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Purchasing disability insurance can be a wise investment to protect yourself and your family, particularly if you’ve invested substantial time and resources in developing a professional career. However, it is important to make wise choices when selecting a policy to ensure that you get the most for your investment and that you have the protection you expect to receive.

At Seltzer & Associates, we have focused on disability insurance for decades, so we have seen the problems that arise when policyholders do not understand their coverage limitations. Of course, we’ve also assisted in many situations where policyholders had the right coverage, and the insurance company tried to avoid fulfilling their obligations under the policy.

We do not sell insurance or make recommendations about the type of insurance you might need. However, we do want you to be aware of some critical factors that often get overlooked when it comes to disability insurance. If you ever have questions or would like us to review the terms of your policy, we invite you to schedule a complimentary consultation. To provide some background, here are key features to consider before selecting a disability insurance policy.

Is it a Group Policy or an Individual Policy?

Employers often offer their employees the opportunity to purchase disability insurance as a benefit of employment. This insurance is provided through a group policy, the terms of which are negotiated between the employer and the insurance company. That means the employees covered under this type of policy have little to no control over their coverage. These policies are governed by federal ERISA laws, which can limit the ability to enforce provisions in some situations. Overall, a group policy will probably have lower premiums but provide less protection than an individual disability insurance policy.

What are the Terms for Renewability?

It is important to understand how long your term of coverage lasts under the policy and what happens when it is time to renew. Many disability policies are sold as “guaranteed renewable” policies. While that means the insurance company cannot cancel your policy, even if your situation and risk change, it does allow the insurance company to raise your premiums. Generally, rate increases are supposed to be allowed only on a class-wide basis rather than an individual basis, meaning that rates should rise for all those in the same risk group or state rather than an increase based on changes in your individual circumstances.

If you purchase a policy that is non-cancelable, then the terms of the policy should remain the same as long as you continue to pay premiums. The rate of premiums should not rise, and the benefits should remain the same. This type of policy offers the greatest protection, so it is likely to have higher costs initially.

How Disability is Defined

One of the most crucial issues to understand before purchasing a private disability insurance policy is how the policy defines the situation that determines when you qualify to receive benefits because of a disability. In other words, when are you considered disabled under the policy? The definition of disability used in private disability insurance policies is generally quite different than the definition used by the federal government to qualify for Social Security Disability benefits.

The broader the definition, the more situations where you will be eligible to receive benefits—and the more likely the premiums will be higher. As with the purchase of any insurance, you weigh the risk of future loss against the benefits of increased coverage.

A key term involved in this issue is “own occupation.” Some policies provide benefits if your disabling condition prevents you from practicing your own occupation, while other policies will not pay benefits unless you are unable to practice any paying occupation. Obviously, this is a huge difference, but it is one that is often overlooked until it is too late.

To further complicate matters, insurance companies have been making it increasingly difficult to determine whether you are purchasing an “own occupation” policy. A policy might advertise an option to elect a “medical occupation definition of total disability.” That language makes it sound as if it provides its own occupation coverage. Physicians and other medical professionals would be reasonable in expecting that they would be eligible for total disability benefits if they were unable to practice their medical profession. However, the clause could be interpreted as requiring a policyholder to prove that they are unable to serve in any role in the medical profession, including administrative roles. If any part of the policyholder’s practice has ever involved doing something that is not expressly prohibited by their healthcare provider, then they might be expected to perform that part of their job and, therefore, would not be eligible for disability benefits. It is an illogical interpretation, but it could nevertheless cause problems for medical professionals who are unable to practice their core professions.

When Do Benefit Payments Start and End?

Another set of issues to consider when reviewing a disability insurance policy involves timing. How long do you have to be suffering from a disability before you are eligible to receive benefit payments? How soon do payments begin after filing a claim?

You also need to be aware of how long benefits are expected to continue. Some policies will continue to pay benefits as long as the disability remains, up until the policyholder reaches retirement age. Other policies set limits, such as 60 days for a short-term disability policy and two or years for benefits under a long-term disability policy. The term length obviously affects the value of the policy and the price of premiums. You need to determine the terms that best meet the needs of your personal situation.

Look for Limitations

Disability insurance policies can differ considerably with regard to the limitations they contain. They might severely limit the situations in which you can obtain benefits for a mental health disability, particularly if it involves drug or alcohol use. It might be difficult to meet the qualification standards, or benefits might be limited to a short duration. Coverage might be completely denied in some situations. It is important to understand when you will be covered and when you will be left on your own.

Monetary Amounts

Last but certainly not least, there are the monetary issues to consider, such as:

• Are the benefits a fixed amount or a percentage of income, and how are they calculated?
• What is the premium, and is the rate locked?
• Can you add a rider for cost-of-living benefits?
• Can you get partial disability or residual benefits if you are able to work on a limited basis?

These are just a sample of the financial factors to consider before making a decision about a disability insurance policy. You need to look at your particular situation and income streams and determine what you would need if income from your profession stopped because of a disability.

Protecting Your Rights Under Your Disability Insurance Policy

Regardless of the type of policy you choose to purchase and the terms included in your policy, you deserve to receive the full benefits you have contracted for if you find yourself suffering from a qualifying disability condition. When insurance companies wrongfully insist that you do not qualify or that they have the right to discontinue benefits or take other actions that are unwarranted under your policy, it is time to take action to enforce your rights.

At Seltzer & Associates, we know how insurance companies try to save money by denying valid claims and reducing policy benefits when these actions are unjustified. We know the most effective steps to take to ensure that policyholders receive full benefits. If you have questions about disability insurance or need assistance resolving a problem, we invite you to contact us for a free consultation to discuss the ways we may be able to help.