Why Do You Need It?
Disability income replacement insurance fulfills many needs:
Pay for personal or family living expenses
Pay for education loans or other personal debt
Provide funds for children’s Education Expenses
Provide funds that may be used to save for retirement
Provide Income in Retirement (benefits that last beyond 67)
Different Types of Total Disability
An important factor to consider when comparing disability policy language is how the policy protects the income from your specific occupation if you become disabled. There are four different types:
True Own Occupation
Due to an injury or illness you are unable to work in your occupation even if you work in another occupation. You may be working and still be totally disabled as long as you are not able to work in your regular occupation. Benefits would not be reduced by income earned in another occupation.
Transitional Own Occupation
Due to an injury or illness you are unable to work in your occupation even if you work in another occupation. Benefits with this definition may be reduced if your new earnings plus the benefits to be received exceed your pre-disability income increased by inflation.
Example: Pre-Disability Income = $15k/mo, All Disability Benefits = $8k/mo.
You could earn up to $7k/mo without having a reduction in benefits. The higher your pre-disability income the less difference there actually would be in this definition and True Own Occupation.
Modified Own Occupation
Due to an injury or illness you cannot work in your occupation AND you are not working in another occupation. If you decide to work in another occupation you will receive benefits under the residual (partial) part of the contract. For example, if you have a loss of income of 50 percent then you will receive 50 percent of the benefit. If you are 40 years old when you have an accident you may have a 25-year partial claim if you decide to work in another occupation vs. having a total claim under the True or Transitional policies.
The policy will pay you total or residual benefits only if you are unable to work in any occupation.