Types of Disability Insurance Plans

1.  RENEWABLE AT THE OPTION OF THE COMPANY:

This is the least expensive type of disability insurance plan, but it carries the highest degree of exposure to the insured. As the term suggests, in order to keep the policy in force, the insured must qualify medically and financially upon each policy anniversary in order to preserve coverage. Failure to meet the underwriting requirements will result in termination of your policy by the carrier.

Furthermore there are no guarantees on the premium you pay. The insurer can raise rates on you individually each year.

Perhaps the most negative aspect of this type of policy is the definition of disability. The definition used in this policy is referred to as ANY OCCUPATION. Under this definition, if you are disabled and are unable to work in your REGULAR OCCUPATION (explained below under the description of a Guaranteed Renewable policy) for up to 2 years into your disability. After that, in order to continue receiving benefits, your disability must be of such nature that you are unable to engage in “Any Occupation” based on education or experience. This is risky because the period in which you are protected in your regular occupation is far less than the statistical average duration of disability.

2.  GUARANTEED RENEWABLE:

• You are diagnosed as being unable to meet the material and substantial duties of your REGULAR OCCUPATION
• You are under the regular care of a physician appropriate for your injury or sickness
• You are not actively engaged in any other gainful employment

The key difference with a “Regular Occupation” definition versus “Any Occupation” is that it does not matter whether or not you are capable of engaging in another occupation during your disability. Provided you are not actively engaged in any other gainful employment and you cannot work in your “Regular Occupation,” the carrier must pay you the disability benefit for the entire duration of your disability or up to your maximum benefit period as stated in the policy.

Furthermore, these policies typically provide for an interim rate guarantee, usually three or five years. After the fixed premium period elapses, the only basis with which the carrier can raise the rates on this type of disability insurance policy is by occupational classification.

3.  NON-CANCELABLE / GUARANTEED RENEWABLE:

Additionally, depending upon your occupational class, which is predicated upon several factors including level of physical risk, income earned and specialization of your occupation, you can qualify for an even more broadened definition of disability referred to as OWN OCCUPATION or Occupation Specific by some carriers. Under this definition, you are disabled if:

• You are diagnosed unable to perform the material and substantial duties of your “Own Occupation.”
• You are under the regular care of a physician appropriate for your injury or sickness.

In other words, as long as you cannot work in your “Own Occupation” and are under the care of a doctor, you can earn an income in another occupation should you choose to do so and still receive your disability benefit in full.

To reiterate, the above is a general overview of the 3 types of policies available, but there are many other aspects that can affect both the cost and how your policy will pay benefits including optional riders, and your particular occupational class. It is therefore recommended that you consult with a disability insurance specialist who can help structure a plan that meets your specific needs, risk tolerance and budget.