Individual disability insurance
Those whose employer does not provide disability benefits can purchase their own disability policy.
You pay for your own disability insurance policy. These policies offer payments to employees who are (usually temporarily, rarely permanently) unable to work
Individual disability policies can be paid by either the individual, an employer or another family member.
When paid by the employee, benefits are tax free income.
If it’s paid for by an employer, the employer can also be the beneficiary of the policy as well.
Premiums vary based on your occupation, age, amount of coverage selected, the elimination period (time benefits kick in (waiting period), other riders (options for the disability plan / policy) and the insurance company issuing the the disability insurance.
Premiums are generally higher for policies that provide more monthly benefits. The longer the benefits pay out (ie. to age 65 or 67 the premium is higher than if the length of payout is for 2 or 5 years in length). The length of time it takes to start benefits (payments) will affect the price of a disability policy. On a long term plan you can choose a 30, 60, 90, 120 180 & 360 day elimination period. Most policies are 90 days in length before benefits kick in.
Other options (riders) that are standard choices to add that affect the price of the policy and also the benefits are:
Own occupation (rider) vs. any occupation – Ie. If you’re a surgeon and you cannot perform surgeries, you can take a job as a professor or as another type of doctor but your income will be less than as a surgeon. With the own occupation rider, you’ll be paid out the benefits (percentage of your di policy) difference from your income as a surgeon and what your new job is.
Cost of Living benefit – You can elect either a 3% cost of inflation or a 6% cost of inflation rider. What this does is add’s 3% benefit each year to the policy for the 3% cost of inflation rider. Same with the 6%.
Catastrophic Disability Rider – This rider gives additional benefits in case the insured cannot perform any 2 of the 5 Activities of Daily Living (ADL’s) or another qualifying reason.
Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances. There are many web-based disability insurance calculators to determine the disability insurance needed.