How to Buy Disability Income Insurance

What would happen if you were unable to earn an income as a result of an accident or prolonged illness? Consider disability income insurance.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Health Insurance
• Insurance

1. Calculate current assets and liabilities to determine how long you could go without your current income after sick leave and vacation are used up.
2. Write down that number of days.
3. Determine how much short-term disability insurance your employer provides for you and write down that number of days.
4. Determine how much long-term disability insurance your employer provides for you and write down that number of days.
5. Add up all the days from above and convert to years.
6. Add those years to your age at your next birthday. For example, 5.5 years plus 32 years old equals 37.5 years.
7. Subtract that number of years from 65 to arrive at the approximate number of years you are at risk should you become unable to work as a result of an accident or prolonged illness. For example, 65 minus 37.5 equals 27.5 years.
8. Decide whether you are willing to accept that risk yourself, or whether you would prefer to transfer the risk to an insurance company, if you can qualify.
9. Call your employee benefits department and apply for or buy as much of the company's group coverage as you can.
10. Make up any difference between your company's coverage and your needs with disability income insurance from a quality disability income insurance company.

Tips & Warnings

• Exhaust every possibility for low-cost group coverage through your employer before buying your own disability income insurance policy.
• Professionals - doctors, dentists, legal personnel, accountants, and others - can usually get disability income insurance through association group plans, such as those offered by the American Medical Association and the American Dental Association.
• Consider the elimination or waiting period portion of a disability income insurance policy carefully. The longer you can wait to receive a check from the insurance company, the lower your premium.
• When buying your own coverage, be sure you fully understand the terms "non-cancelable" and "guaranteed renewable." Those features are critical in a policy.
• Business owners with very small staffs may qualify for "small-group DI" with associated discounts.
• Buyout and business continuation agreements between business partners are strengthened with disability insurance coverage as part of the plan.
• Personal, individual coverage may not be possible for those in high-risk employment categories.
• Business owners may be able to deduct disability income insurance premiums as an expense, but doing so may cause any benefits paid out to be income-taxable.
• If you need to buy your own coverage, be prepared to undergo complete disclosure of all medical and financial information to the insurance company.
• Be truthful. A fraudulent but successful application for disability income insurance can result in denial of claims later.