Designing Your Policy
Building a disability policy involves three main levers that affect both your protection and your premium.
1. The Waiting Period (Elimination Period)
This is how long you must be disabled before benefits start.
- Common options: 30 days, 60 days, 90 days, 120 days.
- Strategy: The longer the wait, the lower the premium. If you have an emergency fund that can cover 3-4 months of expenses, choosing a 90-day or 120-day wait can save you significant money.
2. The Benefit Period
This is how long the insurance company will continue to pay you if you remain disabled.
- Short Duration: 2 years or 5 years. (Cheaper, but risky if you have a permanent disability).
- To Age 65: The standard recommendation. It protects your income until retirement age.
3. Coverage Amount
You generally cannot insure 100% of your income (to prevent an incentive not to return to work).
- Rule of Thumb: Aim for 60% to 70% of your gross income.
- Inflation Protection: Consider a Cost of Living Adjustment (COLA) rider. This ensures your monthly benefit increases with inflation while you are on claim.
Future Insurability Option (FIO)
If you are young or expect your income to rise (e.g., residents, recent grads), add an FIO rider. It allows you to buy more insurance in the future as your income grows, without proving you are healthy again.