Here’s more information about what to look for in an individual disability insurance policy.

Get a handle on the details. Before you buy any disability policy, ask for an outline of coverage and review the policy itself. Importantly, also ask for the insurance company's financial strength ratings from the independent rating services.
 
In addition to the definition of disability and the amount and duration of benefits, take note of when benefits begin. Waiting periods, called elimination periods, range from 30 days to six months or more after the onset of a disability.
 
Also zero in on the exclusions. How long are undisclosed preexisting conditions excluded from coverage? What are the general exclusions and the limitations on benefits for certain conditions? And how is other disability coverage taken into account when calculating benefits?
 
From there, review the other provisions carefully since policies vary in their features. For example, some policies offer rehabilitation benefits, some offer a rider to help you continue your long-term savings during a disability, and others guarantee you the right to exchange the policy for a long-term care contract at a specified age.
 
Review the renewal provisions. Noncancelable renewable provisions are the most generous, but they may not always be available or affordable. Under these provisions the insurance company cannot increase the premiums or make any unilateral changes in the contract provisions. You also have the right to continue a policy for a stated number of years or to a stated age, typically to age 65, as long as you pay the premiums on time.
 
Under guaranteed renewable provisions you also have the right to continue coverage with the same benefits to a specified age. However, insurers have the right to increase premiums if they do so for the entire class of policyholders.
 
Consider the inflation options. Policies may offer several options to keep pace with your future income and inflation. Guarantee of insurability riders offer you the right to apply for additional coverage at specified intervals, up to a specified age. Under these riders you aren’t required to submit further medical evidence of insurability, but your income has to be sufficient for an increase.
 
Automatic benefit increase riders increase the base policy benefit by a designated percentage on a regular basis for a stipulated period. Under this provision, you buy additional coverage at premium rates that are based on your attained age at the time the increments are added to your policy.
 
Some policies may also offer a cost-of-living rider that provides increases in benefit payments during a period of disability. These riders, which can be especially important during a lengthy period of total disability, increase benefits by a specified percentage after each year of disability, up to specified aggregate limits.
 
For more information

• Guide to Disability Income Insurance, America’s Health Insurance Plans, www.ahip.org
• Long-term Disability Income Insurance, American Council of Life Insurers, www.acli.com
• Social Security Disability Benefits, Social Security Administration, www.ssa.gov
  

Article is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

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