You are here: Home Insurance Disability Income ... Summary
Information about all aspects of finances affected by a serious health condition. Includes income sources such as work, investments, and private and government disability programs, and expenses such as medical bills, and how to deal with financial problems.
Information about all aspects of health care from choosing a doctor and treatment, staying safe in a hospital, to end of life care. Includes how to obtain, choose and maximize health insurance policies.
Answers to your practical questions such as how to travel safely despite your health condition, how to avoid getting infected by a pet, and what to say or not say to an insurance company.


In Sum: An individual long term disability income insurance policy can be difficult to obtain post diagnosis. As a general matter, individual disability insurance policies are not available to people who have had any medical treatment during the past 7 - 10 years for a potentially disabling medical condition. To learn what may be available in your state, contact an experienced insurance broker. You do not have to disclose your name. The broker can find what is available for an anonymous client with your medical history. Or contact insurers directly. A list of providers is available at: offsite link, a website of America's Health Insurance Plans, a national asociation of the insurance industry.

Ideally, look for a policy that is at least Guaranteed Renewable/Noncancellable, has a benefit that equals the difference between your projected income and expenses on disability, and provides coverage for your "own occupation."

Once you have a policy, do what is necessary to maintain it. The income can be critical in the event you are no longer able to work.

Whether benefits are taxable depends on whether the policy is paid for with pre-tax or after tax dollars.

When considering an Individual Disability Insurance policy, consider:

When trying to determine what to look for in a policy for yourself, see: Disability Insurance: Things To Think About When Purchasing. If you are able to get quotes about more than one policy, see: Disability Insurance: Evaluating Individual Policies.


When you apply for an individual policy, you are likely to be requested to take a medical exam in addition to supplying a completed application and medical records. (For additional informabout about what to expect when you apply for a policy, click here.)

To keep your policy in force (in existence), see: Disability Insurance: Maintaining Your Individual Policy.

If you need to file a claim under a Disability Insurance Policy, see: Disability Insurance: Claims, and Disability Insurance: Appeals.


  • For information about Group Disability Income Policies, click here.
  • For an overview of DisabilityIncome Insurance Policies, click here.

Types Of Disability Insurance Policies

There are three types of individual disability contracts:


In commercial contracts, the insurance company retains the right to raise the premium at any time and may cancel the contract at its discretion.

As might be imagined, commercial contracts are not popular among buyers.

Guaranteed Renewable

The insurance company can neither cancel nor alter the provision of a policy that is guaranteed renewable.

The insurer cannot raise a particular individual's premiums. However, the insurer can raise the premiums for everyone who has purchased the same type of contract.


Policies that are noncancellable cannot be terminated, amended or extra premiums charged by the insurance company as long as the insurance policy is in effect.

This is the most expensive type of policy because it locks the company into a permanent contract with a pre-set price.

Definition of Total Disability

A Disability Insurance Policy promises to pay benefits should you become "totally disabled." Disability policies generally have two definitions of total disability: "Own-occupation" and "Any-suitable-occupation." Some policies include both "Own occupation" and "Any-suitable-occupation" definitions.

Another common provision a listing of conditions for which a person is presumed to be disabled.

It is common for disability policies to include other provisions concerning the definition of "total disability" such as a requirement that:

  • You must be under the regular care of a licensed physician other than yourself.
  • You must not be gainfully employed in any occupation for which you are or become qualified.


Under an "own-occupation" disability policy you are "totally disabled" if you are unable to perform the material duties of your own occupation. For example, if you are a surgeon, you injure your hand and can no longer perform surgery. You are "totally disabled" within the definition of this type of policy because you can no longer perform your own occupation, even though you could still continue to practice as a doctor.


Under an "any-suitable-occupation" policy you are totally disabled if you are unable to perform the material duties of any occupation for which you are reasonably suited by education, training, or experience. For example, if the surgeon with the hand injury had this definition in her policy, she would not be considered to be totally disabled because she could still practice medicine as a doctor, just not as a surgeon.

Both definitions

Even though there are policies available which apply an "own-occupation" definition for the life of the disability, many disability policies use both "own-occupation" and "any-suitable-occupation" definitions. The "Own-occupation" definition is generally applied during the first two years of disability, and the "any-suitable-occupation" definition starts after two years.

Applying this combination of definitions to the above example of the surgeon, she would only be eligible for benefits for the first two years of her disability. After that she would not be totally disabled because she could perform any-suitable-occupation: she could work as a doctor.

