When it comes to how to buy a disability insurance policy, there are multiple factors to consider. This is a very technical type of policy that protects your most valuable asset -- your income. For many people, some level of income protection is provided through their job. Those who are self-employed, or want to supplement what their employer provides need to buy an individual disability insurance policy.

Look for the Right Type of Disability Coverage

There are two basic types of coverage that people consider;

• Short-Term
   
• Long-Term

Short-term disability insurance policies usually start paying you after you've been out of work for a couple of weeks and continue paying for 3 months. Long-term disability insurance policies start after you've been out of work for 3 months and typically pay until retirement age.

Generally, we recommend self-insuring the short-term risk by accumulating 3 months of cash reserves and then shifting the long-term risk to the insurance company by buying a long-term disability insurance policy.

Start Getting Some Quotes

Most people will start getting quotes from their insurance agent. While this can be a good place to start, it might not be the best option. Disability insurance (DI) is unlike other types of insurance, there are material differences between companies. A life insurance policy has one way to pay a claim, so shopping based on price seems reasonable. When it comes to disability income insurance, shopping based on price alone can lead to getting a policy that doesn't do what you need when you need it the most. In the DI world cheap isn't good, and good isn't cheap.

Recommendation

Work with an agent who specializes in disability insurance. They should be able to explain to you the various riders and options that exist and how they may be beneficial. Use the DI calculator above to get an instant disability insurance quote that will give you a good idea of what a policy will cost. You can then talk with the agent about the details of the policy.

Design the Policy Correctly

When you get a quote, it will contain the amount of coverage you should have as well as the price of the policy. It will also contain details of the policy such as the waiting period, benefit period, and optional riders or benefits available in the policy. Work with your agent to help you identify those that are important to you, as not all plans contain the same options.

We recommend getting a policy that: 

• Has a 90-Day Elimination Period
• Has a Benefit Period "To Age 65"
• Contains an "own-occupation" definition of disability
• Covers total AND partial disabilities. 

Apply for a Policy

Applying for a disability insurance policy is a thorough process. To be approved, you typically must:

• Complete an application
   
• Answer medical questions about your health history
   
• Have a blood test done
   
• Submit financial documents to verify your income

While there is no cost to applying for a policy, there is an investment in your time and effort to finish all those steps. The insurance company needs to be sure that you're reasonably healthy and qualify financially for the amount of coverage you're applying for.

Put the Policy In Place and Have Coverage

Once you've been approved, your agent will deliver the policy to you for review and finalization. This can often be done electronically which greatly simplifies the process. There will be some forms you need to sign to finalize the coverage and you'll be asked to pay your first month's premium. 

Your agent will explain to you the offer the insurance underwriter has made, and whether or not there are any pre-existing condition exclusions. A pre-existing exclusion rider is often placed on a policy when there is a medical condition that was pre-existing to the application. No disability insurance company covers pre-existing conditions, so if you're looking for disability insurance for something in your medical history, this is something to discuss with your agent prior to applying.

Summary

Buying disability insurance doesn’t have to be difficult or overwhelming. It’s important to work with an agent who deals with this type of coverage daily and knows the different options in the market. Let them guide you through the process of gathering quotes, designing the policy, and working through the application. Once that’s done, be sure to review the coverage every few years, or as your income changes.

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.