This is the first of a three-part series focusing on disability insurance and why it’s needed. Life insurance will be discussed in the second article and to finish up the series, long-term care will be explained. Throughout the articles, pay attention to words in BOLD and the NOTE sections. These were designed to help understand insurance phrases and terms and why they’re important to know.

Let’s begin…
More than ever, women are excelling in business, which allows more financial freedom. Because of this changing lifestyle, it’s important for all women—divorced, married, single, or widowed---to understand their insurance options in order to make well-informed choices.

The first type of insurance we’ll discuss is disability (DI), which is something that anyone who works needs. It protects your greatest asset---your earning potential---should you ever be in a situation where you were unable to work. In other words, DI will cover up to two-thirds of your income depending on how well you are covered. Before we go over policy terms, let’s see how much you know about disability.

True or false? Total disability and long-term disability (LTD) mean the same thing—you’re disabled for a period of time and cannot work!

The answer is FALSE! Here’s why…total disability means you’re unable to work at any job and it’s an important term in defining when you’ll receive benefits. Long-term disability refers to your type of coverage.

If you answered incorrectly, don’t be dismayed. A high percentage of people regularly confuse insurance terms. The key is to know the terms that will influence your DI benefits. Details of these and others will be explained in the following paragraphs.

Here’s one that definitely impacts your DI benefits – your policy’s definition of total disability.

There are two types: any occupation and own occupation. Any occupation means the ability to perform duties of any occupation. Own occupation means the regular occupation or specialty at the time of becoming disabled. They affect your DI benefits and here’s how: a totally disabled person with an any occupation option is considered ‘not totally disabled’ when able to perform any job duties. This change in disability status triggers a change in DI benefits to either stop or be classified as partial disabled and benefits decrease. Whereas, an 'own occupation' policy would pay benefits until you are able to go back to work doing the job you were trained and hired to do. Review the disability occupation option and choose one that will provide the best disability coverage for you. Note: You’ll pay more for an 'own occupation' policy.

Another important term, which sometimes confuses people, is this one word - benefits. Disability benefits refer to the amount of money that one will receive once they become disabled. Benefits are based upon your current income as well as your occupation class.

To better understand the impact of a DI policy and how it directly affects your benefits, we’ll review some commonly asked questions and answers. NOTE: The following can apply to either an employer-paid or individual DI policy.

1. Do you know how much your monthly disability benefits will be?
You should! If not, ask your employer plan administrator tomorrow or review your own individual DI policy. Insurance providers will insure up to two-thirds (ONLY) of your current income. NOTE: To be sure you’re getting the most DI coverage, when applying for an individual disability policy, provide as much information about your training, education, volunteer work, and salary (including bonuses and commissions) so that your occupation class will be rated as accurately as possible. By doing this, you may receive a higher DI benefit.

2. Are your benefits taxed and if so how much?
Knowing how much you’ll receive and how much is taxed is essential in meeting and paying your monthly bills. Don’t wait and be surprised when it’s too late. NOTE: Employer-paid DI policies usually take taxes out after you receive your monthly disability benefits; individual DI policies do not. To be sure you’re covered financially, it may be necessary to take out another DI policy. (Click here for more information.)

3. When would you receive your monthly benefits, first or end of month and for how long? This is known as the benefit period. Why is this important? To answer this, when do you pay your bills? It’s important to know when you get your benefits so that you’ll be able to budget during your disability. NOTE: Unfortunately neither bills nor life stop, be prepared and find out when you’ll receive your disability benefits to meet your monthly expenses.

4. Is social security (SS) tied into your coverage? If yes, are there any requirements to meet before receiving your disability benefits? If yes, would SS be deducted from your monthly disability benefits? Why worry about SS, isn’t it only for those age 65 or older?

WOW! What a mouthful! Let’s break these down for an easier explanation. First let’s define SS. It is our social insurance program that covers most of the Nation's work force. It is often the basic retirement plan to which other benefits are added. It provides retirement, disability, survivor, and Medicare benefits (OPM, 2003). Notice DISBABILITY is mentioned! This is where the Feds come in…social security disability (SSD) is our Government’s program that provides financial assistance to people with disabilities. Since your money is involved, it’s important to understand the DI policy and SSD relationship. Depending on your policy, if you have the SSD option, it may be necessary to complete SSD requirements before you can receive any disability benefits. Normally if you are eligible to receive SSD benefits, they will be deducted from your DI benefits. Also if you are eligible to receive SS benefits, know they too are deducted from your benefits. And the last part of the question, SSD is not age dependent. Anyone that becomes disabled under the age of 65 can apply for SSD, but not everyone is approved. NOTE: Remember the News & Observer’s articles on disability this summer---getting SSD is not so easy. If SSD is included in your DI policy, know what’s required to receive your benefits!

5. Do you know when you can begin receiving your monthly disability benefits?
In other words, how long must you wait before the checks begin? This is called waiting or elimination period. It is a length of time that must be met before DI benefits begin. It is counted in days from the beginning of the illness or injury. NOTE: This period will affect when you’ll receive your monthly disability benefit. Most employer-paid DI begins paying benefits as soon as 30 days; however, individual DI policies vary their wait periods depending on your selection. You’ll also pay more for a shorter benefit wait period.

To summarize, your individual DI coverage will determine how much you will receive, when your benefits will begin, any limitations on your coverage, and how long you can receive benefits. Payment benefit periods can run anywhere from months to years. To protect yourself should you become partially or totally disabled, read ALL the fine print in your policy and if you have any questions, get them answered BEFORE you sign your policy. If you already have a policy and now have concerns after reading this article, contact your insurance provider today and discuss your options! Better to be prepared than surprised which often results in a situation that you have no control or financial options!

