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COMMON DEFINITIONS

Own Occupation Disability Insurance

Own Occ disability insurance provides benefits if you cannot perform "the material and substantial duties" of your own occupation - even if you can perform those of a different occupation.

While this type of disability coverage may not be the best choice for everyone - it may not, for instance, be the best choice for many business people or office workers - it can be especially appropriate for professions that rely on highly sophisticated
physical skills.

How much will be paid?

With this type of coverage it’s particularly important to find a policy that can grow with you over time. That’s because the amount of disability coverage you can buy is determined by computing a certain percentage of your salary, and in many cases that amount cannot change. In other words, many disability insurance policies only provide coverage for the amount determined at your initial purchase - no matter how much your income may increase in the future.

In such a situation, your coverage can quickly become inadequate. For example, let’s say you’re earning $100,000 a year when you first buy a disability policy, and you qualify for disability coverage of about $60,000 a year. That makes sense at that point in your life. However, as your income increases over the years, your coverage will remain the same. So if you were to become disabled 10 years later, when you were earning $175,000, your $60,000 of disability coverage would represent only 34% of your income!

The Future Purchase Option Rider (FPO): Guarantees (subject to the published issue and participation limits) your right to purchase additional coverage every year until age 55, based on your current income - with no further proof of good health required.

The Residual Disability Rider: If you can still work at your “own occupation” but because of your disability you don’t earn as much, or you can work only part-time, this rider can pay you an income proportional to your loss.

Cost-of-Living Adjustment (COLA)**: Helps you stay up-to-date by increasing your coverage annually after your disability has lasted for 12 months. Fixed-rate or variable COLA options help you keep up with inflation - remember, at a 4% inflation rate, a $2,000 monthly disability benefit will pay only $624 worth of bills 20 years from now, if your coverage doesn’t change.

When you’re comparing policies, make sure the comparison is fair. Here is a list of features we offer in our high-quality contracts that you should check for when you’re comparison shopping:

Waiver of Premium During Disability
This provision takes effect as soon as the waiting period is satisfied and refunds all premiums paid from the onset of total or residual disability.

Choice of Waiting Period
Disability benefits seldom begin immediately. The waiting period functions like a deductible in other forms of insurance; in other words, after the disability occurs, a brief period must elapse before benefits become payable. Standard Life offers several choices of waiting periods - 60, 90,180 or 365 days, or more. The longer the waiting period, the lower the cost of your coverage.

Reimbursement for Rehabilitation

Good policies, such as Standard's, include payments to help cover the cost of an approved, mutually agreed-upon vocational rehabilitation program - in addition to your regular disability benefits.

A Guarantee of Renewability and Coverage That Cannot Be Cancelled

What good is an insurance policy if it can be cancelled just when you need it most? Or if your premiums can be raised at a time when you can’t qualify for other coverage? To guard against these potential problems, choose a Standard policy - it’s “non-cancellable and guaranteed renewable" as long as premiums are paid.

Tax Considerations***

If you have an ownership interest in a corporation (regular or PC), you might want to have your company pay the premiums for your disability coverage. With a properly constructed plan, the corporation could claim the premiums as a tax deduction, yet those premiums would not be treated as taxable income to you. Keep in mind that the benefits would be taxed as ordinary income to you when you receive them (however, you may be in a lower tax bracket during a disability).

If your corporation pays the premium, it may want to purchase more disability coverage to make up for the loss of benefits through taxes. Or your corporation could choose to provide “tax-free” benefits to selected employees by providing a salary bonus equal to the earned income needed to purchase the disability income insurance with after tax dollars. The bonus is deductible by the corporation as additional compensation and will appear on your W-2. Any disability benefits you receive will be tax-free. Remember, your plan must be established prior to the disability for the tax advantages discussed here to apply.