Do You Understand Your Disability Insurance Policy?

Do You Understand Your Disability Insurance Policy?  by Evan Schwartz

{3:54 minutes to read} An important part of having disability insurance – whether private or group coverage – is knowing and understanding the type of coverage you have.



If you bought your own policy, there are 3 types of private disability insurance policies you could’ve chosen:



1. Individual Disability Income insurance (IDI) – This is typically what most people buy, if they don’t own their own business. This type of policy will pay you every month, or in a lump sum, if you become disabled.



2. Disability Buyout insurance (DBO) – Usually this type of policy is designed to protect you, or one of your partners, in the event that one of you becomes disabled. These policies are used to fund a buyout of the disabled individual from the business.



3. Business Overhead Expense insurance (BOE) – This policy is for principals who are disabled and have ongoing monthly business operating expenses. This policy will help cover those expenses during the period in which they are disabled.



One of the key features of private disability insurance policies is that they’re non-cancellable and guaranteed renewable, meaning as long as you pay your premiums, the insurance company can never void or get rid of the policy.



The next set of policies is group disability insurance coverage.



You could get a group policy through an association, such as the American Dental Association (ADA) or the American Institute of Certified Public Accountants (AICPA). A lot of these groups will offer disability insurance at a discounted rate.



You are most likely to have a group policy through your employer. For example, if you work for IBM, the policy would be issued to IBM, and you, as an insured, would get a group certificate of coverage. You don’t actually own the policy.



What are some of the differences between group policies and individual policies?

  • Group policies are renewable by your employer on an annual basis, but the terms can change and the policy can be cancelled, whereas in a private policy, the terms can’t change and the policy cannot be cancelled if you pay your premiums on time.
  • Group policies are typically not a “portable” policy that you could take with you throughout your life and career, the way you can with IDI insurance.
  • Group policies are governed by a federal law called the Employee Retirement Income Security Act (ERISA). Generally speaking, the law under ERISA, which governs every aspect of your disability claim, is far less helpful to the insured individual than it is to the insurance companies.

 

Group coverage benefits are typically inferior, or less protective, than the benefits you could purchase on your own – depending, of course, on what you choose to purchase and how much you’re paying for it.



That’s part of understanding your policies. Know what you have and what it does, even if you don’t understand every term and provision contained in your policies.



When was the last time you reviewed your insurance policy? Do you have the coverage you need? For more benefits related to disability insurance policies, stay tuned for my next blog.



Evan-Schwartz

Evan S. Schwartz
Founder of Schwartz, Conroy & Hack
800-745-1755
ESS@schwartzlawpc.com