Disability Income Insurance

Loss-of-income or disability-income contracts usually are sold in units of $100 of monthly income and provide protection for disability caused by accident, sickness, or both. These contracts may protect an individual at all times or may cover only nonoccupational-related injuries or sicknesses. In almost all cases, the amount of monthly income an individual may purchase is limited to from 60 to 80 percent of his gross pay. Because the income benefits payable under one of these contracts is not subject to income tax and because malingering could result when an individual is better off financially when disabled than when working, benefits equal to gross wages are rarely available. 

When disability is caused by accident, benefits often are paid from the first day of disability, although many policies impose a waiting period of from one week to as much as one year before benefits are paid. In sickness coverages, a waiting period of at least one week usually is imposed. 

Many disability income contracts provide for lump sum payments in the case of accidental death or dismemberment. A principal sum is paid in case of death or for certain multiple dismemberments, while one-half or one-fourth of the principal sum is paid for specified dismemberments. 

Some contracts also provide for the payment of specific sums for certain losses. For example, $500 would be paid for a fractured skull, $400 for a dislocated hip joint, or $300 for the loss by removal of one or more entire toes. When payment is made under the specified losses provision of these contracts, disability income usually is paid for only a short time, if at all. Finally, some disability contracts also include a surgical and medical expense schedule to indemnify the insured either partially or totally for medical expenses resulting from the accident or illness. 

Life insurance Riders 

Disability income coverages are also available as riders to life insurance policies. The cost of such riders is, in fact, often lower than similar coverage purchased separately because of expense savings and because the problem of adverse selection is not as great. Two types of benefits are provided.