saying “wife of the insured” could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child’s children? Changing the beneficiary designation is easy, but you have to remember to do it. Due to the various issues involved, an agent can be an excellent source of information to help you properly set up your beneficiary designation.

Does it make sense to replace a policy?
Think twice before you do, because in many situations it may not be to your advantage. Before dropping any in-force policy, consider:
1.    If your health status has changed over the years, you may no longer be insurable at standard rates.
2.    Your present policy may have a lower premium rate than is required on a new policy of the same type (if, for no other reason, that you have grown older).
3.    If you replace one cash-value policy with another, the cash value of the new policy may be relatively small for several years and may never be as large as that of the original one.
4.    You will be subject to a new contestability period.

You should ask insurance agents for a detailed listing of cost breakdowns of both policies, including premiums, cash surrender value, and death benefits. Compare these as well as the features offered by both policies.

If you decide to surrender or reduce the value of the policy you now own and replace it with other insurance, be sure that:
1.    the agent/broker making the proposal puts it in writing.
2.    you pass any required medical examination.
3.    your new policy is in force before you cancel the old one.

What happens if I fail to make the required premium payments?
If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. If you own a term policy and fail to pay your premium within the grace period, your insurance company will typically terminate the policy. If you own a permanent policy and fail to pay your premium within the grace period, your insurance company, with your authorization, can draw from your policy’s cash value to keep the policy in force. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy. However, this will result in lower cash values and a shortened coverage period.

Should I just buy basic life insurance coverage or is it worth considering the “bells and whistles” that some policies offer?

Whether you should consider adding a rider to a policy you’re considering really depends on your specific needs, objectives and budget. Here are a few riders that you at least should take a close look at and consider. A disability waiver of premium rider stipulates that if you become totally disabled for a specified period of time, you don’t have to pay premiums for the duration of the disability. Why might you want to consider such a provision? Disabling illnesses and injuries are much more common than you probably realize. If you become disabled and your income declines or disappears for a period of time, a disability waiver of premium can ensure that your life insurance policy will remain in force.

An accidental death benefit is another common rider. It will pay an additional benefit in the case of a death resulting from an accident. Many companies offer accelerated death benefits, also known as living benefits. This type of rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Ask your agent for information about these and other policy riders.

How do I go about finding a good insurance professional?

Ask about the person’s experience and background, and make sure he or she specializes in the service and products you need. You also may want to ask the person if he or she has received any special certifications such as Chartered Life Underwriter (CLU) or Chartered Financial Consultant (ChFC). These designations mean the person has taken advanced courses and may have specialized training and knowledge from which you could benefit. Above all, you want to select an agent or advisor who listens well and will take the time to understand your unique goals and desires.

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