Saturday, July 25, 2009

Presumptive Disability Insurance

Presumptive - Regarding loss of sight, speach, hearing, or any two limbs

The definition of presumptive disability varies among contracts. Some contracts do not even have a presumptive disability insurance provision. The basic idea of presumptive disability is to protect against drastic disabilities that occur suddenly. They generally protect you against the loss of hearing, sight, speach, or the use of any two limbs. This is not a provision for which you pay an extra premium, it is built into most contracts. The main differences are in the definition language, specifically in the words; Total, Permanent, Irrecoverable. A total loss of sight, speach, hearing, or the use of any two limbs is a lot different from an irrecoverable or permanent loss. Total losses protect you from temporary loss of site, speach, hearing, and broken limbs. An irrecoverable loss is just that, the disability must be permanent. All contracts that have a presumptive disability provision pay first day benefits for these losses.

Renewability of Disability Insurance

The first aspect of any disability insurance policy one needs to understand is the renewability feature. There are three basic types of renewability on the market today.

Non-Cancellable and Guaranteed Renewable

This, in my opinion, is the strongest possibility as far as renewability goes. It guarantees you that after you place a policy in-force that there will be no changes to your premium schedule, your monthly benefits, or your policy benefits to age 65 or a certain age. The insurance company legally can not change a thing unless you want them to. Many people do not have a guarantee that their income will never go down again, under a Non-Cancellable policy even if your income goes down later in life, if you are totally disabled the company will pay you the total disability benefit you originally placed in-force. Under a Non-Cancellable policy even if you changed jobs from being a white collar, low-risk occupation to a professional weight lifter the company could not change your benefits for the worse. Quite simply, there is no reason to go with an individual disability insurance policy that is not Non-Cancellable and Guaranteed Renewable.

Guaranteed Renewable

This type of renewability feature is a step down from Non-Cancellable and Guaranteed Renewable. The basis behind the definition says that an insurance company will probably not change anything about the policy, but they can ! Almost every insurance carrier that offers a guaranteed renewable contract used to offer a Non-Cancellable and Guaranteed Renewable contract. There is a reason why they moved to this type of renewability.

They can change the premium by state, policy year, or occupational class with approval from the state. For an individual disability insurance policy, it is my opinion that you would be making a mistake by going with a GR policy. I believe you are setting yourself up for a possible disaster several years into the future. Look for the words on your policy "Non-Cancellable and Guaranteed Renewable", They may not be on the proposal, but they must be on the policy! If it is just Guaranteed Renewable, you may be missing something.

Conditionally Renewable

The worst option of the three, a conditionally renewable policy offers you as a consumer virtually no guarantees for your disability insurance policy. Different companies have different conditions for you to renew your insurance every year, but the only guarantee you can get is that the conditions will be very hard to meet at the worst possible time. Stay away from these policies!!!

Residual Disability Insurance

A large percentage of all disability insurance claims either start or end in a residual claim. The basis of a residual claim is that a person is still actively engaged in their occupation, but because of a sickness or injury is:

Suffering a loss of time and duties
Suffering a loss of income of at least 20%

As you can see there are two major types of a residual claim. One is based on a loss of income only, and one is based upon a loss of time and duties. I am under the impression that a residual disability provision which is based on loss of income is better. I want the bottom line to my residual claim to be that the insurance company will continue to pay me until my income is back up to what it was before I was disabled. Under a loss of time and duties claim they generally stop paying a residual claim once you are back to work full time. Some carriers will move you to a recovery benefit once you are back to work full time under the time and duties claims, but this is only for a specified period of time. A residual disability povision based on income is like having an unlimited recovery benefit, and protects a person from a claim like the following:

Let's assume this person is in sales, or a small business owner. Assuming they are totally disabled for a period of six months to a year, does anybody think that when they come back to work their income will jump up to what it was before they were disabled? The answer is likely to be no. They may have to come back to work for longer hours, and work even harder to get back the clients they lost while they were away, get new business in the hopper. Then maybe several months later they could hope to increase their income towards the previous level. The bottom line is that people may be residually disabled for a much longer period of time than they are totally disabled.

