Disability insurance

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Disability insurance replaces loss of income during periods of unemployment due to injury or sickness.

Disability exists when the accident or illness (the condition) has occurred while the policy is in force. This  excludes pre-existing conditions, which are health conditions that the insured already has. Pre-existing conditions could increase the premiums charged or even prevent the issuance of a policy. The condition must require medical attention.  The insured is under the care of a doctor. The insured is not able to perform the essential duties of his or her occupation.

There are three types of disability income policies:

1. Cancellable Policy (also called a Commercial Policy)

Issued on a “class” basis. A class is formed when people are grouped together by age, gender, occupation, or type of plan. When the claims for the class are higher than anticipated, this type of policy can be cancelled, the premiums can be increased, the benefits reduced, or restrictions imposed by the insurer.

2. Guaranteed Renewable Policy

This policy is guaranteed to be renewed until age 55 and usually until age 65.  Premiums can be increased when renewed if there is a higher claims experience for the class but terms and conditions remain the same.

3. Non-cancellable and Guaranteed Renewable Policy

This has the highest premiums because it offers the greatest level of protection.  It is guaranteed to be renewed until the insured reaches age 65. The insurer cannot cancel the policy, increase the premiums, add restrictive riders, or reduce benefits. It can be converted to a guaranteed renewable policy, at age 65, if the insured is still working. How to Calculate Residual and Partial Disability. Residual disability is a rider on a disability policy that will pay a benefit when the insured is able to earn between 20% and 80% of his or her pre-disability salary by working. 

The formula for how much of the disability benefit will be paid is:

(pre-disability income – income while working) ÷ (pre-disability income) x 100 = % of benefit to be received.

How much disability insurance cost?

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