Presumptive disability

Most individual disability policies contain a provision that you will be presumed to be disabled if certain events occur, For example, a common provision is that you will be considered to be totally disabled if you lose use of two or more limbs or the total loss of sight.

Partial Disability Definition

Just as the definition of total disability varies from policy to policy, the definition of partial disability also varies from policy to policy.

Generally a partial disability occurs when you can perform some, but not all, of the major duties of (depending on the definition in the policy) your own occupation or any occupation for which you're reasonably suited by education, training or experience.

Most plans will pay a percentage of the benefit described in the policy based on the percentage of income lost. For example, if you're only able to earn 40% of your old salary through part-time work, the plan will pay you 60% of the benefit for total disability. The percentage you can earn through partial employment plus the percentage of the total disability benefit you receive will always equal a total of 100% of the benefit specified in the policy.

For example, many policies express Partial Disability benefits in the form of a formula:


A - B




Partial Disability Benefit




In this formula: A = Income prior to disability indexed for inflation. (The longer you are on full disability, the more indexing benefits you.)

B = Current income from partial employment

C = Total Disability Benefit Amount.

For example, Jane had an income of $2,000 per month. Her long term disability plan would pay 60% ($1,200) for total disability. She is able to work part-time and earns $500 per month.

Applying the above formula to Jane's situation:

2,000 - 500


1,500 2,000

= .75 x 1,200 =

$900 Partial Disability Benefit




Jane would receive a total of $1,400 per month, $500 from work (which is 25% of her old salary) and $900 (75% of the total disability benefits) from Partial Disability benefits.

If your policy uses a formula, the clearest way to understanding how it works is to plug in sample numbers, like we did above, and work it through.

Elimination Period (Also Known As "Waiting Period")

In order to be certain that you are disabled rather than temporarily sidelined, a common provision in disability policies is an “elimination period” – the period of time between leaving work on disability and the start of benefit payments to you.

Commonly this period is 6 months.

The longer the elimination period, the lower the premiums.

Benefit Amount

Individual disability income policies generally provide a benefit equal to a flat dollar amount that is decided at the time the policy is purchased such as $1,000 per month or $5,000 per month.

Since the benefit is an amount of money, rather than a percentage of salary, the policy will pay the full monthly benefit provided under the policy regardless of how much income is derived from other sources.

Maximum Benefit Period

Disability income policies limit the amount of time income will be paid. Individual plans can be purchased with benefit periods ranging from one year to policies which provide an income until age 65.

Most plans limit the Benefit Period if the disability is due to a mental or nervous disorder, typically to a maximum of 24 months. NOTE: If your illness is not a mental disorder, but there are some mental symptoms such as short term memory loss, disorientation, even dementia due to either the disease or medication, make sure the doctor is clear in his or her statements about your symptoms so the insurance company won’t try to impose a two year limit on benefits.

Many plans, even plans that pay benefits to age 65, will reduce the benefit period if you become disabled after turning age 60. Many will pay benefits for only two years in such cases.

Exclusions And Limitations

All plans have exclusions -- reasons the plan will not pay benefits -- or limitations on the maximum benefit period such as the Mental and Nervous limitation just mentioned.

Disabilities for the following reasons are usually excluded from coverage completely:

  • Pre-existing conditions.
  • Declared or undeclared war.
  • Injury incurred while participating in the commission of a felony.
  • Work-related injury which is usually covered by Workers' Compensation Insurance. To learn more, see Workers' Compensation.
  • Substance abuse, although some plans will pay benefits provided the claimant is participating in an approved treatment program.
  • Self-inflicted injuries.

Partial Disability or Residual Benefit

Most disability income policies provide a method of paying a partial benefit if you are able to do some work, even though you can’t work full time. Such benefits are called Partial Disability or Residual Benefits.

Usually the definition for partial benefits is the same as the definition for total disability but it is changed to read “….you can perform one or more but not all material duties of ……… occupation.”

Many plans calculate the benefit for a partial disability by using a formula, the goal of which is to pay the same percentage of the total disability benefit as the amount of reduction in your income. For example: If you are partially disabled and your income is only 30% of what you used to earn (a 70% reduction in income), the partial disability benefit will pay 70% of what would have been paid in the event of a total disability. If you were supposed to receive a benefit of $3,000 a month, you would receive an amount equal to 70% of $3,000 or $2,100.

Rehabilitative Training Or Employment

In an effort to encourage people to go back to work, most long term disability plans provide benefits for rehabilitation. The benefits vary dramatically from plan to plan, but all of them require that the insurance company approve the rehabilitation program before you start it. If this applies you and you are considering returning to work, see Return to Work-Impact on Benefits.

