Alternatives to Buying Disability Income Insurance

Alternatives to disability income coverage include self-insuring against the possibility of a disability, purchasing a life insurance policy with a waiver of premium benefit or rider, purchasing critical illness insurance, and being able to qualify to receive Social Security disability income payments.

The only real alternative to disability income coverage is to self-insure against the possibility that an individual will become disabled and unable to work. Any financing vehicle that allows individuals to withdraw funds as needed and without significant tax penalties or surrender charges is an appropriate place to put the funds that individuals may use to provide an income in the event of a disability.

Another alternative that may provide some assistance during a period of disability is a life insurance policy with a waiver of premium benefit or rider. In the event of a permanent disability, this benefit will pay the premiums due on the life insurance policy. Not only is this a financial benefit in that the disabled policyholder does not have to pay the premiums, it is also a benefit in that it keeps the policy in force. A disabled policyholder may find that he or she is unable to purchase additional life insurance after becoming disabled.

Another possible alternative to disability income insurance is critical illness insurance. This type of insurance pays a lump sum benefit to the insured individual upon the diagnosis of a covered critical illness. Most policies of this type cover a number of different critical illnesses including strokes, heart attacks, certain cancers, kidney failure, and Alzheimer’s disease.

Finally, a disabled individual may qualify to receive disability payments from Social Security. The definition of disability the government uses is a quite conservative one which requires the individual to have a serious and expected long-term or permanent disability to qualify for benefits. Generally, for purposes of receiving social security disability income benefits, the individual must be unable to engage in any substantial gainful activity by reason of a mental or physical disability. The disability must be expected to end in death or to last for a period of at least twelve months. In other words, to receive disability income benefits from Social Security, individuals must be disabled to such a degree that they cannot work at any job, not just be unable to work at their previous job or profession.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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