Disability Income Insurance what disability income insurance is whether you need it what determines if you are disabled how much coverage you need what policy features are available what affects your rates how to get coverage What is Disability Income Insurance? A disability income insurance policy is a contract between you and an insurance company. You pay a periodic premium, and in exchange the insurance company promises that if you cannot work because you are disabled, it will pay you a percentage of your lost income. Do you need it? Although many people own life insurance because they're aware of the risk of dying, most people ignore the risk of disability. Yet in fact, disability is a greater risk for young people: between the ages of 25 and 55, you're more than twice as likely to become disabled as you are to die. Think for a moment about the financial impact on your life if you were unable to work. Could you live without your salary for six months, a year -- perhaps longer? If not, you need disability income insurance. What determines if you are disabled? The policy's definition of disability is what determines whether or not you are eligible for benefit payments. The policies that provide the broadest coverage define disability as your inability to perform the duties required by your own occupation. A brain surgeon with this type of policy would receive benefits if he couldn't perform surgery, for example, even if he could earn a living as a medical school professor. The policies that provide the narrowest coverage define disability as your inability to work in any job at all. Of course, the broader the coverage, the more expensive the policy. How much do you need? Insurance companies don't sell disability policies that replace 100 percent of your salary. If they did, they fear you'd have no economic incentive to go back to work! Expect to find coverage available for 60 to 70 percent of your income. Unless you have substantial other sources of income -- from an investment portfolio, for example -- it makes sense to buy as much coverage as you can afford. What special policy features are available? CPI cost of living adjustments - This option guarantees that after a year of continuous disability, your benefit amount will increase by an amount pegged to the increase in the Consumer Price Index. Automatic increase in benefits - This option provides for a specific increase in benefits for a specified period of time, such as three percent a year for five years. Guaranteed insurability - This option allows you to buy additional monthly benefits without having to provide evidence of your continued good health. It's a way of ensuring that your coverage keeps pace with your rising income and financial obligations. What affects your rates? Benefit period - A policy that pays lifetime benefits will be more expensive than a policy that provides benefits for a limited period of time, such as to age 65, or for 5 years. Amount of benefit - The greater the benefit, the higher your premium will be. Waiting period - This is the delay between the onset of disability and the first benefit payment. Waiting periods longer than 90 days will reduce your premium costs. Definition of disability - The more restrictive the definition of disability used in your policy, the lower the cost. Features - Inflation riders, return of premium provisions and other options may be nice, but if their cost puts a policy beyond your budget, stick to the basics - the most important thing is to make sure you have a policy you can afford to maintain.

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