Disability insurance is designed to replace a portion of a person’s income if they become disabled and are not able to work due to a serious illness or injury. There are numerous variables involved in a disability insurance plan, however, the key components consist of an income amount that will paid out to the insured individual upon a triggering event.

Individual disability insurance policies will typically allow the policy holder to receive benefits of between 60 and 80 percent of his or her current income. Because the insured on an individual disability insurance policy usually pays the policy premiums out of pocket, benefits from these plans are generally received free from income tax.

In addition, there is also a period of time associated with how long the benefits will be paid out, as well as a waiting period (also referred to as an elimination period) for how long the insured must wait before the benefits from the policy begin to pay.


How the Benefits Are Paid Out

When considering a disability insurance policy, it is important to understand whether the benefits will be paid out based on “own occupation” or “any occupation,” because the difference between the two can be substantial.

If the benefits from the policy are paid based on own occupation, it means that you will receive benefits if you are unable to perform the duties of your own current occupation. Therefore, if you are a surgeon, for example, and you are no longer able to perform surgery based on a qualifying illness or injury, then you can receive benefits from the policy – even if you are able to perform the duties of other types of jobs.

A policy that pays benefits based on any occupation, however, means that the insured must be unable to perform the duties of any job in order to receive benefits. Therefore, using the example above, if you are not able to perform the duties of being a surgeon, but you are able to work at another type of occupation, then you will not receive benefits from the disability insurance policy.

When you own an individual disability insurance policy, the plan will remain with you – as long as you continue to pay the policy’s premiums. Therefore, you can continue to maintain the peace of mind in that you will have an income should you suffer an unexpected illness or injury and be unable to work and earn an income on your own.