Disability income insurance can solve the financial problem presented by disability. This type of health insurance provides monthly income benefits if the insured becomes unable to work and earn a living because of sickness or injury. There are some logical restrictions placed on disability income insurance. To discourage malingering (faking an illness or disability to collect insurance benefits), insurers impose strict controls on the amount of disability income a person can receive. Generally, an insurer will restrict the amount of disability income benefit to something less than 100% of the insured's gross income.

Since the benefit paid from any policy on which the insured pays the premium is not taxed, insuring one’s net earned (after-tax) income is sufficient. Policy limits seldom exceed 70% of your gross income, since to allow more may violate the principal of indemnity. Elimination Period The elimination period, also called the waiting period, is the amount of time that must elapse after a disability begins, before benefit payments begin. Conceptually, the elimination period is similar to the deductible in other policies; the purpose in both cases is to keep claims, and thus premiums, at a

minimum by requiring the insured to absorb relatively minor claims. Benefit Period Disability income policies contain a provision that spells out the length of time benefits will be paid. While almost any benefit period is available, it is most common that benefits are payable until the insured reaches age 65. Short-term policies are defined as having a benefit period of less than 2 years, while a long-term policy has a minimum benefit period of two years.

It is common for an insured to have two disability income policies (short term and long term). The short term disability will typically have a waiting period of 7 days before coverage begins and pay the insured up to 13, 26 or 52 weeks. The long-term disability policy is designed to take over when short-term benefits end and to continue benefit payments for a specified period of years, to age 65 or for life.

A typical disability income policy will pay benefits when the insured becomes totally disabled. As the name implies, total disability is the inability to perform the duties of one's occupation. There are two definitions of total disability; one is less restrictive than the other and, accordingly, is more expensive. The policy’s definition of disability is very important. An “any occupation” policy defines total disability as the inability of the insured to perform any duties of any gainful employment for which he or she is suited by way of education, training, or experience.

With this definition, a person must be so disabled that he/she cannot engage in any employment which they might reasonably be expected to perform. The second, less restrictive definition of disability is known as “own occupation.” An own occupation policy defines total disability as the inability to perform any duties of one’s own occupation. It's easy to see how this is less restrictive (to the policy owner) than the any occupation definition. Let's assume a dentist buys a policy and subsequently looses a hand. The dentist will never again be able to perform his own occupation, but he could easily be

expected to take on any number of other occupations. With an own occupation policy, benefits would be payable; an any occupation policy would not provide benefits in this case. It is common for policies to combine these concepts and define a total disability as the inability to perform one’s own job for the first two years after onset of the sickness or injury and any job for which you are reasonably suited by education, training or experience thereafter.

Various other definitions of disability include: *Partial *Residual *Recurrent *Presumptive *Confining Partial Disability The recovery from many disabilities is such that a person may enter a period of partial disability before they fully recover. During this period, the person may be able to return to work on a limited basis.

A policy with a partial disability provision will pay reduced benefits to the insured during this period. Partial benefits are typically limited to a brief period of time to discourage malingering. While it is more typical for a partial disability to follow a total disability, it is not uncommon for partial disability benefits to be paid at the onset of the disability. Residual Disability With residual disability provisions, benefits are tied to the proportion of earnings lost while the insured is disabled. Unlike the partial disability provision, which pays if the insured can only work limited hours, the residual benefit amount is based on the %

of pre-disability income the insured is not receiving. Let's assume an insured is able to return to work full time, but in a lessened capacity earning only 60% of his/her pre-disability income. Under the residual disability provision, the policy might pay 40% of the total disability benefit (since the policy owner’s earnings have been diminished by 40 %). The objective of the residual benefit is to encourage people to return to work even on a partial basis without fear that they are going to lose income. An important feature of residual benefits is that the policy owner can return to work in any occupation, even a low paying job without losing all insurance benefits.

Recurrent Disability It is not uncommon for a disability to recur after the policy owner has seemingly recovered. If a disabled individual returns to work, and within a certain number of days suffers a relapse, it will be considered a continuation of the original disability and no new elimination period is required. Presumptive Disability In most cases, disability income benefits are payable only as long as the insured is under the care of a physician. It is common for an insurer to require any disabled insured to provide a physician's statement regularly, supporting the continuing disability.

There are some situations, however, in which the insured is presumed to be totally disabled by the nature of the disability. Examples of presumptive disability include the loss of sight, hearing, speech or the loss of use two limbs. In such cases, the insured is not required to provide continuing proof of disability. A disability income policy may distinguish between a confining and a non-confining disability. A confining policy requires confinement of the insured in a hospital or other facility to receive benefits. Most policies are non-confining. If the insured meets the policy’s definition of disabled, there are no confinement requirements.

Disability income policies have varying definitions of "accident." A policy with an accidental means clause will cover accidents only if the cause was unintentional. This can be a restrictive clause. For example, you are riding a bus that is pulling up to the curb but has not come to a complete stop. You elect to jump from the bus and break your leg.

Since you intended to jump, if you owned a policy with an accidental means clause, you would not be covered. However, had you slipped and fallen off the bus, the act that led to your injury would have been unintentional and you would be covered. Most policies contain an accidental bodily injury clause, which is less restrictive. Any injury that is the result of an accident is covered, even if what led to the injury was intentional.

Business Uses of Disability Income Insurance The most common type of business use policy is the business overhead expense policy. This policy pays normal rent, utilities, employee salaries, and other business expenses incurred while the business is closed or operating at a lessened capacity due to the disability of the owner. This policy will NOT pay the salary of the business owner, but will cover the salaries of employees. A key person disability income policy provides a company with funds to offset lost income while a key employee is disabled.

A disability buy-out policy, similar to a life insurance buy/sell agreement, is used to assist partners in buying out the interest of a disabled partner. These policies are usually written with a long elimination period. Rarely will a disabled owner want to be bought out until it is clear that he/she will not be returning to work. Credit disability policies protect debtors and creditors alike, by paying an amount equal to the loan payment while the debtor is disabled. A creditor must have a minimum of 100 new debtors per year before they qualify for group credit insurance.