Comparing Disability Insurance Policies
Individual disability insurance is a very flexible product. Many types of policies are available, with an array of features and options, allowing you to design a policy that fits both your needs and your budget.
However, because there's no such thing as a standard disability insurance policy, comparing disability insurance policies can be difficult. To make it easier, it's a good idea to figure out the coverage and features you want before you begin to compare policies, so that you're comparing equivalent policies. You can obtain a great deal of information directly from insurance companies, including brochures describing insurance products, specific insurance product proposals, and sample policies. Read this literature carefully, and ask questions if anything seems unclear. In addition, here are some important things to consider before choosing a disability policy:
How does each disability policy define disability?
If you want to make sure your disability claim will be paid when you are hurt or injured, it's extremely important to know how the policy you are buying defines disability. No standard definition of disability exists, so when you're comparing disability policies, you have to read the wording of each carefully.
Do you want the policy to pay benefits only if you're completely disabled or if you can return to work part-time? Do you want coverage only if you can't work in your own occupation or if you can't work in any occupation? Do you want coverage only for a catastrophic illness or injury?
What base and optional features does each policy offer?
Disability insurance policies offer a variety of base and optional features. Is the policy you're considering guaranteed renewable? How long is the waiting period before you can begin collecting benefits? Is the coverage short or long term? What optional benefits can you add? For example, can you add a cost-of-living rider to adjust the benefits if inflation rises? Does the policy offer special provisions (e.g., for rehabilitation coverage) or exclusions (e.g., for preexisting conditions)?
How much does each policy cost?
Once you've found two or more equivalent policies that have the features you want, compare their premiums. Is one policy a better value for the price? If one policy is more expensive than the other, can you find an explanation for the disparity? Maybe the more expensive policy provides more base coverage, or perhaps the cost of additional riders is higher. It's possible that you overlooked an important provision.
Does each insurer have a good reputation?
Although it's unlikely that an insurance company will become insolvent, it has happened. To protect yourself, find out as much as possible about of each of the companies you are comparing. Several companies rate insurers on financial strength, profitability, and claims-paying ability (e.g., A. M. Best, Standard & Poor, Duff and Phelps, and Moody's).
Choose the policy that best suits your needs and your budget
After you've compared disability insurance policies, you can decide which one to buy. In many cases, one policy is far superior to another, and your decision is easy. Sometimes, though, you'll have to spend time weighing the strengths and tradeoffs of each policy before you can decide which one is right for you. Of course, because disability insurance is expensive, the price of each policy is always a factor, but be careful not to buy a policy that's seriously lacking because it's cheaper. Quality of coverage is as important as price, something you'll find out if you ever file a disability claim.
Although the final decision always rests in your hands, a professional opinion can be valuable. Your insurance professional may be able to detect hidden weaknesses in a policy, explain confusing terms or provisions, and help you weigh the strengths and tradeoffs of each policy you are considering. However, don't let yourself be pressured into buying a policy you don't want or can't afford.