Recurring Disabilities Provision

Most disability plans contain a provision to determine how a second claim is treated if it comes shortly after the disabled person has returned to work. This provision determines whether the second claim is a new claim and requires a new Elimination Period or whether it is considered part of the first claim and benefit payments start immediately.

The typical provision will state that the second claim is a continuation of the first claim if:

  • It is due to the same cause as the first claim, AND
  • The time between the two periods of disability does not exceed a period of months which varies by policy but is generally six months.
  • For example, if your policy has a recurring disabilities provision: If you return to work and find that after four months, you can't continue. The reason you have to stop working again is the same diagnosis that originally disabled you. The new claim will be considered to be part of the first claim. Your benefits will start immediately. On the other hand, if you were disabled due to heart problems and return to work, but the next week you get hit by a car, the second disability is a new claim and the Elimination Period must be met all over again.

Waiver Of Premium

Most plans waive any premiums while you are disabled.

If your policy contains a waiver of premium clause and you become disabled, continue to pay the premiums on time. It is advisable to write on the check: “Contested premium, should be on waiver.” Keep doing this until the insurance company confirms the waiver in writing.

You can always get a refund for premiums you didn’t have to pay. It’s not so easy to have a policy reinstated once the company knows it is facing a claim.

Riders: Guaranteed Insurability, Social Security Offset, Cost Of Living

Several optional riders (additions to the policy) are available with an individual disability income policy for an additional premium.

Guaranteed Insurability

This rider guarantees that the amount of the disability benefit will rise as your income rises.

The rider usually provides several specified times during the existence of the policy when the insured will have a right to increase the amount of the benefit regardless of health condition. For example, every two or three years, this rider may allow the insured to purchase an additional amount of benefit such as $200 or $500 per month. Many policies will allow you to advance an increase date in the event of a named life event, such as marriage or birth of a child, or purchase of a home.

Although the insurance company must offer these increases regardless of the insured’s current health condition, the insured must generally show that income has risen enough to justify the additional benefit.

The charge for the increased benefit will be based on the insured’s age at that time of the increase.

There is usually a maximum amount of benefit and/or number of purchasing opportunities under the rider.

Social Security Offset

A Social Security Offset rider protects you in case you don’t qualify for Social Security Disability Insurance (SSDI). While a person collecting benefits under a private disability policy may also collect under SSDI, the definition of disability to qualify for SSDI is much more restrictive than most Disability Income policies

The rider is subject to the same waiting period as the policy to which it is attached. After the waiting period, the rider will pay what you would receive from SSDI if you received SSDI benefits.

Once Social Security approves the SSDI claim, the offset rider stops paying benefits. If SSDI is never approved, you keep collecting. Of course, you have to make a good faith application to obtain SSDI.

To learn more, see: Social Security Disability Insurance (SSDI).

Cost of Living

This rider provides for a set percentage increase in benefits, usually annually after the first year of disability, to approximate the rise in the general cost of living.

The amount of increase is frequently tied to the Cost of Living Index with a maximum cap of anywhere from 4 to 15%.

Insurance Company Financial Situation: How To Check

It doesn't do you any good to purchase a Disability Insurance policy if the insurer won't be able to pay the benefit, or if it goes out of business.

You can check the company's financial situation through third party rating agencies such as AM Best (, Standard and Poor's ( offsite link) or ( offsite link), formerly Weiss Ratings.

Check with your state insurance department to find out whether there have been complaints about the company, and if so, what they are. For contact information for your state agency, see: offsite link

Also check to see what, if anything, is known about the company at your local Better Business Bureau. For contact information, see:

Taxation of Benefits

Whether or not your benefits are taxable depends on how the premiums were paid.

If you pay the premiums with after tax dollars (you don’t deduct the premiums for tax purposes), the income is tax free.

If you deduct the premiums, the income would be taxable.

What To Expect When Applying For Disability Insurance

When applying for individual disabilty income insurance:

  • You will be asked to copmlete an application which includes questions about both your current health status and health history.Questions must be answered truthfully. Even if a policy is issued without checking on your answers, a future claim may be denied if your answers are false. THERE IS NO NEED TO VOLUNTEER INFORMATION THAT IS NOT REQUESTED.
  • A medical exam will likely be required.
  • Your doctor will be requested to supply your medical history.

There is no standard for how long the process takes. It could take weeks or even months. You can help speed the process by alerting your doctor that a request is coming, and stay on top of the doctor's office to be sure the necessary paperwork is completed.