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Why small words take on such big meaning in the context of disability insurance - II

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Last time, we began discussing how those who make the bold decision to become their own boss will likely find themselves needing to make a host of important decisions straight away, including one relating to disability insurance.

Specifically, we highlighted the need for newly minted sole proprietors to carefully research the language of any prospective disability policy so they know exactly they'll be getting should the unimaginable occur, including whether it's an "own occupation" policy or an "any occupation" policy.

Own occupation policies: Considerations

If an entrepreneur is considering an own occupation policy, meaning one in which a person is considered disabled whenever they are left unable to perform the daily activities of their chosen profession, they will want to the following points in mind.

In general, this type of disability policy is secured by specially trained or highly skilled professionals -- physicians, attorneys, engineers, dentists, etc. -- and designed to maintain their typically higher salaries. Of course, with these higher policy payouts come higher premiums.

Those mulling the purchase of an own occupation policy should also be aware that the application process can prove quite rigorous, requiring the applicant to list their specific daily tasks in great detail and the percentage of time necessitated by each.

Any occupation policies: Considerations

If an entrepreneur is considering an any occupation policy, meaning one in which a person is considered disabled whenever they are left unable to perform the daily activities of their chosen profession, and there are no other suitable employment opportunities, they will want to the following points in mind.

The determination as to whether a policyholder receives benefits is based on their ability to secure gainful employment despite the injury or illness, meaning an occupation in which he or she could earn a minimum of 60 percent of their prior monthly earnings.

In addition to taking such factors as education, experience and age into consideration, the insurer will also consider the job market in the policyholder's particular region when making a determination about the availability of gainful employment.

As you might expect, the premiums for any occupation policies are typically lower than those for own occupation policies.

Source: The Investment FAQ, "Insurance-Disability," Richard Reich, February 2016

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