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Disability Insurance

Disability insurance is an insurance product designed to provide you with 40 - 60% of your gross income in the event you become sick or develop an illness that affects your ability to earn an income. The difference in policies are great, having a basic knowledge of the terms, types and payment methods are very important aspects you should understand and consider when selecting disability insurance. Because of the enormous differences between policies and companies it is important that your selection of coverage not be based solely on price. Instead you should develop an idea of your needs based on your life style and measure those needs against the options and benefits of each insurance provider.

One of the first things you should review and understand when selecting a disability insurance policy is the insurer's definition of disability. This is important because it varies between insurers and products and is one of the most important things to understand. The definition tells you in what situations the insurer will pay the benefit, and to whom it will be paid in the event you become disabled. The following will list some types of disability insurance and also provides some of the key phrases used for various types of policies.

Own-Occupation Disability Insurance

Own-Occupation disability policies offer the most comprehensive definition of total disability. In this type of policy total disability is generally defined as "The inability to perform the material and substantial duties of your regular occupation, the insurance company will consider your occupation to be the occupation you are engaged in at the time you become disabled, they will pay the claim even if you are working in some other capacity." In other words, an Own-Occupation policy provides you with a disability benefit even if you go back to work after your event, provided the work you will do is not the same work you did when you received the policy. Here is an example, if you are found to be disabled and you where an engineer, you are not able to go back and work as an engineer. However, go to work and doing something else, such as a dispatcher at the local fire station and your disability insurance carrier would pay the benefit. If you returned to work as an engineer your policy would most likely not pay you the benefit going forward.

Income Replacement Insurance

The income replacement insurance policy is currently one of the most popular offered by insurers. Income replacement insurance has more or less replaced the Own-Occupation type policy. The first part of the disability definition is very similar to the Own-Occupation disability definition however the last part is where the real difference lies. A typical definition for disability in income replacement insurance might read like this: "Because of sickness or injury you are unable to perform the material and substantial duties of your occupation, and are not engaged in any other occupation". This type of policy will penalize you for going back to work even if the work you go back to is different than the work you did prior to the disability event. Some companies that offer an income replacement insurance product will allow the insured to return to some kind of work and adjust the benefit according to the income of the new position.

Gainful Occupation Coverage

These types of policies are the most common with employer sponsored group long term disability products. It is important that you understand all aspects of these types of policies as the definition of disability is essentially left to the insurance company for interpretation. A typical definition of disability in gainful occupation coverage might read "Because of sickness or injury you are unable to perform the material and substantial duties of your occupation, or any occupation for which you are deemed reasonably qualified by education, training or experience". Now think of this, could the insurance company insist that you go to a job at the local gas station and pump gas? The likelihood is that you might not have to if you decided to litigate this in court. Did you not purchase disability insurance so that you would not have to worry about your income? What would you think if your benefits were cut and you were told to go apply for a job that you simply did not want to do? This single type of policy is why shopping on price is not a prudent thing to do when evaluating disability insurance. The cost of gainful occupation policies tends to be low in comparison to income replacement and own-occupation policies. The choice is yours! As with any other important purchase, getting all the information you can about the products you are considering is very important. Pick an insurance agent that you can trust and one that is knowledgeable in this type of insurance product. Not all insurance agents are knowledgeable in disability products. Make sure the one you are dealing with has the expertise you need and want!