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Disability Insurance Plan Options Tips
ProtectYourIncome.com Tip: Tax Deductibility of Disability Insurance Premiums and Benefit Income
People often question whether a disability insurance premium is tax deductible. Premiums for group disability income insurance policies are tax deductible by the corporation.
If you have purchased an individual disability insurance program for yourself and you pay premiums personally, this cost is not tax deductible but if your receive income benefits because of disability, this income will not be subject to Federal Income Tax.
If a corporation buys a disability insurance policy on your behalf as part of a corporate benefit program, that is usually deductible for the corporation but the benefits if received because of disability would be taxed as ordinary income. Always check with your tax advisor before you assume any tax deductibility or tax free income issues.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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How to Find Disability Plan Options That Guarantee Future Insurability
The best long-term disability insurance programs often offer the ability to guarantee your future insurability. This feature, often called the Future Increase Option (FIO), may become critically important to you in the future. This provision helps protect your insurability and, to a large degree, your future earnings or loss thereof.
In reality, without this or a similar automatic increase rider, your future earnings are not protected at all. Your professional disability insurance will only protect you for your earnings level at the time you purchase the coverage. This provision normally guarantees your insurability for a specified period of time (up to age 55, 60, etc.) and allows you to increase your monthly benefit amount regardless of health issues you might face.
When you want to increase your monthly income benefit -- one of the provisions in disability income insurance -- you normally only need to provide your insurer with your prior year tax return to show your increased regular income. Top rated disability insurance companies usually try their best to allow changes in terms or coverage to be as easy as possible on the insured. This is a good example of top disability insurance programs being user friendly. A future increase option could also be one of the most important disability plan options you consider.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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ProtectYourIncome.com Tip: How Inflation Protection Works in a Disability Insurance Policy
The best long term disability insurance plans may offer inflation protection provisions. The disability insurance companies that offer this feature realize that, depending on the state of the economy, some inflation factor is computed at every year’s end by a number of government and private sources.
Normally, an inflation protection provision will calculate the generally accepted rate of inflation for last year and invoke a cost of living adjustment (COLA) similar to those in many compensation plans and union contracts. For example, if the inflation percentage for the prior year was 4% and your current disability income benefit (should you need it) is at $3,500 per month, this provision would increase your monthly benefit to $3,640 (a 4% increase) for the coming year.
Many of the best disability insurance companies offer this provision as another service to keep you as a satisfied policyholder. Learn about these and other renewable provisions from excellent websites like ProtectYourIncome.com.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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How Disability Insurance Elimination Period Clauses Work
Almost all standard disability insurance plans include what is termed an “elimination period.” This time frame in which benefits are not paid runs from the date of your covered disability to some period in the future. Generally, the most common elimination period for the best long term disability insurance policies is 90 days. As you search for the best disability insurance company for you, other elimination period choices of 30, 60, 180, and 365 days may be offered.
As noted, you’ll often have the choice of shortening the elimination period. However, you will notice a rather dramatic increase in the cost of disability insurance plans as you shorten the elimination period. For illustration purposes, you could equate this period with the deductible amount you’ve selected for your auto insurance. As your deductible goes down (e.g., from $1,000 to $500), your auto insurance premium can substantially increase.
The length of your elimination period operates in much the same way. Most professional disability insurance policyholders statistically opt for the 90-day choice because it appears to offer the best value for premium cost. Use ProtectYourIncome.com to help you understand your options and get the best disability insurance available.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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ProtectYourIncome.com Tip: Popular Time Periods for Receiving Disability Insurance Benefits
One of the options you’ll normally have in professional benefits insurance programs will be to select the time period of receiving disability income within the parameters set by top disability insurance companies. The most common range of choices are:
Two years
Five years
To age 65
Some disability insurance companies offer coverage up to age 67 or even a lifetime benefit, although historically these are not popular options because of the increased premium cost. Statistics show that the overwhelming favorite when considering a long-term disability is the choice to be paid benefit income until age 65. If circumstances dictate that reducing your disability insurance premium is a major consideration, you could opt for the two- or five-year option. However, before choosing one of these medical disability options, consider the risks.
Some disability insurance companies offer coverage up to a lifetime benefit with an increased premium cost. Statistics show that the most popular choice when considering a long-term disability insurance policy is the choice to be paid benefit income until age 65. The risk of a 2-year or 5-year benefit period is simply that the benefits will end but your disability may not. It is strongly advised to take the longest benefit period that you can obtain.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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How a “Social Security” Rider Added to a Disability Insurance Policy Could Help You
You probably know that when you are disabled you are likely eligible for Social Security Administration benefits. However, depending on the terms of your group or individual disability insurance plan, you may or may not qualify for Social Security Disability Income (SSDI) coverage. They have their own definitions of disability which sometimes differ from the definition in your policy. Therefore, depending on your circumstances, you may qualify for a covered disability under the terms of your own policy, but you may be ineligible for SSDI.
