Disability Insurance
Disability income insurance can replace a portion of your income if you get sick or injured and are unable to work. It can help you and your family maintain your standard of living. Options are available that can provide essential coverage while meeting most family budgets.
1. Own Occupation definition of disability for income protection:
- There are two very different definitions of disability used in disability insurance policies. "The first definition defines a disability as a condition that prevents you from performing the major duties of your occupation.
- One top-rated disability insurance company summarizes their definition of disability as: “Pays benefits if you are unable to perform the material and substantial duties of your own occupation due to sickness or injury…even if you are able to do some other kind of work.”.
- The other less-favorable definition of disability states that you are disabled if you can’t work at any gainful occupation. This kind of policy may also have a residual benefit that says if your income goes down the insurance company will pay a partial benefit.
- One of the most important features for a professional or executive is the own-occupation definition of disability."
2. An income protection policy with the right definition of residual (partial) benefits and return-to-work benefits:
- An example may help to illustrate this point: A physician is disabled, then recovers and returns to work after three years of disability. The physician does not have much of a medical practice left and the practice has no cash flow, but some patients are starting to return. Simultaneously, there are both personal and business expenses to fund. Over the next six months following the physician's return to work, the business picks up but there is still a low cash flow. After one year, the cash flow returns to 60% of what the medical practice once brought in. During all this time, the physician is working full-time. Let’s see how this claim could be handled by two different disability insurance companies.
- Disability Insurance Company A says: if you’re back at work full-time after three months, no matter what your income is, since you are at work full-time you will no longer receive disability benefits (this is referred to as the Time and Duties method).
- Disability Insurance Company B says: if you’re not back to full cash flow we will pay out the proportionate amount of your loss. Both of these companies might have “own occupation” definitions for total disability but one is much less favorable for you after recovery (this is the definition of Recovery and Residual benefit.)