Disability insurance pays you a regular amount if you cannot work because of illness or injury. For most people the ability to earn income is their largest financial asset, and this is the cover that protects it.
How it works
You choose how much monthly benefit to insure, how long you wait before benefits start, and how long they can last. If you become disabled and the claim is approved, the insurer pays the benefit after the waiting period, as long as you meet the policy's definition of disability.
The details that matter most
- Definition of disability. "Own occupation" pays if you cannot do your own job. "Any occupation" pays only if you cannot do any job you are reasonably suited to. The difference can decide whether a claim is paid.
- Elimination (waiting) period. The time between becoming disabled and the first payment, often 30 to 120 days or more. A longer wait usually lowers the cost.
- Benefit period. How long payments can last: a few years, to age 65, or longer.
- Renewability. Some individual policies cannot be cancelled by the insurer or have their premiums raised as long as you keep paying. Others can be.
- Exclusions and limits. Pre-existing conditions, mental health and self-employed income rules vary a lot.
Individual and group cover
Many employers offer group disability cover, often paying a share of your income for a limited time. It usually ends when you leave the job. Whether benefits are taxable generally depends on who pays the premiums. Ask a tax professional how it applies to you.
Questions to ask an advisor
- How does this policy define disability, and does the definition change over time?
- What share of my income can I insure, and what counts as income?
- What do I already have through work, and how long does it last?
- Can the premium or terms change after I buy?
Common mistakes
- Assuming employer cover is enough without reading it.
- Insuring too little because premiums look high.
- Overlooking the waiting period and having no savings to cover it.