Disability-Income (DI) Insurance

Disability income (DI) insurance provides supplementary income in the event of an illness or accident resulting in a disability that prevents the insured from working at their regular employment. Benefits usually are paid monthly so the insured can maintain their standard of living and continue to pay ordinary expenses.

​​​​​​​Disability income (DI) insurance is designed to replace between 45% and 65% of the insured’s gross income on a tax-free basis. The benefits tax-free because the individual used after-tax dollars to pay for the plan. The policy pays a benefit in the event illness or injury prevents the policyholder from earning their usual income in their occupation. 

Although some employer-offered plans and Worker Compensation can provide help during a disability, the quality and scope of the coverage may leave the disabled employee short of the protection they require. Many employer-offered plans are part of a suite of coverage, and may not pay to the levels an employee needs to meet their expenses. Also, Worker Compensation only covers injuries as a result of employment and not outside of the work sphere.

Self-employed individuals and small business owners must go it alone when it comes to disability income. Even if an injury is work-related, an independent business owner may not claim Worker's Compensation on themselves. 

Disability income insurance has a variety of factors which influence the final premium. Policy premiums generally range between 1.5% and 3% of the gross income. Insurance underwriters also consider age when determining a premium. The minimum age for applying is 18-years old, and the maximum age is usually 60-years old. Unlike life insurance, DI rates for women are higher per unit of coverage than those for male applicants. Further, smokers can expect to pay as much as 25% more for the same protection as a non-smoker. 

When determining premiums, providers will place applicants into career and income classifications. The basis of these classifications is on the carrier’s claim experience for these job categories and incomes. The classification with the lowest risk will pay less.

Typically, disability income insurance policies contain a specific monthly benefit amount, for example, $3,000 a month. Unless stated in the policy language, DI policies do not coordinate with Social Security benefits but pay in addition to it. And, of course, as the monthly benefit amounts increases, higher premiums are assessed. Most companies will not issue a policy with benefits that amount of more than 60% of an individual's gross income.

Most insurance companies provide plans that carry a DI benefit period payment maximum of two-, three-, five- and 10-year. Once again, the price increases to purchase an extended the benefit period. 

Disability Income insurance policies have a waiting or elimination period before eligibility to receive benefits payment. This period is usually over 30-days from the date of coverage and will vary by provider and policy. Another critical consideration for disability income policies is that the benefit payments do not begin immediately after the filing of an injury or illness claim. Again, this will vary by provider and policy type, but most will require a wait of 30- to 45-days before the first benefit payment processes.