How to choose a disability policy

If you are considering getting a disability policy, it pays to know what to look for. Simply comparing prices (premiums) isn't enough. Here are a few basic guidelines to help you choose a coverage most suited for your needs.

Definition of Total Disability
How a policy defines "Total Disability" is the item you should focus on first and foremost. Whether you will receive benefits depends directly on how your carrier defines disability for your policy.

For example, here is a language from a sample policy of a carrier we work with: "Total Disability or Totally Disabled means that, solely due to Injury or Sickness, You are not able to perform the material and substantial duties of Your Occupation. You will be Totally Disabled even if You are Gainfully Employed in another occupation so long as, solely due to Injury or Sickness, You are not able to work in Your Occupation."

In other words, with this definition of total disability (referred to as "own occupation"), you are considered totally disabled if you cannot perform the material and substantial duties of your own occupation, even if you can be gainfully employed outside of your own occupation.

Obviously, the importance and benefits of the "own occupation" provision cannot be overstated.

Cost Of Living Adjustment (COLA)
With COLA, your disability benefit amount (after you are disabled) keeps up with inflation. Younger policyholders should consider adding this rider because of the longer duration of their working years. For example, if you are disabled at age 45 and unable to work, you will collect disability benefits for 20 years. It would be prudent to protect that "income" against inflation.

Mental Disorder Limitations
Most policies place limitations on mental health disorders which might include mental-, nervous- or substance abuse-related disability. They limit these benefits to a certain period, typically two years. Or, they may make you jump through some hoops like a written plan of care from your physician. There are a few companies that include mental disorders as covered illnesses, and do not place limitations or requirements, especially for a certain group of professionals such as physicians.

If available, you should always try to get a policy without limitations or requirements on mental health disorders.

Definition of Appropriate Physician's Care
Appropriate physician’s care (or "appropriate care" or "physician's care") generally means that you are receiving care for your disability—or more precisely, that you are receiving the appropriate care from the appropriate treatment provider. The appropriate care requirement is often a part of the definition of disability though some policies have it as a stand-alone requirement.

All individual disability insurance policies contain an appropriate physician's care requirement in one form or another.

The problem can arise when a policy does not define what is appropriate the same way you or your healthcare professionals do. You cannot always assume that any medical care received is in fact appropriate.

You should therefore try to avoid overly specific or restrictive definitions of appropriate physician's care.

We do not provide legal or tax advice. You should consult their own legal or tax advisor. This information is intended for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.