Disability Insurance 101

THE BASICS Disability insurance coverage provides benefits to the policyholder should he or she become disabled and unable to work.

THE STATS According to the American Council of Life Insurers, one in seven workers will become disabled for a period of more than five years. Statistically, it is more likely for a worker to experience disability than premature death.

WHO NEEDS IT Anyone with earned income who cannot afford to self-insure against a loss of income. Since policies cover earned income only, people whose income is derived from other resources only (such as retirees) do not qualify for protection.

WHAT TO LOOK FOR The most important feature in a policy is its definition of disability. Two distinctions are made between “any occupation” and “own occupation.”

Some policies will provide benefits only if you are unable to work in any occupation. For example, a surgeon who hurts her hand and cannot operate may be able to teach at a university. Though her salary will decrease, she will be able to find work, and thus would not receive benefits.

A better (and more expensive) distinction provides policyholders protection if they become unable to perform the duties associated with their own occupation.

For more financial help and advice download the 2011 Kentucky Living Financial Planning Guide.