Disability Insurance Traps and Pitfalls

by admin on December 21, 2011

One thing I did not anticipate after getting married was how much insurance I was going to end up getting. I used to think life insurance and disability insurance was something “old” people worried about. Unfortunately for me, I guess I am now in that bucket and I am still in my 20s. I wanted to talk to you about a couple tips that might help you when you are shopping around for disability insurance. Until recently, I had never worked for an employer who provided disability insurance for their employees. This is probably why I had not heard of insurance before, however my grandfather is probably laughing in heaven and calling me a mule right now. After listening to a financial counsel talk show, the host seemed pretty adamant that listeners get the insurance or supplemental if they had it through an employer.

Why get disability insurance?

The statistics show that you are significantly more likely to become disabled than die prematurely. Pretty cut and dry. On the other hand this didn’t really register in my stubborn head until I was sitting at a light at East-West Connector and Atlanta Road. Apparently in Georgia, a red light does not necessarily mean red until after several seconds. Even then you should probably look to whatever side is opposite where you are turning in case some fool is on his iPhone. After seeing a near miss, I decided maybe this disability insurance thing is worth looking into. After all, Jury Duty taught me there are plenty of crazies out there.

Disability Plan Decisions?

Besides where to apply, the two most important details to look for are the periods (both for elimination and coverage) and the own-occ coverage.  The two most common elimination periods are going to be 90 day and 180 day policies.  All an elimination period means is the amount of time you have to pay out of pocket before disability insurance kicks in.  If I’m in a hospital getting countless surgeries but im home on day 90 then I am S-O-L in terms of my policy picking up any costs.  180 day plans are going to cost you less money but this means that you need to have a 6 month emergency fund ready in case you ever get disabled.  I believe 90 day is more reasonable since most people don’t have 6 month emergency funds (myself included BAH!). Coverage period is going to be something like 65 years old or 70 years old.  I really could care less which age it is, but make sure it’s one of those two so you’re not 55 disabled and up a creek.

Lastly make sure the coverage is “own-occ” or own occupation coverage.  This means that if you can’t perform your exact occupation then you are disabled.  Some plans do not have this and will then move to a percentage of occupation type thing.  For example, if I am disabled such that I can’t sit or stand, it would be pretty hard for me to be an analyst and ride a desk all day.  With own-occ coverage, I’d begin getting disability payments after my 90 day elimination period.  If you didn’t have own-occ, and now have what is called “any-occ” then you potentially may not get a check.  For example, lets say my main job is being a financial analyst however on the side I get paid to teach finance at Georgia Tech.  If I can’t perform my duties as a financial analyst but am not disabled enough such that I can still teach, my insurance company will not allow me to get the check.  Any-occ policies are going to be cheaper, but I do not think they are worth the risk.

Where did I apply?

I decided to apply via two methods and hoped to come to a conclusion on what gave me comfort after getting further down the road into the application process.  Some people go through an insurance agent.  Others go through these kayak.com equivalent sites like Zander insurance where the site shops several insurance companies at once.  I decided to do both.  After all when banks compete you win!  Okay well insurance companies and no you probably lose.  Maybe.

Pit falls to watch out for when signing up?

When shopping around, the biggest thing to watch out for when signing up is when the insurer will ask for a check with your application.  Agents will conveniently have you fill out a billing sheet which leads you to believe they just want to know how you will pay your premiums in the future.  I filled one out thinking this and said annual premiums.  Fortunately, I did not have a check on me or I may have given him one.  What the insurance agent is doing is masked under “contingent coverage.”  By giving the check then and assuming nothing comes back during underwriting, you are covered under insurance from the moment you give him or her the check.  In my opinion it is more the agent trying to get you locked up as a sale rather than trying to protect you.  For me I was willing to take the risk of a month delay in coverage.  However some people would enjoy the piece of mind of being covered immediately but this limits your ability to shop policies around.  Don’t let an agent tell you a check is required with the application!  It is only required if you want immediate coverage.

Concluding Thoughts

At the end of the day, these policies are going to run you $30-40 a month which is expensive for the amount of money they’re promising but I still think it is worth it.  Some will say that you can get quadruple bypass surgery and be recovered in under the amount of time it takes the elimination period to kick in.  This is true (i looked it up – can’t believe how little time it takes the sternum to heal).  Deciding to buy this is like deciding to buy stocks, it’s all about how much risk you are willing to take.  Best of luck and hope neither you nor I ever have to execute on a disability policy.


{ 1 comment… read it below or add one }

Marv January 20, 2012 at 4:06 am

I can\’t believe you\’re not palynig with me–that was so helpful.

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