Disability Insurance

Disability Income Replacement

There are two types of Disability Insurance -

Group Coverage and Individual Coverage .
The major differences in the two plans lie in their
contractual provisions.

The main contractual differences are:

1. Non-Cancellable - individual coverage is "Non-Cancellable and Guaranteed Renewable to age 65". This means that the insurance company can never cancel you (except for non-payment of premiums) and can't raise your premiums until after age 65. Group plans can cancel you on any anniversary and will probably raise your premiums each year.
2. Integration of benefits - Individual Disability Insurance does not integrate with other individual coverage, group coverage or social benefits. (i.e. Social Security, State Disability or Workers Comp.) Group Coverage integrates with other group plans and all social benefits.
3. Definition of Disability - Individual coverage offers a true "Own Occupation" definition. This may not be important to you (extra cost) but it is far superior to a group plan's definition.
4. Lifetime benefits - This option (additional $$) is only available on an Individual Plan.

Since Individual LTD is better and Group LTD is cheaper the optimal plan design is to first purchase as much individual coverage that is available from the insurance company and then layer a Group Plan on top of that when you reach 10 employees.

Individual Disability Quote Request Form

Company Benefits/Group Ins. Employee Census Form

A Nutshell Look at Disability

When looking at Disability Insurance Policies there are
some main points that are critical to a quality contract.

First, I intentionally use the word contract. A Disability
Insurance Policy is a contract between the insured and
the insurance company. Benefits will only be paid based
upon the definitions and wording in that contract.

The most important definition in the contract is the
"definition" of disability. This definition is the crux of the
plan. As an insured you want this to be simple and easy
to understand. In law school we used the position of the
"reasonable person" to determine if a case had merit.

So it is with the Definition of Disability. If a reasonable
person (you) cannot easily understand this definition and
how/when benefits are to be paid then the plan should
probably not be purchased.

If the definition appears ambiguous to you then it will
be subject to interpretation by the insurance company at
claim time. It's important to realize that the more
ambiguous the Definition of Disability, the lower the premium.

A definition that favors the insured costs more money than
one that gives the insurance company an out. The next
critical part of the plan is partial/residual and recovery.
Partial means that you don't ever have to be totally disabled
to collect benefits.

This is included in some contracts and it is an extra rider in
others. Residual means the plan will pay you a benefit for a
partial disability. When partially disabled a good contract
internally indexes your prior earnings so that your residual
benefits can keep pace with inflation (not the same as the
COLA Rider).

The Recovery feature is how long benefits will be paid
when you are back at work full time (and still have an
income loss) after being disabled.

The Cost of Living Rider (COLA) increases the Total
Disability Benefits after one year of Disability. The final issue
to discuss is size of the insurance company and my
experience in dealing with the quoted companies at claim time.

In terms of claims adjudication, I only show you companies that
my clients have had good experiences with at claim time.

All plans shown are "Non-Cancellable and Guaranteed Renewable
to Age 65" - this means the insurance company cannot cancel you
(except for non-payment of premium) and they must offer renewal
to Age 65.

Premiums are guaranteed to stay level to 65 unless
otherwise noted as step Rate, which is level for the initial
period and then "Steps Up" to a guaranteed level premium to
age 65. All plans waive premiums during Disability.