4 Mistakes to Avoid When Buying Disability Income Insurance

Buying disability income insurance can be confusing. Choosing the right policy for your unique needs requires time, research and sometimes professional advice. Fortunately, you’ve made the right choice and you’ve come to the right place to learn more!

Disability insurance policies have many moving parts that affect price, coverage benefits and policy features. These moving parts often make polices very tough to compare. Here are the four most common errors you should try to avoid when shopping for and deciding on disability income insurance.

Mistake #1: Not buying enough coverage

When it comes to buying any kind of insurance, people rarely overestimate how much they need. If there’s a mistake to be made in determining a coverage amount, most buyers of insurance — whether it’s life, property or disability — will buy too little.

It’s an easy mistake to make. After all, nobody wants to buy insurance, everybody believes they’ll never use it and many people don’t have extra money in their budget for complete coverage.

But buying too little disability insurance coverage today can cause major headaches if an injury or illness that impacts your ability to earn a paycheck does occur. You could easily lose half of your income or more between what you earned before your disability and what your insurance benefits pay. The problem could be potentially compounded by any medical expenses caused by your disability.

When assessing your disability insurance needs, thoroughly consider:

  • Your current and future income
  • Your current and future living expenses
  • Any increasing expenses resulting from a disability (e.g.—medical treatment)
  • Any increasing cost of goods and services (i.e.—inflation)

Mistake #2: Relying solely on group or employer-provided coverage

Many people make the mistake of relying solely on any group disability insurance they may have through their employer or a professional association. Group plans are cheaper than individual policies because the employer or association is paying either part or all the cost. Also, group coverage is easier than researching individual coverage because the employer or association has already done all the leg work. Plus, since most people don’t anticipate ever becoming disabled, it’s easy to believe group insurance is more than enough.

Group policies are a good way of supplementing your disability coverage, but you should never rely solely on one. Doing so puts you at risk of:

  • Losing coverage because of a job or membership status change
  • Having the sponsor or insurer cancel the policy
  • Only getting benefits that cover a fraction of your pre-disability income
  • Only getting benefits for a limited timeframe
  • Having limits on what is considered total disability
  • Not having access to additional key features and benefits available on individual disability plans
  • Paying taxes on the benefits you receive if you become disabled

An individual policy, on the other hand, is owned by the insured. It can therefore be tailored to your specific needs and lifestyle. This type of policy typically cannot be canceled and is guaranteed to renew, meaning the only way to lose coverage is to stop paying premiums.

Mistake #3: Not comparing your disability income insurance options

Would you buy the first car you test drove? Or the first house you walked through? Not likely. Most people spend time comparing multiple options – especially when considering more expensive items – before making a final decision.

The same should be true for disability insurance. While the cost of disability insurance doesn’t equate to the cost of a house or car, it’s a purchase many don’t consider often – or view as optional. You should never limit your search to one policy or recommendation. There are several companies that offer this type of insurance, with different plan features to suit your needs.

When you compare options, you need to look at more than just cost. You should compare various contract provisions, benefits, waiting/elimination periods, features included in the base contract and any optional riders that may be offered. You should also look at the insurance company and ensure that it’s a highly rated, reputable firm.

Doing this without professional help could be a daunting task for most people, but we’re here to help! We’re experts in disability income insurance and we work with many different, top-rated companies. We can help you find the right policy with the right features at the right price.

Mistake #4: Not taking the time to understand all of your policy’s provisions

The worst time to be surprised by what is — or isn’t — in your disability insurance policy is when you must file a claim. Take the time to review the coverage and know as much about the contract before you sign the dotted line and start paying premiums. Again, we’re here to help you understand what you’re getting.

The policy details you should absolutely understand include:

  • How disability is defined – is it own occupation or any occupation?
  • When you can collect for residual or partial disability
  • Length of waiting period (AKA elimination period) – how long do you have to wait until you start collecting your benefits from the insurance company?
  • Benefit length – if you become disabled, how long will you receive benefits?
  • Exclusions and limitations, including disabilities related to mental illness
  • Future increase option – will your income be increasing in the future? Make sure you can increase your disability benefit amount down the road to avoid gaps in income.
  • Catastrophic benefit – do you get extra benefits if you suffer a severe disability that impacts your daily activities?
  • Cost-of-living adjustment on benefits – will your benefits adjust each year to keep pace with inflation?