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How to Shop for Disability Insurance

If you read our piece on the top 5 reasons to have disability insurance, you’re probably wondering what to do next. What are the factors to consider when shopping for disability insurance? Let us break it down for you.

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Defining Disability

Disability insurance gives you financial cushion should you find yourself unable to work. Yes, there is federal disability insurance, but it’s not much money. That’s why there’s a market for private disability insurance. It comes in two flavors: one kicks in if you become unable to continue in your current occupation, while the other kicks in if you become unable to do any job at all.

The first kind, own-occupation disability insurance, gives you the most protection. If you have what’s called pure own-occupation disability insurance, you get paid if you develop a disability that keeps you from doing the job you held when you became disabled. Sounds pretty reasonable, right?

By contrast, other forms of disability insurance may cost less, but they’ll also make it harder to claim benefits should you become disabled. Essentially, the bar is higher for what counts as a disability worthy of a pay-out. The insurance company may say, “Just because you can’t continue working as a programmer at your start-up doesn’t mean you couldn’t get a job in the stock room at Target. No money for you!”

This kind of insurance requires you to prove that you can’t find any gainful employment before they will start sending you checks. It’s much harder to prove that you’re unable to secure any gainful employment than it is to prove you can’t do what you were doing before, or what your education and experience qualify you to do.

So, when you’re shopping for disability insurance, you must decide whether you’re willing to pay extra for the benefit of an own-occupation policy, or take your chances on a less expensive “any occupation” policy that will set a higher bar for your disability.

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The Takeaway

Before you buy disability insurance, it’s important to read the fine print to make sure you know what you’re getting. There’s a huge range in what kinds of disability qualify for pay-outs. If you signed up for disability insurance through your employer, it’s a good idea to review the policy carefully. You may need to purchase extra protection on top of what your employer plan offers.

Photo credit: flickr

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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