This article was intended to highlight some of the terms that could affect your disability coverage. For additional resources, consider reading the following:

Disability Insurance: Obtaining Individual Coverage, Click on “Individual Coverage then Choosing A Policy”

Disability Insurance: Disability Calculator, Click on “Disability Calculator”

Disability Insurance: Recommended Disability Insurance Coverage

Disability Insurance Self- Checkup

How Much Disability Insurance Do You Need…

ANY OCCUPATION (ANY OCC) - Under this definition, an insured will be considered disabled only if he/she is unable to work in any occupation for which he/she is qualified by education, training, or experience. This is closely related to the definition that the Social Security Administration uses in determining disability. (Disability Insurance Terms, Retrieved 1/19/04 from http://www.disabilitylawyers.com/Glossary-Disability-Terms.cfm)

BENEFIT PERIOD - The maximum length of time during which benefits are payable. The policy's benefit period can be as short as one year or as long as "lifetime." However, "lifetime" benefit periods often come with restrictions. For example, a "lifetime" benefit period might pay for life only if the disability begins before a specified age. (Glossary of Disability Insurance Terms, Retrieved 1/19/04 from http://www.disability-expert.com/glossary.htm)  Back to top

DISABILITY BENEFITS – This is the amount of disability insurance income which will be paid to you each month once you become disabled. The benefit amount will depend greatly upon your current income levels. (Disability Insurance Policy Features, Retrieved 1/19/04 from http://www.disability-insurance-broker.com/Disability-Insurance/Disability-Insurance-Policy-Features.html)  Back to top

DISABILITY INSURANCE - Disability insurance is a type of health insurance that pays a monthly income to a policyholder who is unable to work because of an accident or illness. (Retrieved 1/19/04 from http://www.iii.org/individuals/disability/)  Back to top

ELIMINATION PERIOD - The period of time at the start of a disability during which no benefits are paid. This period can be as short as a week or as long as a year. Since most disabilities are short term, this little "waiting period," as it's sometimes called, is a money saver for the insurance company. For the consumer that means the longer the elimination period, the lower the premiums. (Glossary of Disability Insurance Terms, Retrieved 1/19/04, from http://www.disability-expert.com/glossary.htm)  Back to top

EMPLOYER-PAID INSURANCE – Most companies include insurance as a ‘perk’ or benefit provided for their employees. Depending on the company, DI can either be sick leave or short-term disability or long-term disability protection, which replaces up to 60 percent of your income for as long as you’re disabled. However, under most employer-paid disability plans, taxes are deducted from your benefit and government benefits are subtracted from that. (Retrieved 1/18/04 from http://www.hr-admin.com/aspa/content/disabilityArticle.html)  Back to top

INDIVIDUAL DISABILITY INSURANCE - As opposed to group LTD. Marketed mainly to self-employed people who aren't covered by a group plan. (Glossary of Disability Insurance Terms, Retrieved 1/19/04, from http://www.disability-expert.com/glossary.htm)  Back to top

LONG-TERM DISABILITY insurance protects the insured against disabilities that may last many years, or even a lifetime, and thus provides protection against large losses of potentially catastrophic magnitude. (Retrieved 1/19/04 from http://www.insweb.com/learningcenter/qa/disability-a.htm#4)  Back to top

OCCUPATION CLASS - Every disability insurance company publishes a list of occupation classifications. Your "occ class," as it's called, determines the premium for your policy, as well as the maximum amount of coverage you can buy, the optional rider benefits you're eligible for, and even the policy form the company will issue. These occ. classes vary from one company to the next. In general, though, the less favorable the occupation, the higher the premiums and the less liberal the benefits. The less favorable occupations are not always the more hazardous ones. Insurance companies base these occ classes on their own claims experience: it's not unusual, for example, for a company to classify one medical specialty more favorably than another if they think claims experience justifies it. (Glossary of Disability Insurance Terms, Retrieved 1/19/04, from http://www.disability-expert.com/glossary.htm)  Back to top

OWN OCCUPATION (OWN OCC) - Under this definition, an insured will be considered disabled only if he or she is unable to perform the duties of his or her occupation. (Disability Insurance Terms. Retrieved 1/19/04 from http://www.disabilitylawyers.com/Glossary-Disability-Terms.cfm)  Back to top

PARTIAL DISABILITY - Most policies that cover partial disability define it as the ability to perform some but not all of the duties of your occupation. Partial disability benefits may be lower than total disability benefits, and may be payable for a limited period of time. (Glossary of Disability Insurance Terms, Retrieved 1/19/04, from http://www.disability-expert.com/glossary.htm)  Back to top

TOTAL DISABILITY - The definition of total disability in the policy. This is the only definition that counts at claim time. The two main flavors are referred to in the industry as "your occ" (or "own occ") and "any occ." The "your occ" definition usually says something like "Total disability means that due to sickness or injury you are unable to perform the substantial and material duties of your regular occupation." This is the most favorable definition. The less favorable "any occ" definition might look like "Total disability means that due to sickness or injury you are unable to perform the duties of any occupation for which you are suited by education, training and experience." The classic example: A physician develops a heart condition which prevents him from practicing medicine but which does not prevent him from teaching medicine. Under the "your occ" definition he is totally disabled, but under the "any occ" definition he isn't. (Glossary of Disability Insurance Terms, Retrieved 1/19/04, from http://www.disability-expert.com/glossary.htm)