Social Security disability benefits are difficult to receive because their definition of disability is very restrictive. In 1993, Social Security received 1.4 million applications for benefits and 55 percent of the applications were denied. (Social Security Bulletin--Annual Statistical Supplement, 1994).
Even if you did qualify, the
benefits you receive may be far below what you would need to maintain your current lifestyle.
* Employee Benefits in Medium and Large Private Establishments, 1993
** Employee Benefits in Small Private Establishments, 1990
Disability Income Insurance Glossary:
Below are some of the common terms, benefits and features available in disability income policies.
Benefit or maximum period:
This is the length of time benefits would be paid for a disability. The longer the maximum period, the higher the premium.
The benefit amount is based on the income being earned at the time of purchase. Most policies limit benefits (from all sources) to no more than 70 to 80 percent of monthly income, so there is an incentive to return to work. Generally, people with lower incomes will receive a higher percentage of their pre-disability income than higher paid workers receive.
Future purchase or guaranteed purchase option:
This option allows you to increase coverage as your income increases. It can be an important feature if income is likely to rise.
Guaranteed renewable or non cancelable policies: A guaranteed renewable policy guarantees to provide coverage as long as you continue to pay premiums. The premium cost could increase with this type of policy. A non cancelable
policy guarantees to provide coverage if you pay the premium, and also guarantees that the premium will not increase.
Indexed disability income benefits or cost-of-living adjustments (COLA): After a year of disability, indexing or COLA adjustments may help to make your benefit payments "inflation proof." Indexing will adjust the monthly benefit amount based on the Consumer Price Index or by a specified percentage.
Partial or residual disability benefits:
Partial disability benefits usually pay a set amount for a set period of time. For example, your DI policy states you will be paid half of the monthly benefit for six months if you should be injured or sick and meet the definition of total disability. Residual benefits usually allow for payments that are proportional to the loss of income if you're injured or sick and are unable to work, but have a loss of earnings. Some policies require total disability for a period of time before residual or partial benefits would be paid.
Total disability: Some policies define total disability as the inability of the insured to perform any work for which he/she is qualified. Other policies will define total disability as the inability of the insured to perform the duties of his or her own occupation. Some policies may change occupation definitions after a specified period of disability.
Waiting period or elimination period:
This is a period of time after disability occurs for which you will not receive benefits. Select a waiting period based on the maximum length of time you will be able to meet your expenses with short-term savings. The shorter the waiting period, the higher the premium.
Waiver of premium: Many companies offer a benefit that allows you to discontinue premium payments during disability.
These are some of the many features available in the
disability income insurance industry today. You will want to work closely with an insurance representative to tailor a disability income insurance plan that meets your needs.