Purchasing Disability Insurance
Before purchasing disability insurance determine:
- What is the precise occupation for which you are trying to insure yourself? Is it highly specific such as musician, computer programmer, carpenter, surgeon? Or more general such as business administrator? An injury that may be disabling to one type of occupation may not be disabling to another.
- How large a monthly benefit are you seeking? Do you need a benefit large enough to make up the bulk of the actual income you would lose, or merely that amount necessary to supplement your income or savings from other sources? This will have a big impact on your premiums.
- How soon do you need to have benefits kick in? Do you have any work benefits that would provide initial income, such as accumulated sick leave or other such arrangement? This will also effect premiums.
- What is your tax situation and how might that effect your analysis of what is needed? Generally, if you paid your premiums with before tax dollars, your benefits will be taxable. If you paid with after tax dollars your benefits will not be taxable.
- How long do you need your benefits to continue? For life? To age 65? Or just until you can be trained in some other occupation?
- What kind of work are you suited for – by reason of your education, training and experience – other than your current occupation? Do you want your policy to require that you enter another occupation should you become disabled from your current line of work?
- What disabilities do you expect to be covered for? Specific disabilities or for any illness or injury? Mental as well as physical?
- Do you want your benefits to include a COLA Cost of Living Adjustment formula? Read the fine print. Many COLAs do not kick in beginning in year One. They don’t begin until after you become disabled – by which time the benefit amount may already have been gutted by inflation.
- As with all other types of insurance think about what your specific needs are before talking to an agent or broker or otherwise choosing a policy.
Next: Meeting With an Agent