When a paycheck stops, the policy replaces part of it (usually 60 to 70 percent) after a waiting period, for as long as the benefit period runs. Illustrative, not to scale.
What it is
You choose a monthly benefit, a waiting period before benefits start (commonly 90 days) and a benefit period (two years, five years, or to age 65 or 67). If a covered illness or injury stops you working past the waiting period, the policy pays the monthly benefit until you recover or the benefit period ends.
The key wording is the definition of disability. “Own occupation” pays if you cannot do your own job. “Any occupation” pays only if you cannot do any job you are reasonably suited for. The difference matters more than the price.
Premiums paid with after-tax dollars generally mean benefits are received tax-free. Employer-paid plans are usually the reverse.
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Who it is for
- Working people whose household needs their income
- If a year without your paycheck would mean selling the house or draining savings, this is the policy that covers that.
- Self-employed people and business owners
- There is no group plan behind you, and the business may also need to keep paying its overhead while you are out.
- Professionals with a specific skill
- Surgeons, dentists, tradespeople, musicians: anyone whose income depends on a body part or a skill that an injury could end.
- People with only group cover
- Group plans often cap the benefit, tax it, and end when you change jobs. An individual policy fills the gaps and follows you.
What it is not
- It is not Social Security Disability, which is hard to qualify for and pays far less than most people’s wages.
- It is not workers’ compensation, which covers only injuries at work. Most long disabilities are illnesses, not accidents.
- It is not a short-term sick-pay plan. Individual policies are built for disabilities lasting months or years; the waiting period is there to keep the premium affordable.
The questions we ask
- What do you earn, and how much of it does your household actually live on?
- What does your employer plan pay, for how long, and is the benefit taxed?
- How long could you go without a paycheck using savings alone?
- What exactly do you do at work, physically and mentally? The occupation class drives the price.
- Any health history that an insurer would ask about?
- Would you rather a longer waiting period for a lower premium, or the reverse?
Costs and trade-offs
Expect roughly one to three percent of your gross income per year for a solid individual policy, more for hazardous occupations or for women in some carriers’ rate books, less if you accept a longer waiting period or a shorter benefit period.
The cheapest policy is rarely the one you want. “Any occupation” definitions, short benefit periods and benefit caps lower the premium by lowering what the policy will actually pay you. We will show you where the money goes.
Riders such as cost-of-living adjustment, future purchase options and residual (partial) disability benefits add cost and are worth it for some people and not others. We decide that at the meeting, not from a brochure.