Dollars and Sense: Dos & don’ts of disability insurance

Disability insurance covers you when you’re too injured or ill to work, replacing at least part of your income.

If you’re employed by a company, your employer likely provides at least short-term coverage in the form of sick leave. If you’re lucky, it provides long-term disability coverage, too.

If you’re self-employed, it’s all up to you. Chances are that the policy will only cover up to 70 percent of your income (to inspire you to get well and go back to work). The good news is that if you pay for it yourself, the benefits are not taxed. Benefits from a policy paid for by your employer are taxed.

There are a number of things to consider if you need to buy a policy, and it requires some homework on your part to make sure you’re getting what will be best for you down the road.

A short-term disability policy usually will pay you for no more than two years. A long-term policy can pay for many years, usually until you reach the age of 65.

Be careful about the type of policy you buy. A noncancelable policy cannot be canceled unless you don’t pay the premiums. You can renew it every year without being subjected to an increase in premiums.

A guaranteed renewable policy sounds good because you’re also assured that the policy won’t be canceled, but the premiums can rise if they do for others in your class.

Other things to consider as you shop:

“Look for a waiver of premium clause: You don’t have to pay the premiums for the first 90 days after you’re disabled.

“A partial disability rider will let you go back to work part time while still getting some of your disability money.

“Consider whether you want a cost-of-living adjustment in your policy. As the cost of living goes up, your benefit will, too — but you’ll pay higher premiums.

“Check the insurer’s definition of disability. Some will pay if you can’t work at your usual occupation, while others will pay only if you can’t do any work at all.

For free information and publications, check the Federal Citizen Information Center online at www.pueblo.gsa.gov/ or call 888-878-3256.