How to Design the Ideal Disability Insurance Plan

With so many employers cutting back on insurance benefits for employees, it is becoming more prevalent for individuals to go without coverage.

But the odds of incurring a disability due to illness or injury are still high. In fact, at age 32 the chances of becoming disabled are four times more likely than death. And, with one’s ability to earn an income being an extremely valuable asset, it makes sense to insure it, just the same as one’s home or auto.

When designing a disability insurance policy, there are several parameters that go into the plan. These features can be chosen based on the applicant’s needs with regard to income amount, length of coverage needed and other criteria.

Most individual disability insurance plans will allow an applicant to choose the length of time the person will receive his or her income benefits once he or she becomes disabled. Some common benefit periods are two years, five years or up to the time that the insured reaches age 65. Any disability insurance policy that pays benefits for longer than two years is considered to be a long-term policy.

Applicants may also choose a monthly benefit amount to be received. Typically, this amount will be a factor of the person’s normal wages or earnings. In most cases, the insured will receive a benefit that is equal to 50% to 70% of the person’s regular income earnings.

An individual will also need to choose a waiting period. This can be considered similar to a deductible in that it is the length of time that an insured would need to wait until his or her policy benefits begin to pay. Waiting periods can range from just a few days up to several months or longer. The length of the waiting period will affect the policy premium in that a longer waiting period will result in a lower cost for the policy.

Certain causes of illness or accident may be excluded under some policies, so it is a good idea for those purchasing a disability insurance policy to read all the small print in order to be sure what they will, and will not, be covered for.