One of the most devastating life events that can occur is a disability. Not only can there be a huge financial bill to pay, but there is also the loss of income to consider. What would you or your family do if you were seriously injured in an accident and were hospitalized for the next two months? Worse yet, what if the disability were permanent? The best way to avoid this potential disaster is to have disability insurance.

Even if your employer provides you with disability coverage, it's vital to examine the terms and conditions of that coverage, since it may not provide you with adequate coverage to meet your needs.

If you couldn't work, how long could you continue to pay your bills? If whatever employer-provided and government-provided coverage you have is inadequate, you may need to provide yourself with private disability coverage. Here are guidelines designed to ensure that you are adequately covered.

Planning for the worst-case scenario
Many of us have life insurance, however very few of us have long-term disability coverage. Yet according to statistics, workers are more likely to sustain a long-term disability (one lasting longer than 90 days) than die at an early age. Long-term disability insurance is fairly expensive, and people tend to think that they will be protected by workers' compensation or other sources. However, Social Security, workers' compensation, and employer-offered long-term coverage are often inadequate.

Checking on what coverage you do have
Here are some suggestions for investigating the disability coverage you may already have, in order to find out whether it is adequate to meet your needs.

• Employer-provided coverage. If your employer provides long-term disability coverage-which must usually be paid for by the employee-it's a good idea to buy it. The premiums are probably discounted from what you'd pay for a private policy. However, take a good look at what the employer-offered policy covers, and buy a private policy if you decide you need it. Many employer-provided group policies limit either the term of the coverage or the amount of benefits paid. For instance, benefits may last only a few years, or benefit payments may represent only a small part of salaries. Therefore, it's important to check on the following:
  • How long does the disability coverage last?
  • How much is the benefit?
  • What percentage of your income are you covered for?
  • Who pays the premiums?
  • If you receive bonuses or commissions, are these covered by the group policy? If not, and if bonuses or commissions make up a substantial part of your income, you'll probably need supplemental coverage.
  • What is the definition of disability in the group policy? Own-occupation, any occupation, or income-replacement? (Please see the discussion of these three terms in the section on private policies.)
• Governmental coverage. Worker's compensation covers injuries that happen on the job. Benefits vary widely from state to state, since benefit amounts depend on state provisions. The average weekly maximum is about $450, while the average weekly minimum (where there is a minimum) is $90. Most states pay benefits for the employee's lifetime in cases of permanent total disability. To get details on worker's comp benefits, contact your state's Department of Labor.
  • In addition to the requirement that an injury be work-related, the payments you would receive under worker's compensation may be inadequate.
  • Veterans whose disability is related to a service-related injury may be eligible to receive disability benefits in certain states. If you are a veteran, find out whether a disability fund exists in your state.
  • Social Security provides long-term disability coverage. However, more than half of the individuals who apply for Social Security disability are denied coverage, and the system leaves many gaps. Further, the payment amounts-from $500 to $2,000 per month--may be inadequate for many individuals.

What to look for in a private policy
If you decide you need supplemental coverage, here are some things to look for in a private policy, as well as some suggestions for getting the most for your money.

• Be ready to prove your income level. A disability insurance company will usually not cover you for more than 60% of your income. Look for a policy that provides coverage for at least this level. When you shop for a disability policy, be ready to prove your income level.
• Watch out for the definition of disability. The definition of disability in a policy is extremely important. It tells you under what circumstances you will qualify to receive benefits.
  • Own-occupation coverage pays benefits if you can't work at your chosen field-e.g., attorney or teacher. Own-occupation policies are the most expensive type of disability coverage because they provide the broadest coverage. (If you cannot perform the duties of your own occupation, you can take a job in a related field, make a decent income, and still collect the benefits.)
  • Any-occupation coverage pays benefits if you can't work at any occupation for which your education level and training has prepared you. Thus, if you can no longer perform the duties of a nuclear physicist, but you can teach physics at college level, you will not receive benefits.
  • Income-replacement policies , which are less expensive than own-occupation or any-occupation, replace whatever portion of your income you are no longer able to earn.
• Waiting period. The longer the waiting period before benefits kick in, the less your premium will be. If you have adequate sick leave, short-term disability, and an emergency fund, and can support a longer waiting period, choose a policy with a longer waiting period. Waiting periods can last as long as 730 days.
• How long will coverage last? It's a good idea to get a benefit period that lasts until age 65, at which point Social Security payments will begin. Be aware that many policies cover you for only two to five years, an inadequate period. Unless you are so young that you haven't yet had time to qualify for Social Security, a policy that provides lifetime benefits, at costly premiums, is generally not worth it.
• Residual benefits. If you are able to work only part-time instead of your previous full-time hours, will you receive benefits? Unless your policy states that you are entitled to residual benefits, you won't receive anything unless you are totally unable to work. However, residual benefits may be added on as a rider in some policies.
• Non-cancelable versus guaranteed renewable. The difference between these two terms is very important. If a policy is "non-cancelable," you will pay a fixed premium throughout the contract term. Your premium will not go up for the term of the contract. If it is "guaranteed renewable," your premiums could go up.

Riders and options
These are all additions to policies, at a further expense to you.

• Increasing Coverage. An option to increase coverage gives you the ability to buy more coverage without being turned down for health reasons. You will pay about 10% of your premium to have this option.
• Cost-of-living. The cost-of-living rider, which can add 20 to 40% to your premium, pays you increased benefits after you become disabled.
• Social Security. If you qualify for Social Security disability, the insurer gets to decrease your coverage. Take this rider if it is available. It will save you money on your premium.
• Waiver-of-premium. This important rider allows you to stop paying premiums once you become disabled. Weigh the cost of the waiver-of-premium rider against the cost of continuing to pay the premiums after disability.
• Return-of-premium. This is an option that allows you some cash back if you do not collect on your disability coverage after a certain amount of time. This rider is too expensive-about 50% of your premium. Don't take it.

Check out your insurer
Before buying a policy, check the financial soundness of your insurer. If your insurer goes bankrupt, you may have to shop for a policy later in life, when premiums are more expensive.

Tips to reduce your premiums

• Try to get disability insurance on a low-load (commission) basis. Look at the policies offered by direct sellers such as the Wholesale Insurance Network of Tampa of USAA in San Antonio. (But don't buy insurance from an insurer that doesn't check out as financially sound.)
• If you're young, consider buying an annual renewable disability income policy. This is similar to term life insurance. Then, when you are older an more able to afford the policy, convert to a permanent policy.
• Try to get group coverage from a trade association or other organization you belong to.
• If you're female, look for an insurer that has unisex pricing. Otherwise, women will generally pay higher premiums.
• Investigate discounts that may be available.

In addition to your own coverage, it's important to know what other benefits you might be entitled to from the Government.