8 Steps to Applying for Disability InsurancePosted: Updated:
By Andrew Housser
Your spouse is rear-ended by an inattentive driver and left hospitalized for weeks, followed by six months of rehabilitation and home care before being able to return to work. Or you are stricken with cancer; after three years, you make a full recovery, but during that time you can't work at your usual job (and sometimes, can't work at all).
Who pays the bills in cases like these? Many full-time jobs offer disability coverage for short- or long-term situations. Those who are self-employed, work part-time or whose employers do not offer this coverage, however, are at great risk. While life insurance is more familiar, the odds of being disabled are greater than the odds of dying before age 65. In fact, workers in their 20s and 30s face an almost 50 percent chance of being disabled for three months or more before reaching age 65.
Many people are able to purchase disability insurance through their employers. If not, or if you want additional insurance in addition to what your employer provides, an insurance broker can help select an insurer and navigate the application process, which typically includes the following decisions and actions:
- Time frame. You must choose the waiting or elimination period (for long-term disability coverage, waiting periods range from 30 days and up) before benefits will apply. The shorter the elimination period, the higher your premium. Choose the longest period you can afford to wait for your first check.
- Benefit period. The length of coverage (the benefit period) can range from a few years to a lifetime. The shorter the benefit period, the lower the premium. When you are younger, lifetime policies will be less expensive. The safest buy is a policy providing coverage at least until age 65, when Social Security will begin to pay retirement benefits.
- Coverage criteria. Two common definitions of coverage are "own occupation" or "any occupation." Some policies pay only if a disability prevents you from working at any job. While those policies are less expensive, many people feel more secure with a policy that pays benefits if they cannot work in their own field.
- COLA. Usually offered as an optional rider, COLA stands for "cost-of-living adjustment." It means benefit values will increase with inflation as time passes, so the policy you purchase today will still have the same relative value if you need to use it in 20 years.
- Residual coverage. This policy will pay benefits if you are able to work part-time, but not full-time. The partial benefit will make up for lost income beyond part-time earnings.
- Application. To acquire disability insurance, you will complete a personal application, which includes submitting proof of income. You will also submit a deposit check for one premium for the policy you have chosen. The company deposits the check as a "binder," meaning if your application is approved, you will be covered from the deposit date.
- Medical interviews. Most companies conduct a personal medical interview. You must disclose all medical care and conditions for the past 10 years or so. The insurer might do a medical visit, taking blood and urine samples and checking blood pressure and weight (often at your home). The company might requisition medical records and talk to previous physicians or therapists.
- Approval or denial. The company will notify you of its decision within a few months of your application. If you are denied, you have a right to know why. You can apply again or with another company when the reasons for denial have been addressed.
Disability insurance can seem complicated -- but in the event of an accident or illness, it can be a lifesaver for both you and your family.