June 8, 2015 by Troy Baccus

How Does a Disability Insurance Policy Work?


Disability InsuranceFREE DISABILITY INSURANCE QUOTEI cannot stress enough how important it is to buy a strong disability insurance plan. I’ve posted blogs in the past on the topic and I could drone on and on about how your income is your most important asset. If you want to get into statistics and read a bunch of horror stories then feel free to visit DisabilityCanHappen.org. It is a great site and it can even help you calculate your own Earnable Income Quotient (how much you could lose).

Unfortunately, disability insurance is one of the most often overlooked types of insurance. The main reason people overlook disability insurance is because they don’t really understand what it is. The best way to explain something is to use an example.

Example of How a Disability Insurance Policy Works

Let’s go through the steps of buying a disability insurance policy and seeing how it works in action.

Selecting a Disability Insurance Plan

Maxwell is a 34 year old attorney in Texas. He is making $100,000 per year. His health is good and he does not use selecting disability insurancetobacco. At his age and income he can qualify for about $5,000 per month in disability insurance. The insurance company limits how much disability insurance he can buy, which is 60% of his income in this example. His insurance agent shops around and finds him a policy that costs him about $120 per month. Since Maxwell bought his disability insurance policy at a young age, his insurance premium is affordable and he was able to lock in the low rate with a non-cancelable rider.

An Injury Leaves You Disabled

The morning of Maxwell’s accident started just like any other. He disability insurancemade himself a to-go coffee, checked the news on his phone, kissed his wife and then headed off to work. The roads were a little icy so he slowed down and drove cautiously. He drove down a busy frontage road with two lane traffic and that’s when a deer leaped out of a bush right in front of him. His anti-lock brakes worked perfectly and he narrowly missed the deer by slowing down. His heart jumped when he looked in his rear view mirror and saw an old Ford pickup heading for him at 60 mph. The truck crushed into his car and pushed it into the oncoming lane where a Tahoe hit him head on. He was rushed to the hospital, alive.

When he awoke in the hospital bed he was told that he lost sight permanently in his right eye and his recovery looked promising but would take months. As he laid there he wondered when and if he would ever feel good enough to get back to his old routine. He wondered how his wife would manage to pay the mortgage and the car payments. How would she manage the house and pay all their bills without his income. He needed to get back to work as soon as possible so they wouldn’t get behind on bills. Then he remembered that he bought a disability insurance policy.

The Disability Insurance Benefits Begin

Maxwell’s work paid him for a few week’s worth of sick leave and they even provided him with a short-term disability plan that covered him for two months. Just around that time is when his long-term disability insurance plan kicked in.

After 90 days of being unable to work, his disability policy began paying him $5,000 per month in tax free income. The money was scheduled to be auto-deposited once a month. His policy had a catastrophic disability benefit rider, so the insurance company wrote him a check for $60,000 due to the loss of sight in his eye.

The Recovery

After nine months, Maxwell was healthy enough to begin working, but his doctor told him that his body couldn’t handle the daily stress of his previous job as an attorney. Luckily he was able to get a job teaching at the local junior college. The teaching job paid him half of his old lawyer salary, but because he had own-occupation disability insurance, he still continued to receive his full $5,000 benefit each month in addition to his new teacher’s salary. Maxwell’s disability insurance policy saved his financial situation from catastrophe.

It’s that simple – that is what disability insurance does. It doesn’t matter if Maxwell was in a car accident, bear attack, or fallen ill to cancer. His disability insurance paid him an income because he couldn’t do his job.

If you depend on your income then you need to buy disability insurance. Contact us today and we can customize a policy for you that fits your needs and budget.

Request a Free, No-Obligation Disability Insurance Quote


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