Disability Insurance

By: AARP Education & Outreach | Source: AARP.org | December 6, 2005

A disability insurance policy replaces a portion of your regular income when an illness or accident prevents you from working. You may already have disability insurance through your job. Check first to see how much coverage you have. Then, decide if you need more. A typical policy covers 60% of your regular earnings.

Disability benefits from your employer may include workers' compensation insurance for work-related injuries. For short term illness, your employer may provide sick leave, short-term disability insurance, or both. For a longer illness, lasting six months or more, your employer may provide group long-term disability insurance.

Social Security provides long-term disability benefits based on your salary and the number of years you have worked. However, Social Security replaces only a limited portion of your salary and the requirements to receive benefits are quite strict.

What to Look For
Different policies define "disability" differently. In other words, be sure that the policy covers the situations you want it to cover. Make sure that your policy cannot be cancelled and that renewals are guaranteed as long as you pay your full premiums on time, whether or not your health picture changes along the way.

Social Security Riders
If Social Security finds that you are disabled, it will take a few months for your Social Security payments to arrive. You can purchase a "rider" to your disability policy that will provide you with income while you await your Social Security checks—or if you don't qualify for the Social Security payments (for example, your disability isn't expected to last for an entire year). Riders can be expensive, but may be worthwhile since many claims for Social Security disability benefits take a long time to process.

Take Action

• Fill out the checklist on what things to consider when deciding on a disability policy from the Consumer Federation of America.
• For a simple assessment of your need for disability insurance, go to the Life and Health Foundation for Education.
• Read entries or join in discussions at the Disability Insurance Forums message board.
• The Health Insurance Association of America (HIAA), a nonprofit association of insurance companies, has published a " Guide To Disability Income Insurance. "
• Look for an insurer in your state for any type of insurance, using an online service from the Insurance Information Institute.
• Get information about your state insurance regulator from the National Association of Insurance Commissioners (NAIC).
• Be sure that the insurance company offering the policy will be financially sound when, or if, it comes time to pay your claim. Use these services:

  A.M. Best
  908-439-2200
  Moody's Investors Services
  212-553-0300
  Standard & Poor's Insurance Ratings Service
  212-438-2000