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Disability Insurance Policy Components

All policies will have variations to them as companies compete and offer different products to their customers. However, some key components you should consider when reviewing a policy are shown in the table below.

Component Description
Benefit Amount

This feature is the amount that the policy will pay to you should you become disabled.

Benefit Period

This will define how long benefits will be paid. It could be 5 years or until age 65. The length of benefits paid will be directly proportional to the cost of the policy.

Definitions of Disability

There are two general types of disability definitions that you should be aware of.

  1. Own Occupation, or "Own-Occ" which states that in order to be declared disabled you cannot perform your particular occupation. Typically this would be the best as your earning potential will be greatest with your career skills.
  2. Any Occupation, "Any-Occ" which would stipulate that you are unable to perform any occupation.
Definition of Disability in Your Policy

This is an important part of any policy. Be sure you fully understand how disabled will be defined. As noted above, being unable to perform your present occupation is what you want.

Guaranteed Future Insurability

This feature allows you to increase your policy amount in the future as your income grows without having to formally reapply.

Guaranteed Renewable Policy

This type of policy is guaranteed as renewable, as long as the premiums are paid, but the premiums can be raised for a class of policyholders through regulatory state approval.

Inflation Protection

Having this in your policy, which is typically offered as a rider, will factor inflation into your paid benefits. This should be seriously considered, as a monthly amount now will be quite different in value 20 years from now. Inflation riders are generally offered in two forms.

  • Simple - the monthly benefit identified in the policy is applied to an inflation factor
  • Compound - the inflation factor is applied each year to last year's amount.

Inflation effects your expenses in a compound fashion. This means that the only way to stay with inflationary forces is with a compound inflation rider.

Long Term Disability

This product would pay benefits up to age 65.

Non-Cancelable Policy

This type of policy will be guaranteed renewable, as long as the premiums are paid, and will have premiums that cannot be raised. It is often referred to as a, "Non-Can" policy.

Partial Disability Benefits With this type of policy you would be paid a certain amount for a defined period of time when declared disabled.
Residual Benefits With this type of policy you would be paid benefits that are proportional to your loss of income.
Short Term Disability This would pay benefits for a specific period of time, for example 2 years.
Waiver of Premium This feature allows for the premiums that you pay to be waived upon receiving benefits.

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