Disability insurance series, Pt. 3: Individual disability insurance

By Steve Savant

Ash Brokerage Corporation


Individual disability insurance: A tribute to Disability Insurance Month in May with special guest Marcy Pruitt, nationally recognized disability insurance expert, educator and workshop trainer.

Breaking down the premium cost of DI as it relates to the value of the benefit: The rule of thumb is insuring 60 percent of my net after tax income for about 2.5 percent. DI can cover personal income, business overhead, buy/ sell agreements, retirement protection for qualified plans, key person and loan indemnification.

Paycheck protection is possible by purchasing DI: Design a DI policy to insure ongoing income.

Customizing a DI policy the needs of the insured: Thirty-day to 2-year elimination periods and benefit periods from 2 years to age 67, sometimes for a lifetime.

There are two basic DI formats for policy contracts: Non-cancelable policies and guaranteed renewable.

DI benefits may be taxable or tax free depending upon ownership and the premium payor. Psychological impairments and addictions: mental, nervous or CPT coded areas as well as drug or alcohol abuse limited coverage for two years, but recently expanding longer periods.

Medical underwriting diabetes, sleep apnea, cancer, cardio, mental conditions, and drugs or alcohol are “knock out” conditions for traditional DI carriers, but surplus DI carriers will use a graded benefit with a five year coverage period. Financial underwriting will require tax returns and employment verification.

Additioaln riders to consider are a purchase rider that can add benefits later without medical evidence or a catastrophic rider that require two of the six activities of daily Living to initiate the benefits which can increase to 100 percent of earned income. Most DI policies can’t be offset by other disability income benefits like social security. DI benefits may be taxable or tax free depending upon ownership and the premium payor.

Psychological impairments and addictions: Mental, nervous or CPT coded areas as well as drug or alcohol abuse are limited coverage for two years, but recently expanding longer periods.