OFIR's Tips on Protecting Your Financial Future with Disability Insurance

Contact: Jason Moon 517-335-1700
Agency: Licensing and Regulatory Affairs

November 17, 2011 - In this economic environment, many Michigan consumers may not think their most valuable asset is their ability to work. But if illness or injury were to keep you from earning a living do you know how you would pay your bills?

The U.S. government estimates that more than one in four of today's 20 year-olds will become disabled before reaching retirement age, but only 31 percent of current U.S. private industry workers have long-term disability insurance as part of their insurance benefits.

The Office of Financial and Insurance Regulation (OFIR) today offered tips for Michigan consumers considering individual long-term disability insurance options

“Understanding disability insurance can protect a consumer’s most valuable asset - their ability to earn a living,” OFIR Commissioner Kevin Clinton said.

Disability Insurance

Disability insurance is not the same as workers' compensation. In the case of disability insurance, the injury or illness does not have to be the result of a workplace incident or exposure

There are two types of disability insurance available to individuals: short-term and long-term. Short-term will typically replace a portion of the policyholder's salary from three to six months following the disability. Long-term will generally begin six months after the disability and can last a few years or even until retirement age.

Figuring How Much Long-Term Coverage You Need

Before purchasing long-term disability insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc.

Comparing Disability Policies

When considering long-term disability policy options, here are several definitions and benefits you should carefully compare to determine the best coverage for your future needs:

  • Definition of Disability: The definition of disability will vary from policy to policy. Some may pay benefits if you are unable to perform the duties of your occupation, while others may require that your disability keep you from performing the tasks of any gainful employment.
  • Extent of Disability: Some policies may require you be totally disabled before it pays benefits, while others may pay a limited amount or for a limited time if your injury limits you to performing only part of your job - often called partially disabled.
  • Disabilities Covered - The list of covered accidents or illnesses considered disabilities under the policy will vary. Some policies will only cover disability arising from accident and not illness.
  • Amount of Benefits: A typical disability policy benefit is approximately 60 percent of earned income pre-disability. Benefits are generally based on your income at the time the policy is purchased.
  • Waiting Period: Sometimes referred to as an elimination period. Generally you have a choice of how long you think you can wait to receive your benefit after the onset of disability.
  • Length of Coverage: You will generally have an option of benefit terms ranging from one year to retirement age.
  • Waiver of Premium: This waiver exempts you from paying premiums after you've been disabled for 90 days until your disability ends. It is typically included in a policy.
  • Renewability: Most long-term disability policies come with one of two renewability provisions: non-cancelable policies will continue at the same price and coverage as long as you pay your premiums on time; guaranteed renewable means the policy will be renewed automatically, but the premium may increase.

Social Security Benefits

Social Security pays disability benefits to people who cannot work because of a medical condition that is expected to last at least one year or is terminal, and for individuals who meet two earnings tests.


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