Risk Management and Insurance Basics, Part XII

April 20, 2021 by gjsturm88 1 Comment

Over the next two weeks, we’ll return and discuss disability insurance.

Statistics on disabilities can be more sobering than many of us realize. According to the Social Security Administration, more than one in four 20-year-olds are expected to become disabled before reaching retirement age, and roughly one in five Americans, at over 50 million, are currently living with a disability.

One option to address this concern is through disability insurance. Disability insurance is generally either short-term or long-term. Short-term disability coverage generally lasts between three to six months, with very short elimination periods (the period you have to wait until receiving benefits), typically only a couple days to a couple weeks. Long-term disability coverage lasts considerably longer, anywhere from 2, 5, 10 years or up until retirement. However, long-term disability also tends to have a much longer elimination period, generally around 3-6 months or longer, which is why some policy holders and employers combine short-term and long-term policies.

Another consideration is “own occupation” vs “any occupation.” Any-occupation coverage will cover you if you’re unable to work in a job that is reasonably suitable for you given your education, experience, and age. The key with these policies is whether or not the disability prevents the policyholder from performing a job which they are reasonably qualified for. For instance, if a surgeon were to badly injure their hand, but continued to work in the medical field in a non-surgical position, they may not qualify for any-occupation disability benefits. However, if the injury was severe enough to prevent them from functioning professionally in the medical field at all, they would likely qualify. Own occupation does not have these specific requirements – instead, if the insurance holder is unable to perform the duties of their specific occupation, they will generally qualify for disability benefits. Going back to the earlier example, if a surgeon injures their hand and is no longer able to perform surgery, instead taking a lower paying non-surgical medical position, they would likely qualify for benefits from an own occupation disability policy. With that said, disability insurance policies will often limit the benefits if you are employed at another job, even for some own occupation policies. They may, for instance, limit the benefit so that your combined disability benefits and current income are not more than your previous income.

What’s the trade-off? For the added flexibility and coverage, you will typically pay more for an own occupation disability policy than an any occupation policy with the same benefit amounts and length of benefits. Which of these option makes more sense for you will depend on how specialized your job is, the income level for your current job vs. other jobs you would be qualified for and potentially be able to do with a disability, what you’re willing or able to afford in a disability policy, and your personal preferences for risk management. Next week, we’ll wrap up our discussion on disability insurance.