Adding disability insurance to your asset protection portfolio is always a wise idea. The more cushion you have between your health problems and your finances, the better.
But choosing which type of disability insurance to carry is the key. This process is laden with confusing fine print that can turn what you thought you had into something that was a waste of money.
To keep that from happening to you, make sure to avoid these three common disability insurance pitfalls when you select your policy.
1. Long Term vs. Short Term Benefits
The first decision you’ll be faced with is whether to aim for long-term or short-term benefits, or both.
If the only thing you look at is the premium, you’ll probably end up with short-term coverage.
It’s cheaper because the insurance company only has to pay out benefits to you for up to a few years (whatever the terms of your policy state).
Benefits of Long Term Coverage Over Short-Term
It works well if you’ve broken an arm or had emergency surgery and can’t work for a few months. What if what you have is permanent, though?
That’s when long-term coverage comes in handy.
No one wants to think about being disabled for the rest of their lives, but it happens. Physicians, for instance, have a high-risk career full of potential dangers.
For a few extra dollars a month, you could protect your finances until you’re able to return to work or you turn 65 (again, based on the terms of your policy).
Covering All Your Bases
The major difference between these two policies is that short-term insurance will kick in faster. You’ll start getting your benefits within a few weeks of filing the claim, whereas long-term policies require documentation to prove the injury is lasting.
There’s an easy solution to fill the gap if you’d like longer coverage. Invest in a short-term and a long-term policy, and you’re covered in any event.
2. Own- Versus Any-Occupation
The next vital thing to watch out for is the own-vs-any occupation clause. It sounds like a minor thing, but the distinction between these tiny words is extremely important.
“Own occupation” clauses pay the claim if you’re ever injured or sick to the point you can’t perform your normal job. As an example, a surgeon wouldn’t be able to operate on patients if they had an accident and lost their hand or had partial blindness.
Physicians Thrive has more on “own occupation” policies in this article.
This is the preferred policy, but it often costs a little extra. Insurance companies will try to get you to choose an “any occupation” type of coverage instead because this gives them the chance to get out of paying.
“Any occupation” refers to your ability to engage in a spectrum of jobs, regardless of the kind of work, pay, or education required.
The same surgeon who lost their hand could arguably still perform desk work. Partial blindness would leave them open to any job that wouldn’t require full sight to complete the task. So, the insurance company could effectively deny disability coverage.
3. Exclusions and Riders
The last considerations to be aware of are exclusions and riders. These often show up in the fine print, and you don’t know they’re there until you try to make a claim.
Most of the time, exclusions are used to cancel out the insurance’s responsibility for damages from hazardous activities. It’s not a big deal for people with relatively calm lifestyles.
However, if you have hobbies that they consider extreme, check to ensure none of them are excluded. These could be things like learning to fly an airplane, rock climbing, and skydiving, among many others.
Exclusions for injuries due to suicide attempts, drug or alcohol use, pre-existing conditions, and mental or nervous conditions are also frequently seen.
On the other hand, there are additions you can request to be included on your policy for an extra fee. If it’s important to you, ask for a rider to add coverage such as:
- Guaranteed renewable policies regardless of changes in health conditions
- A waiver of premiums in the event of a disability
- A survivor benefit or death benefit to be paid out in a fatality
- An automatic increase of benefits after you haven’t had any claims over a stated period
Riders and exclusions aren’t always pointed out by the insurance adjuster you’re dealing with. You’ll have to read the whole policy and look out for them specifically.
Conclusion
Insurance coverage is an integral part of every savvy financial investor’s portfolio. Yet, be careful not to take out a disability policy until you’ve checked for these three pitfalls. It could make all the difference if you ever need to file for benefits.
