When searching for the appropriate disability insurance, many consumers often make the mistake of choosing a cheap disability insurance policy and ignoring the provisions that are frequently found in inexpensive policies. Inexpensive policies can often end up costing the insured a lot of benefits once a claim arises because of restrictive provisions that were initially overlooked but not discovered until a claim was filed. By then, it’s too late to do anything about it.

What Makes a Disability Insurance Policy Inexpensive?

One of the reasons a policy may be inexpensive is because the provisions of the contract do not pay benefits in as many claims situations as other available policies. There may be many provisions required to be met in order for benefits to begin and or continue. The individual disability insurance market is dynamic, changes are frequent as companies compete with each other for new business. One consistent thing is that inexpensive policies might become the most expensive policies in a claim because benefits are not paid out when they are needed the most.

An Example of A Commonly Overlooked Provision

For example, some policies will only begin paying benefits once the insured has been disabled for the entire elimination period, consecutively. Better policies can allow for a more generous accumulation period in terms of how they allow to number of disabled days to accumulate. This way, the insured does not have to start a new waiting period just because he/she tried going back to work for a day. A policy with an accumulation period allows you to collect benefits much sooner and more easily than a policy without an accumulation period.

Recovery Benefits, A Major Factor 

Additionally, upon recovering from a disability, some policies will pay recovery benefits if you are earning less than 80% to 85% of your pre-disability earnings, depending on the policy. Business owners would typically have to rebuild the business again following a period of total disability. Better policies could continue to pay benefits even if the insured business owner went back to work full time and was able to perform all previously able duties. The best disability insurance policies pay you until you financially recover, not just until you physically recover!

The best disability insurance policies available allow the partial disability benefit rider to pay benefits for the entire benefit period for any income loss attributable to the disability. That could be well beyond a one or two-year recovery benefit period sometimes offered by inexpensive disability policies.

The Right Disability Insurance Policies Protect You in Your Own Occupation

For many people, the best disability insurance policy would continue monthly disability income benefits even if they choose to find work in another occupation, so long as they cannot work in their original occupation.  In my experience, I find that most professionals would choose to work if they can. Many disability insurance policies cease or reduce benefits if earned income is flowing in from new occupations. The best policies will keep disability income benefits coming in full even if another income is earned so long as the insured is not able to work in his or her original occupation at the time of disability.

Why Do Company Ratings Matter? 

The contractual promise to pay benefits is only as good as the financial strength of the company that makes that promise. Consumers are gifted with a plethora of information from third-party sources that evaluate and grade insurance companies. A.M Best is a very popular third-party organization. The highest rating possible is “A++”. This is the highest out of 16 ratings. Lesser rating of “A+” or “A” is also good but is one or two “ballparks” away from the best rated at “A++”. A Comdex score is another popular third-party ranking system. Comdex is a composite of all major ratings (minimum of two ratings) that a company has received.

The Comdex percentile ranks the companies on a scale of 1 to 100 (with “1” being the weakest and “100” being the strongest) in relation to other companies that have been evaluated by the four independent rating services (A.M. Best Company, Standard & Poor’s, Fitch and Moody’s). A result is a number that can be used to gauge the relative strength of a company.

Keep in mind, a great score does not mean you have a great DI product. It only means a company should have the financial ability to pay claims out in the long-term.

Summary

While it always depends on a client’s unique needs, in my opinion, the best disability policies generally contain terms and provisions that do not allow the insuring company to increase the cost for the same coverage, change the terms of the contract, or drop coverage as long as the policy premium is paid on time. What was once within budget may become out of budget in the future if the cost is increased at a later time. The terms of a contract may be acceptable at the time of initial purchase, but if those terms are allowed to be altered; any future alterations may not be acceptable.

The provisions that do not allow the insuring company to increase cost, drop coverage, or change provisions at a later time are both Non-Cancellable and Guaranteed Renewable provisions. In my opinion, one of the best disability insurance policies is an individually owned policy. This is where the insured and the policy owner are the same people and they do not have to work for a particular organization in order to keep his or her coverage. The insured does not have to work in a certain occupation.

The insured has full portability with this type of policy. The insured can change employers, can change jobs, can change careers as desired and the policy can go with him or her wherever desired. The insured will not have to be or continue to be a member of a certain organization. The insured just has to pay for coverage on time and the policy benefits will be available for when it is needed.

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

Individual disability income products are underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly-owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. Optional riders are available for an additional premium.

Comdex is not a rating, but a composite of all ratings that a company has received from the major rating agencies (A.M. Best, Standard & Poor's, Moody's, and Fitch). Comdex percentile ranks the companies on a scale of 1 to 100 (with 100 being the best).