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For insurance purposes, disability is typically defined as the inability to work due to an illness or injury, although the definition varies among different insurance companies and policies. Disability policies provide a specific benefit that is intended to replace part of your income should you be unable to work due to an illness or injury. Don’t confuse disability insurance with workers’ compensation - a benefit that employers are required to carry in most states for employees who are injured on the job.

The two main types of disability insurance are short-term and long-term.

Short-term disability insurance replaces a portion of the policyholder’s salary for a short period of time - typically from three to six months following a disability. The specific percentage of replaced income varies with different policies.

Long-term disability insurance coverage typically begins after the policyholder is disabled and unable to work for at least six months. The coverage period can extend for a specific number of years or until the policyholder retires or turns 65, depending on the policy selected and the type of disability. Though policies can be costly, being disabled for a long period of time could be financially devastating.

Some employers offer disability coverage to their employees, however, these policies are typically for a short period of time. Check with your employer to see if you have coverage, and if so, how long the benefits will last. You may decide that you need to supplement this coverage.

Here are some tips for consumers to keep in mind if they are considering buying disability insurance:

• Determine how much money you will need to cover all of your critical expenses (such as mortgage payments/rent, food, utilities and transportation) should you become disabled. Unless your investments and savings can maintain your current lifestyle for several years, you may want to consider purchasing long-term disability insurance, which typically covers about 60 percent of your previous income. The percentage of income that is replaced varies depending on the policy you select. You will also have to decide how long you want the benefits to last.

• Be aware that having a pre-existing health condition, such as a back problem or heart ailment, coupled with your age, could affect whether you’ll qualify for long-term disability insurance and at what cost. You may be subject to a higher premium or be “excluded” completely from buying a policy based on your medical history.

• Typically, younger, healthier individuals pay lower disability premiums. If you buy disability insurance at a young age and can get a “non–cancelable” policy, your coverage can’t be cancelled and the premiums can’t be raised once your medical exam has been approved and your policy issued, provided that your premiums are paid on time.

• While a “guaranteed renewable” policy can’t be cancelled, its premiums may be increased on the anniversary of the policy or at the time stated in the policy.

• Most long-term disability insurance specifies a waiting period, such as 90 days, 180 days, or one year before benefits are paid. The longer the waiting period you select, the lower the premium.

• If you have disability insurance and become disabled, you’ll need to fill out a claim form. Keep in mind that many insurance companies require supporting documentation from physicians to verify whether and to what extent you are disabled, before paying a claim.

• Find out if your employer offers a group short-term and/or long-term disability plan. Typically, premiums from group plans are less expensive than individual policies. Also, if you change jobs explore whether you can convert the group disability coverage from your previous employer to an individual policy.

Having knowledge about disability insurance before an accident or serious illness occurs can help ease financial pain during recovery. “Although buying disability insurance may be important to one’s financial security, consumers must understand exactly what they are buying and how disability insurance works,” said Maine’s Acting Insurance Superintendent Eric Cioppa. “Before purchasing any disability policy, consumers should check with the Maine Bureau of Insurance to make sure the company offering the coverage is legitimate, financially solvent, and authorized to do business in Maine.”

For more information about disability and other types of insurance, consumers can visit the National Association of Insurance Commissioner’s (NAIC’s) consumer education Web site, Insure U, at www.InsureUonline.org. The NAIC is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia, and the five U.S. territories. You can also find the Insure U link as well as other consumer information on the Maine Bureau of Insurance Web site at www.maine.gov/pfr/insurance/consumer/.

The Bureau of Insurance is part of the Department of Professional and Financial Regulation which encourages sound ethical business practices through high quality, impartial and efficient regulation of insurers, financial institutions, creditors, investment providers, and numerous professions and occupations for the purpose of protecting the citizens of Maine. Consumers can reach the Bureau through its web site at www.maine.gov/insurance; by calling 800-300-5000 in state; or by writing to Bureau of Insurance, 34 State House Station, Augusta ME 04333.

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Last Updated: April 7, 2009 2:34 PM