Disability FAQs

What is Disability Insurance and who needs it?
Disability insurance is a form of insurance designed to protect earned income that would cease in the event of disability. Most employees in New York State are covered by Workers Compensation for occupational related disabilities and New York State Disability Benefits Law (DBL) for non-occupational disabilities. These coverages provided limited benefits.  There are some exceptions to who is covered by Workers’ Compensation and NYS DBL. Self-employed individuals and especially those with higher incomes generally need to purchase their own disability insurance. In addition, many municipal employees need to purchase disability coverage if they are not covered by NYS DBL. Most people believe they would be covered by Social Security disability in the event they were disabled. Even if they qualify, it does not protect them until after they have been disabled for more than six months with a disability that is expected to last beyond one year. It is important every few years to review what benefits are available to you from all sources to replace earned income in the event you become disabled.

How much Disability Insurance do I need?
While this varies from individual to individual, one rule used by those in the insurance industry is to obtain disability insurance in an amount that together with benefits from all other sources would replace 60-65% of your pre-disability earnings. The tax treatment of disability benefits can affect how much disability insurance you need.

What is Residual Disability Benefit?
Residual Disability Benefit is a partial disability benefit. It is usually designed to pay benefits if you are unable to perform one or more of the substantial duties of your occupation or are unable to perform them for as much time as is normally required, and therefore suffer an income loss. Most residual disability benefit provisions pay a percentage of your total monthly benefit based on the percentage of your income loss

What is Cost of Living (COLA)?
A Cost of Living benefit generally indexes (increases) your disability benefits while you are disabled to help offset the effects of inflation. COLA benefits are tied to the government standards of the Consumer Price Index (CPI). Most COLA benefits will index the disability benefit after you have been disabled for a specific period of time. The benefits are generally indexed to a maximum percentage.

 

What is meant by a "Waiting Period" or "Elimination Period"?
A Waiting Period or Elimination Period is like a deductible to a disability claim. The waiting period or elimination period is the length of time at the beginning of a disability claim for which no benefits are payable.   After the waiting period, benefits are generally paid on a monthly basis.  Generally the longer the waiting period, the lower the premium. It is important that you make sure the waiting period you select is appropriate for your financial circumstances. Waiting period selection should take into consideration the possibility of recurrent disabilities for chronic conditions and the provisions of your specific policy.
What is meant by a "Benefit Period" or "Plan"?

A Benefit Period or Plan is the maximum period for which benefits would be paid for any one disability. Frequently, the benefit period is a stated number of years (e.g. Five years for accident and sickness). Some plans call for benefits to a specific age (e.g. To Age 65). Frequently benefit periods reduce for disabilities commencing after a certain age. For example, a benefit period to age 65 may provide two years of benefits for disabilities that start between age 63 and 70.

What does SSNRA mean?

SSNRA means Social Security Normal Retirement Age, the age set by federal law at which full Social Security retirement benefits are payable.  For individuals born after 1943, this is later than age 65.
Are the disability insurance premiums tax deductible?

Whether or not premiums are tax deductible depends on how the premium is paid. If benefits are paid for by a professional corporation, for example, the premiums can be tax deductible. Generally, premiums paid by individuals are not tax deductible while, in this circumstance, disability income benefits would be tax-free to the insured. For more information concerning tax deductibility, please contact our customer service department and/or your tax or legal advisor.
Are the disability insurance benefits subject to income tax?

Generally benefits received from disability insurance paid for by individuals with after-tax premium dollars are received income tax free. If premiums were paid for and deducted by a Professional Corporation (PC), the benefits would be subject to FICA and Medicare withholding as well as income tax. For more information about taxability of disability payments, please contact our customer service area and/or consult with your legal or tax advisor.

My employer carries disability income insurance on me. Should I consider buying a policy on my own?
There are many reasons why it may be in your best interest to consider buying a policy on your own. For example, if you ever change employment, your current coverage would likely end, and your new employer might not provide disability coverage.  And at that point, if you have had an unforeseen health issue arise, you may not be insurable and may be unable to obtain personal coverage.  Also, employer-provided coverage is generally capped at a certain amount of benefit per month.  For many professionals, this can leave a significant amount of income uninsured.

What is Waiver of Premium?
A Waiver of Premium Benefit waives payment of premiums during your disability claim, after six continuous months of disability for which benefits are payable, while keeping the policy in force.  Some policies provide waiver of premium for a disability commencing before a specific age (e.g., Age 60).

 

A Guaranteed Purchase Option is an optional benefit that allows you to increase your monthly benefit at certain specified dates regardless of future medical insurability. The GPO will allow you to increase on the second, fourth, six and eighth annual renewal of your policy.  This is an important option for a young professional to consider, as his or her income is likely to rise.  This option guards against the possibility of a future health issue preventing the insured from adding more coverage to protect increases in income.