To collect Social Security disability, for example, you must be unable to earn more than a set amount, and your disability must be expected to last at least a year or to end in death. The federal government resets the earnings cap annually. For 2020, it’s $1,175 per month. You can find information about this program at www.ssa.gov.
Disability policies issued by insurance companies apply different rules for determining benefits. Some, but not all, are more flexible than the coverage provided by Social Security.
One type of disability policy, called own-occupation, or “own-occ”, will pay benefits if your condition prevents you from doing your own skilled work. So, if you’re a doctor, you can start receiving benefits if you’re unable to practice medicine, even if you’re able to do other types of work.
Many other policies are a combination of own-occupation and any occupation. That is, for a period of time at the beginning of a disability, you must be unable to perform your own occupation to receive benefits. After that initial period ends, if you are still disabled, you must be unable to perform any occupation to continue to be eligible for benefits. In contrast, still other policies provide benefits only if you are unable to do any work at all.
It takes a while for disability benefits to kick in, often 60 or 90 days after you’ve been determined to be disabled. You can buy policies with shorter or longer periods. The longer the time, also known as the elimination period, the lower the cost of insurance.
Depending on the date the insurer uses as the start of an elimination period, a 90-day elimination period may translate into four months between the first day you’re considered disabled and when you receive your first check. That’s why it’s essential to keep some of your cash in liquid accounts, so it’s available in case of emergency.
If you’re self-employed or own your own business, you can imagine the effect your disability might have on your livelihood, especially if your participation is so vital that day-to-day activities would be disrupted or the business would be forced to close.
If your business isn’t incorporated and you can’t pay your bills, creditors may have the right to repossess your personal property and perhaps force you into bankruptcy.
In addition to the usual income-replacement insurance, you may want to buy business overhead expense insurance to cover normal operating expenses in case you are disabled. That way, your business will be able to pay bills and even maintain normal operations while you recover. By keeping your company solvent, you may also make it more attractive to buyers if you decide to sell.
If you’re considering any policy, read it carefully to find out what it does and does not cover. Many policies exclude disabilities that are a result of drug abuse, attempted suicide, or criminal actions on your part, and most refuse to cover disabilities that result from a pre-existing condition.
In addition, the features of each plan vary, so check for the following as you compare policies: