Disability income insurance: How to use it

By Kevin Dolan

Editor’s Note: It’s happened. You’re too injured or sick to work for the foreseeable future and you need to use your disability insurance. What do you do?

Recognize that periods of disability are financially challenging situations

- - - - More than one in four 20-year-olds becomes disabled before reaching retirement age.¹
        
        Sixty-one (61) percent of surveyed wage earners personally know someone who has been disabled and unable to work for three months or longer.²

- - - - Nearly 69 percent of Americans would find it difficult to meet expenses if their paycheck were delayed, even just a week.³

Consider your options

“If you’ll be unable to work for some time, contact your HR department for group long-term disability benefit information and your financial professional for help with any disability insurance you may own,” said Jeffrey Duncan, CLU, CFBS, AEP, and CLTC, owner of Duncan Financial Services, LLC in Saddle Brook, NJ.

Thirty-four (34) percent of employees have employer-provided group long-term disability benefits, which cover a portion of the income lost to disability. Group long-term disability plans replace 40 percent to 70 percent of your base salary.

Approximately 13.8 million individuals buy their own individual disability income insurance, either because they don’t have group coverage, they’re self-employed or to specifically supplement the gap left by employer plans. (Calculator: Disability and your finances)

Review your long-term disability coverage

Before you put your insurance to work, review your long-term disability coverage. Depending on your group long-term disability plan and individual disability income insurance policy, the coverage might be protection against your inability to perform your usual occupation or it might require that you have the inability to work in any occupation for which you are reasonably suited. There may be other requirements as well so be careful to review your policy provisions.

Look for how much of your pre-disability income is covered or a specified monthly benefit amount, when benefit payments can start (after the elimination or waiting period), and how long you can be paid (the benefit period). Depending on your coverage, your waiting period can be 60, 90, 180, 365 days, or longer. The benefit period can be two, five or 10 years, to age 65 or 67.

How to claim disability: Steps

Filing for group and individual disability benefits will be a similar experience, focused on your disability, income and coverage. Consult your plan and policy for specifics; however, expect the following steps:

1. 1. 1. 1. File your claims by notifying your insurer(s) promptly after becoming unable to work; you will be provided with contact information for their claim representatives.
        
        Promptly complete and submit claim forms. Discuss your claim with a claim representative. Some coverage and circumstances require proof of income loss; if unsure, ask your representative. Be prepared to provide financial records for pre-disability earnings and employment.
        
        Provide your personal identification, work information, and information regarding your treating doctors. Your insurer(s) will ask you about yourself and your occupation, medical condition, and treating doctors. They’ll also review documentation from your medical professional regarding the date, cause and degree of disability, and any restrictions or limitations from your disabling condition; they may also ask their medical professional to examine you.
        
        Look for your insurer’s determination after all necessary information is received; they’ll notify you of the decision. If your claim is approved, your initial benefit payment will be processed.
        
        Prepare to provide verification of continued disability if you receive benefits. Information will be reviewed and payments will continue if you remain eligible.

Incidentally, premiums may be waived if you meet benefit eligibility criteria and you may receive a return of premium that you paid after you became disabled; however, you should continue to pay premiums due until notified by the insurance carrier.

Other options

Some people may have options besides long-term disability insurance.

Workers’ Compensation covers some work-related disabilities. But less than one percent of disabling accidents and illnesses are work related. ⁴

Meanwhile Social Security Disability Insurance (SSDI) may be not enough to live on.

- - - - At the beginning of 2021, Social Security paid an average monthly disability benefit of $1,277.⁵

Remember that disability claims are not uncommon and disability insurance is specifically designed to help alleviate the stress associated with this financially challenging situation.

^{1 Social Security Administration, Disability Fact Sheet.}

^{2 Council for Disability Awareness, Disability Statistics, March 28, 2018.}

^{3 National Payroll Week, 2020 Getting Paid in America Survey.}

^{4 Council for Disability Awareness, Disability Statistics, March 28, 2018.}

^{5 Social Security Administration, “The Facts about Social Security’s Disability Program,” January 2021.}