I'm not going to argue the fine points of every insurance carriers individual disability insurance products. I can say that no single insurance company has the best DI policy for every person seeking to protect their income. It is going to depend on several factors to decide who has the best disability insurance policy for you. Keep everything in perspective throughout your buying process, just make sure in the end you actually own a DI policy. If you do that, than you have protected yourself and your family from a potentially devastating financial burden should you ever become disabled.
If you are in a white-collar occupation, the vast majority of the carriers offer the same product in today's marketplace. Most of them are
Non-Cancellable & Guaranteed Renewable, and most of them offer you an
own-occupation definition of total disability to the age of 65 or longer. I did say most of them, which means there are some carriers in the marketplace who limit how long they offer you own-occupation disability insurance to something like 2 or 5 years. It also means there are some policies that are not non-cancellable at all, they may be conditionally renewable, or just guaranteed-renewable without being non-cancellable. Therefore...
Step 1
Make sure your disability insurance policy is both Non-Cancellable & Guaranteed Renewable, and contains a pure own-occupation definition of total disability to age 65 or longer.
Once you have confirmed both aspects of any contract you are thinking about buying, make sure the finances of the carrier selling you the policy are of high quality. There are several major ratings agencies you can use like A.M. Best, Moody's, and Standard & Poor's. In the industry, we tend to look closely at Comdex because it pulls all the ratings from every major ratings organization together to give a carrier a score from 1 to 100. The closer to 100 the carrier's score is, the better off they are financially. Individual disability insurance has historically been a very volatile market, and the last thing you want is a policy with a carrier no longer in the DI business because they sold off their block to somebody else whose only chance at profitability is to "manage the block" better than the previous carrier. I personally want my policy with a carrier who still needs to worry about their reputation in the consumer market, not a claims management company. If the comdex rating is in the high 90's than I am happy, anything less makes me think long and hard about the policy.
Step 2
Visit Comdex to check on the financials of your carrier.
The next part may be the most difficult part for you as a consumer, and it may end up being the most important of your income protection. Unfortunately most agents have no idea what they are doing when it comes to personal disability insurance. There really are very few experts on the subject in the business, so if your agent doesn't instill confidence in you when you talk to him or her about DI, it's probably because he or she doesn't know what they are doing. Quite frankly it is just not a big part of most agents business, and often overlooked as a result.
You need to make sure that the recovery benefit in a policy is as long as it can humanly be. Many carriers have a defined recovery benefit of anywhere from 6 months to 3 years. However, the best recovery benefit a person can get is for the entire benefit period to age 65 or 67. The carriers with recovery benefits for this long have no defined recovery benefit in the policy because their residual disability benefit acts as an unlimited recovery benefit. The reason they can pay recovery benefits for so long is they have no loss of time or duties requirement to pay a residual claim. If there is a loss of time or duties required in the residual disability portion of the policy, then recovery benefits will only last for the defined recovery benefit period.
Step 3
Make sure there is no loss of time or duties requirement in the residual disability portion of your policy.
Once the above three items are confirmed, the rest is a lot easier, and usually just a matter of pricing. The above items are vital, and should never be ignored in my opinion. The rest is a matter of personal preference and budgeting. While steps 1, 2, and 3 are vital, the rest of this article is more of a cheat sheet for you to use.
Elimination Period - Most people buy a 90 day elimination period. Just realize that you don't collect for another 30 days past the actual elimination period. Therefore a 90 day waiting period is really a 120 day elimination period. You don't get much of a price break by waiting longer, and it may double or triple if you go shorter. Just make sure you can get through 120 days without an income before you select a 90 day wait on your policy.
Cost of Living Adjustment Rider - If you are young you have to buy this, if you are closer to retirement the decision is up to you. It's a matter of how much you are concerned about inflation eroding away the value of your monthly benefit between now and the time you retire. Nobody in their 20's or 30's should buy a policy without COLA in my opinion.
Future Increase Option - If your income is going to be higher in the future, then spend the very small amount of money they charge you for this rider now. If there is no way your income will ever rise, then don't take the rider.
Benefit Period - I would recommend taking at least to age 65, but if you can't afford it try to take a 10-year benefit period. You can still buy a lifetime benefit period in the market, but it is expensive to do so.
