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When am I considered disabled?

The definition of disability will vary depending on the terms of your own individual policy and/or your employer’s plan. Some policies and plans consider you disabled when you’re unable to perform the duties of your own occupation, while others pay only if you’re unable to perform in any job suitable for you based on your training, education and experience. Some policies and plans may use an own-occupation definition for a period of time (e.g., two or three years), after which an any-occupation definition is applied. Other policies and plans require that you not be gainfully employed while you’re collecting benefits or that you are unable to earn a certain percentage of your pre-disability income because of injury or sickness.

There are policies and plans that will pay you a portion of your total disability monthly benefit amount if you have lost a part of your income due to a disability—this type of feature is usually referred to as a residual or partial disability benefit. Additionally, some policies and plans may include a rehabilitation benefit that pays some or all of the cost of occupational rehabilitation approved by the insurer while other plans may include a rehabilitation provision that requires you to take part in an occupational rehabilitation program in order to continue to receive benefits.

Keep in mind that many policies and plans have exclusions and limitations and may not cover disabilities caused by suicide attempts, war, or attempts to commit a crime. Disabilities due to pre-existing conditions are also frequently excluded for a period of time after the plan or policy goes into effect, and some plans and policies will limit the maximum benefit period for disabilities caused by mental disorders and substance use disorders.

When will benefits start?

Benefits will begin to accrue after the end of the waiting period. Most individual disability policies and group long-term disability plans have a waiting period (e.g., 90 days or 180 days), which is the amount of time you must meet the definition of disability before benefits begin to accrue. When you choose individual disability coverage, consider how long you can manage without a paycheck. If you have significant savings, you may be willing to choose a longer waiting period. The longer the waiting period, the lower the premium. Under most group plans, generally the employer selects the waiting period.

How much disability income insurance do I need?

It’s generally recommended that disability coverage be chosen to replace 60 to 80 percent of after-tax income. If you purchase disability insurance with after-tax dollars, your benefits will usually be income tax free. If you have group disability insurance that is paid for by your employer, however, benefits will generally be taxable.

Small business owners have special concerns in addition to protecting their income with disability insurance and should consider obtaining professional advice about disability policy options that can help protect a business if an owner becomes disabled (e.g., business overhead expense insurance and disability buy-sell policies).

To estimate the benefit amount you would need if you became disabled, ask yourself how much monthly income would cover your living expenses. Would these expenses go up or down if you became disabled? These expenses must be carefully considered. Work-related expenses may go down. Medical expenses may increase. Education expenses may increase as you retrain. Some insurance policies may have premium waivers. By considering all these factors, you should be able to come up with an appropriate amount.

To get an estimate of how much disability income insurance you would need to maintain your current standard of living, use the Disability Needs Calculator.

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