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 Understanding disability income insurance A significant number of Americans face the risk of temporary or permanent total or partial disability at some point in their lives. Understanding the need for adequate disability insurance is an important part of any financial plan. Choosing the right policy can be a daunting task, and it’s likely you’ll want the help of a financial advisor. Here are basic concepts you should know about: Amount of coverage. Your policy should replace between 60 percent and 70 percent of your pre-disability income (for some higher incomes, usually 80k or more, replacement can be at 30 percent to 40 percent). Definition of disability. Make sure your policy does not exclude coverage for “occupational” disabilities, which arise if you receive worker’s compensation benefits. “Worker’s comp” is not an adequate substitute for private disability insurance. Definition of occupation. You should seek out a policy that provides permanent own occupation coverage – not one that requires you to be unfit for work in any occupation before benefits begin. Renewability. In order to avoid the risk your insurer could refuse to renew your policy at a time when you would be unable to obtain replacement coverage, look for insurance that is noncancellable or guaranteed renewable – protection below these levels usually is inadequate. Waiting period. Sometimes called an elimination period, this refers to how long you have to wait after becoming disabled before benefits begin. Ninety days is standard. Inflation. Your policy should include a cost-of-living adjustment provision so benefits keep pace with inflation. Waiver of premium. Your policy should include a provision waiving the payment of future premiums in the event of disability; so you won’t have to continue paying premiums while disabled. Definition of illness/sickness. Make sure your policy covers illnesses when they are “first manifest,” not when they are “first contracted,” or “begin.” With the latter, benefits can be denied for a long-dormant illness contracted before coverage begins – even if it’s unknown at the time. With an IDS Life, IDS Life/New York disability contract, the definition of sickness also includes when you are reasonably and lawfully mandated by a state licensing board not to perform the material and substantial duties of your regular occupation because you have an infectious disease as diagnosed by a physician. Insurance is offered by IDS Life Insurance Company, Minneapolis, Minn. or, in New York, IDS Life Insurance Company of New York, Albany, New York. June 7, 2001
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