Comparing Disability Insurance Policies … Disability insurance is a very flexible. There are many types of policies with a variety of features and options, enabling you to design a policy that best fits your needs and your budget. However, because there is no such thing as a standard disability policy, comparing policies can be difficult. To make it easier, it's a good idea to figure out the coverage and features you want before you begin to compare policies, so that you're comparing equivalent policies.

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You can obtain a great deal of information directly from an independent insurance broker, including brochures describing insurance products, policy quotes and product proposals. Read this literature carefully, and ask questions if anything seems unclear. In addition, here are some important things to consider before choosing a disability policy:

How does each policy define disability? …

To make sure your disability claim will be paid when you are sick or injured, it's very important to know how the policy you are buying defines disability. No standard definition of disability exists, so when you're comparing policies, you have to read the policy wording of each carefully. Do you want the policy to pay benefits only if you're completely disabled or if you can return to work part-time? Do you want coverage only if you can't work in your own occupation or if you can't work in any occupation? Do you want coverage only for a catastrophic illness or injury?

What features does each policy offer? …

Disability policies offer a variety of base and optional features. Is the policy you're considering guaranteed renewable? How long is the waiting period before you can begin collecting benefits? Is the coverage short-term or long-term? What optional benefits can you add? For example, can you add a cost-of-living rider to adjust the benefits if inflation rises? Does the policy offer special provisions (e.g., for rehabilitation coverage) or exclusions (e.g., for pre-existing conditions)?

Comparing prices and policy benefits? …

Once you've located two or more equivalent policies that have the features you want, compare their premiums. Is one policy better value? If one policy is more expensive than the other, can you find an explanation for the difference? Maybe the more expensive policy provides more base coverage, or perhaps the cost of additional riders is higher. It's possible that you overlooked an important provision.

How solid is the insurer and do they have a good reputation? …

As we have witnessed here in Australia the demise of HIH it is important to select an insurance company that has a sound reputation and is in a strong financial position.

There are companies called rating agencies who rate insurers on their financial strength, profitability, and claims-paying ability (such as Standard & Poor and Moody's).

Choose the policy that best suits your needs and your budget …

Once you have compared various disability insurance policies, you can then decide which one to purchase. You will have to spend some time weighing the advantages and disadvantages that each policy offers before you can decide which one is right for you. An independent insurance broker can greatly help and advise you in this regard.

Often you will find that one policy is far superior to another. Since disability insurance can be expensive, the price of each policy is always a factor, but be careful not to buy a policy that's lacking in protection benefits because it's cheaper. Quality of protection coverage is as important as the price, which you will find out if you ever file a disability claim.

The final decision always rests in your hands and a professional opinion can be valuable. Your insurance professional may be able to detect hidden weaknesses in a policy, explain confusing terms or provisions, and help you consider the advantages and disadvantages that each policy offers. Remember it is not necessary to let yourself be pressured into buying a policy you don't want or can't afford.

Waiting Periods …

Once you become disabled and apply for benefits by way of a clam, you have to wait for a certain amount of time after the onset of your disability before you receive benefits. This amount of time know as the waiting period can range from 7 to 360 days depending upon your nomination when you apply for the policy. The most common waiting period is between 14 to 28 days.

You can purchase personal disability insurance policies that guarantee lifetime coverage, but they are very expensive. Most people buy either short-term policies (benefits are paid for up to two years) or long-term policies (benefits are paid for a few years or up until age 65).

Your decision should be based upon two considerations:

1) How the waiting period affects the premium you pay
2) How long you could live off your savings without receiving disability benefits.

How does the waiting period affect the premium you pay? …

As a general rule of thumb … as the waiting period increases … the policy cost decreases.

For example, a policy with a waiting period of 7 days costs more than one with a waiting period of 28 days, often substantially more. Why? Because statistically it's more likely you'll recover and go back to work within 28 days rather than 7 days. Therefore the insurance company is more likely to have to pay a claim if your elimination period is shorter.

How long could you live off your savings without receiving disability benefits? …

Before choosing a waiting period, you should consider how long you could live off your savings if you became disabled and were unable to work and earn a living. If you have plenty of money saved up or have other sources of income, you might want to choose a longer elimination period. Alternatively, if you have little or no money saved up, and have no other income, you would be wiser to choose a shorter waiting period.

In considering the premium cost against the coverage you need, you should choose the shortest waiting period you can possibly afford. When you are considering your options, keep in mind that in most cases you may not receive an insurance payment until you are owed a month's benefit. For example, a one month waiting period means that you will probably be out of work for two months before you receive any money, so if you choose a one month waiting period, you should have enough money saved up to support yourself for two months instead.