Gainful Occupation Coverage

This definition of total disability is very common in an employer sponsored group long term disability insurance policy, or with property and casualty insurance companies that decided to release a disability insurance policy. It is quite simply the worst definition available and should be at the very least supplemented with a quality contract if not replaced entirely. This definition basically leaves the determination of whether or not you are disabled up to the insurance company. A typical definition will look like this:

Because of sickness or injury you are unable to perform the material and substantial duties or your occupation, or any occupation for which you are deemed reasonably qualified by education, training, orexperience.

Could somebody be forced to go flip burgers at McDonalds under this definition of total disability? Pobably not but it does leave it open for litigation and interpretation. You should be buying disability insurance so that you do not have to worry about your income if you can't do the material and substantial duties of your occupation, going wih this type of disability insurance policy is an inexperienced decision, and should be re-thought for an own-occupation plan. Many people who simply shop for the best disability insurance rate end up with this type of coverage. In my opinion, it is worthless, and you may end up with the Lemon of the disability insurance industry.

Income Replacement Insurance

This has become the most common definition of total disability in the industry today. Most insurance carriers that have stopped offering own-occupation disability insurance have moved to an income replacement definition. You will find the first part of the definition is very similiar to an own-occupation definition, but it is with the second part that the major change occurs. A typical income replacement definition will look something like this:

Because of sickness or injury you are unable to perform the material and substantial duties of your occupation, and are not engaged in any other occupation.

As you can see there is a major difference between an income replacement and an own-occupation definition of total disability. The income replacement definition will penalize you during a claim if you make the decision to go back to work, or earn another source of earned income while on a claim. I have found that most people if given the choice would go back to some work if possible, under this plan if somebody wants to go back to work in some capacity, the insurance company may offset your monthly benefit check. There is a common misconception that own-occupation disability insurance costs a lot more than an income replacement policy. While I am certain that in some scenarios this is true, as a blanket statement it is false. There are many professional occupations where an own-occ contract is actually less expensive than an income replacement policy. Many companies, as an example, do not like writing individual disability insurance on physicians. It is very likely that an own-occupation disability insurance policy may be less expensive from a company that still enjoys writing disability insurance for doctors.

Own-Occupation Disability Insurance

The most comprehensive definition of total disability available. This type of policy will have a definition that says:

The inability to perform the material and substantial duties of your regular occupation, the insurance company will consider your occupation to be the occupation you are engaged in at the time you become disabled, they will pay the claim even if you are working in some other capacity.

What I have found over the years is that people will choose to fight their disabilities. They will refuse to sit at home and collect a monthly disability check. Instead, as long as they are not severely disabled, most people choose to go back to work in some capacity to give themselves a sence of self worth, or just to go do something everyday. Own-occupation disability insurance is the only plan that does not penalize somebody for going back to work in a different occupation while on a claim. Under this type of plan, the bottom line is if because of a sickness or injury you can not perform in your occupation, you will be considered totally disabled, even if you choose to do something else.

Personal Disability Insurance

Individual disability insurance is truly a basic concept. It is an insurance product designed to replace anywhere from 45-60% of your gross income on a tax-free basis should a sickness or illness prevent you from earning an income in your occupation. Every disability insurance policy from every insurance company is very different, this is not a product to simply shop for the most competitive rate. To buy the cheapest disability insurance policy on the market is to throw money away. The odds of getting paid a monthly benefit under a cheap contract may be significantly lower than receiving benefits from a quality contract. The goal of this site is to provide you with a resource to make an educated decision on your own. I will provide you with information regarding the major features of a disability insurance policy so that you may better understand how to read a disability insurance policy. I will also provide you with links to some third party articles, and links to the best disability insurance sites I have found on the internet to obtain quotes.

All of the information on this web site is truly geared towards white collar occupations. Individual disability insurance for blue collar occupations is attainable through some carriers, however most of the carriers and contracts discussed on this web site do not specialize in providing coverage to blue collar occupations