This option normally allows you to increase your disability benefits by up to around $1,000 per month added to your stated level in your plan. Essentially, if you are eligible for benefits from your professional disability insurance coverage but are ineligible for benefits from SSDI, this option would provide you with an increased monthly benefit while you remain disabled.
In your search for the best disability insurance company for you, examine the Social Security option and weigh the cost versus benefit of adding this feature.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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ProtectYourIncome.com Tip: How a Capital Sum Benefit Option in a Disability Income Insurance Policy Could Help You
While this feature is normally not available in group disability income insurance coverage, a capital sum benefit option may be available for those with individual disability insurance plans. Capital sum benefits are lump sums payable to the insured for certain specific disabilities. Often a feature within a feature, capital sum benefit provisions tend to be included as part of a presumptive disability rider.
Presumptive disability is normally defined as the loss of eyesight, hearing, speech, or two or more limbs. These conditions may be temporary or permanent in nature. Even a temporary loss of two or more limbs may be covered in some plans. For example, you severely break both legs or an arm and a leg, preventing you from performing your professional duties. This injury may qualify as a presumptive disability if your policy language so indicates.
Should you permanently lose one or more of these defined abilities, and you have a capital sum benefit included in your professional disability insurance, you might be eligible for a lump sum payment (usually equal to 12 monthly income benefit amounts). This payment does not replace but is made in addition to any other benefit amounts specified in your medical disability program.
Carefully read your package of protection along with any exclusions and limitations to learn what benefits you are eligible to receive in the event of a presumptive disability. If offered a capital sum benefit option, consider the cost versus benefit factor to see if this selection would be good for you.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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The Pros and Cons of a Return of Premium Provision in a Disability Insurance Policy
Return of premium disability insurance coverage may or may not be an option you wish to purchase. While its name implies it is a wonderful option, you may deem the cost to be prohibitive. Here is how this feature works.
If you have opted for this option, you pay your premiums as required by all disability insurance companies. Depending on the specific language of your policy, if, after a specified time period (often at least 10 years) you have not filed a claim for disability benefits, your top rated disability company will return a portion or all of the premiums you have paid over this period. This option could prove to be a wonderful and welcome additional benefit for you.
However, you should analyze the cost of adding this option to your current disability insurance plan. This feature can increase your premiums by as much as 50%. Since the best long-term disability insurance for professionals is not inexpensive, a large increase may or may not be in your personal budget. Since many individual disability insurance premiums are tax deductible, this added expense may be less than it at first appears.
Return of premium disability insurance provisions can be a very profitable benefit option or an extra cost may not provide the intended purpose. Other issues involve the amount of return, a portion or the whole amount, what happens to the previous tax deductibility of your premiums, and additional deductibility potential problems if you have a Subchapter S corporation. Discuss this option with your accountant and/or attorney.
The above-listed tip is for informational use only. Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
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ProtectYourIncome.com Tip: Be Aware of the Most Important Plan Options in a Professional Disability Insurance Policy
Professional disability insurance programs usually offer a variety of options that many people like and often purchase. Those considered to be of high importance for all professionals include:
Own-occupation coverage. Most group disability income insurance and low cost individual disability insurance plans define the end of a disability as your ability to perform the duties of any gainful occupation. Having own-occupation coverage means you should continue to be eligible for disability benefits until you are able to resume the duties of your particular occupation or specialty.
Future increase option. This feature serves to guarantee your future insurability and earnings. As a professional, you can normally expect to earn higher income in the future. This provision allows you to increase your benefit amount when you wish, and it guarantees you insurability even if your medical history takes a turn for the worse.
Inflation protection. Even if your regular income does not often increase dramatically, you are still subject to the erosion of inflation on a yearly basis. This option provides for an increase in your monthly benefit based on inflation rates.
Non-cancelable or guaranteed renewable. The unenviable reality is that anyone’s medical situation can change rather quickly. These provisions provide the security that you will not be denied coverage should your health decline over the term of your career.
Return of premium and/or waiver of premium. With reduced income as a result of a covered disability, a waiver of premium means that no monthly premium is due while you are disabled, thereby providing more funds to cover your living expenses. A return of premium disability insurance option states that under certain conditions (usually a substantial time period when no claims are filed) disability insurance companies will return a portion or all of the premiums you have paid during the specified period.
There are other potential disability plan options that are often considered, such as a rehabilitation benefit, transplant and cosmetic surgery benefit, and a capital sum benefit. While all are valuable, the options noted above are often considered to be of high importance to professionals.
Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.
