Anyone can suffer an injury or be diagnosed with an illness at any time in their life, and that’s why it’s so important to have disability insurance. If an illness or injury makes it impossible to work, disability insurance benefits become a substitute for the income you can no longer earn.
But how you structure your policy and how you spend your benefits matters.
From adding riders to selecting a longer benefit period, here are nine strategies for maximizing the benefits of disability insurance.
Choose an Individual, Customizable Plan
Many employers offer disability insurance as part of their employee benefits package. Unfortunately, those are group policies that don’t allow for any customization or flexibility. Plus, when you leave the job you’ll no longer have coverage.
It’s best to protect yourself with a customizable individual disability insurance policy. No matter where you work, you’ll have ongoing, consistent coverage as long as you continue to pay your premiums.
Get the Most Coverage Possible
Most disability insurance policies offer coverage amounts of up to 60% of your current salary. The more coverage you get, the higher your monthly premiums will be.
If you can afford to, select the highest coverage amount possible. The more coverage you have, the more you’ll receive in benefits every month. The more you receive in monthly benefits, the more financially stable you’ll be.
Opt for the Own-Occupation Definition of Disability
Every disability insurance policy has a definition of disability, and you must meet the standards set forth in that definition to be eligible to collect benefits. The two main definitions of disability are own-occupation and any-occupation.
Under the any-occupation definition you have to be so severely ill or injured that you cannot work in any job at all. It is quite difficult to qualify for benefits under this definition.
The preferred definition is own-occupation. With this definition you can collect benefits for less severe conditions so long as the condition renders you unable to perform your current job.
There are only six insurance companies (known as the Big Six) that offer the own-occupation definition of disability. Checkout this guide to the Big Six to learn about the different types of policies they offer.
Use a Portion of Your Benefits to Contribute to Retirement Savings
Your monthly disability benefits are a replacement for your income, and you can spend them in any way you wish, including to fund retirement accounts such as 401ks and IRAs.
Disability benefits come to an end when you retire, so it’s important to continue to fund the retirement accounts that will help you maintain financial stability in your golden years.
Opt for a Longer Benefit Period
With an individual disability insurance policy, one of your customizable options will be your benefit period. This is the duration of time in which you’ll be able to receive benefits.
In long-term disability insurance policies benefit periods can be two years, five years, ten years, or more. You can even select a benefit period that lasts all the way up until retirement age.
The longer the benefit period, the more your monthly premium will be, but the longer the period, the more you’ll stand to collect in benefits throughout your lifetime.
Add the COLA Rider
All insurance companies allow policyholders the option to add riders to their policy. Every rider you add increases the cost of your monthly premium, but they can provide huge added benefits.
One of the most important riders to add is the COLA rider. The Cost of Living Adjustment rider automatically increases your benefits year over year to account for rising inflation. With this rider benefits increase annually based on the current consumer price index.
The COLA increase for 2023 is 8.7%, so for every $1,000 dollars you collected in 2022, you’ll now collect $1,087.
Add the Waiver of Premium Rider
With the waiver of premium rider you won’t have to pay monthly premiums in the months that you’re collecting benefits. That means more money in your pocket every month that you’re not working because of a disability.
Add the Student Loan Rider
If you still have student loan debt, you can increase your benefits and enjoy greater financial protection by adding the student loan rider.
This rider pays benefits above and beyond your monthly coverage plan to specifically cover what you owe in monthly student loan payments. Unlike regular monthly benefits, student loan rider benefits can only be used to pay student loans.
When your loans are paid off you can drop this rider and reduce your monthly premiums.
Add the Survivor Benefit
Some insurance companies offer a survivor benefit or a death benefit. This rider allows your heirs or dependents to collect several months of your disability insurance benefits if you die while you’re still collecting benefits.
Keep these benefit-maximizing strategies in mind when shopping for a policy and comparing prices amongst different insurers.
Disability insurance benefits are something that most people hope they never have to collect, but should you need to, these tips will help you get the most out of your policy and put yourself in the best financial position possible.