Disability Insurance would be more appropriately referred to as income replacement insurance or disability income protection. Have you ever thought about how much you depend on your regular income? How long could you maintain your present standard of living without your current income? How would you pay for your car, your mortgage or rent and other living expenses if a serious illness or injury prevented you from earning your regular income for period of time?

For almost everyone who works for a living, to be disabled and unable to earn an income, even for a short time, would cause not only financial stress but would also extract a great emotional toll that could hinder physical recovery. Income replacement insurance is an important tool in safeguarding your assets, maintaining your financial stability and providing for daily living expenses.

A disability income insurance policy is a contract between you and an insurance company. Disability income protection is designed to replace a portion of the income lost as a result of a covered illness or accident. You pay a periodic premium, and in exchange, the insurance company promises that if you cannot work because you are disabled, it will pay a percentage of your lost income. There are many types of contracts available, as you can well imagine. These contracts can range from Short Term Sickness and Accident plans to longer term Non-cancelable Loss of Earning plans and Business Expense Plans for self employed and small business owners.

Most people own some life insurance because they are aware of the risk of dying and the associated expenses. Far fewer have considered the impact that a prolonged illness or debilitating injury could have on their lives. The fact is, disability is a far greater risk than dying for people between the ages of 18 and 55. How common is disability? According to the National Safety Council more people lose their home through disability than from fire and death. In an average year, 1 in 18 cars are involved in a serious accident, 1 in 117 people die, 1 in 219 homes catch fire, and 1 in 14 people become disabled for some period of time. Yet, we insure our cars, our homes, even our lives at a much greater rate than we insure our ability to earn an income.

How much income protection should I consider and what type of plan should I choose? The first question may be answered by how much protection the insurance companies will allow you to purchase and how much you can afford. Most plans limit benefits to an amount from 50% to 60% of regular earned income. The specific provisions of a policy greatly affect the amount of premium required to purchase a specific policy.

The Waiting Period or Elimination Period is the length of time an insured person must wait after becoming disabled before benefits start accruing. Common available periods range from 60 days to 180 days for individual long term policies. The shorter the waiting period, the higher the premium.

The Benefit Period is the length of time the policy will continue to pay as long as the insured remains disabled. Long term plans range from 5 years to age 65 and some plans include a Lifetime benefit. Again, the longer the benefit period, the higher the premium.

What is the definition of disability in the policy? Does it require total disability from any occupation or does it take into account education, experience and past earnings in determining if an insured is qualified to resume work? The more liberal the definition, the higher the premium as a general rule.

Cost will obviously be a major factor in the type of plan you choose. You may decide to select a smaller benefit that begins sooner instead of a maximum benefit. You may select a potential benefit period of 5 years instead of a potential benefit to age 65 due to the difference in cost. Totally confused at this point?