How does disability insurance work?

If you become disabled, you will begin to receive the benefits laid out in your policy. There is often a waiting period before payments begin, however. Common waiting periods are 30, 60, 90, 180, and 365 days. A few policies are available with a 0-day waiting period but this is only for disabilities that occur from an accident.

Disability insurance policies with a shorter waiting period have higher premiums. If you have the means to pay for typical living expenses for a few months in the event of a disability, you can save money by purchasing a disability policy with a longer waiting period.

For example, the annual premium for a policy with a 180-day waiting period can be less than half the cost of a policy with a 30-day waiting period.

Just as disability insurance policies have different waiting periods, they also have different benefit periods. A benefit period is the duration of time in which an insurance company will provide funds to an individual once he or she becomes disabled. Benefit periods can include one year, 2 years, 3 years, 5 years, 10 years, to age 65 or age 67, or even the insured’s lifetime. Not all insurance companies offer all of these options.

Disability benefits will continue as long as you are disabled according to the policy’s provisions. The insurance company will most likely require proof of continued disability if the duration is long-term. The benefits from a disability policy cease once you are no longer considered disabled.

The longer your benefit period, the higher the premium. For example, the premiums for a policy with a 2-year benefit period may be 40-50% less expensive than a policy with a benefit period that goes until age 67.

Disability Insurance Underwriting Basics

As you probably know, here at Quotacy our world revolves mainly around life insurance. However, life insurance and disability insurance are similar in the way that they both are made to protect income.

» Compare: Term life insurance quotes

Life insurance protects your loved ones from financial difficulties in the event of your death and disability insurance protects you, and in turn your loved ones, from financial difficulties in the event of a disability that prevents you from working. They are not underwritten the same though.

Life insurance underwriting involves mortality risk, basically the assessment of medical impairments and how they can attribute to premature death. Disability insurance underwriting involves morbidity risk, basically the assessment of medical impairments that can result in prolonged disability. As an example, a painful back isn’t going to cause a person’s death, yet back problems are a major cause of disability.

There are three levels of disability insurance underwriting:

  1. Occupation
  2. Medical
  3. Financial


For disability insurance, classifying an applicant in the correct occupation class is critical in determining the proper benefit amount and premium rate. When determining occupation classification there are five major factors:

  1. Job duties
  2. Environment
  3. Income
  4. Stability
  5. Dual occupations

Common questions asked when applying for disability insurance include:

  • What is your typical day like?
  • If you work any manual duties, what are they and what percentage of time do they represent?
  • Do you have ownership? If so, how many employees?
  • Do you work multiple jobs?
  • How many hours do you work?

The table below shows occupation class examples. Higher occupation classes typically perform less manual duties.

A Shipping and receiving clerk, press worker
2A Building inspector, medical assistant
3A Administrative assistant, bookkeeper, graphic designer
4A Landscape architect, paralegal
5A Pharmacist, small animal veterinarian, computer engineer
6A Attorney, CPA, engineer

Your job title doesn’t necessarily automatically put you into a certain classification. Two people can have the same job title, but different occupation classes. Consider the table below.

Who would have the higher classification?

Jamie – President of Johnson Construction Kelly – President of ABC Construction
  • 75 employees
  • $100,000 annual income


  • 70% office planning, managing, other admin
  • 25% meeting with clients/prospects
  • 5% visiting job sites
  • 6 employees
  • $30,000 annual income


  • 80% supervision at job sites
  • 20% office planning, managing, other admin

Jamie’s everyday duties include little to no manual labor, so Jamie would be in a higher occupation class because Jamie is at less risk of developing a disabling impairment such as a sprained back.


An applicant’s medical history is crucial to underwriting disability insurance. Common medical conditions such as back disorders, stress/ anxiety, or high blood pressure are unlikely to cause an application to be declined, but you may have higher premiums or a reduced benefit amount. Certain medical conditions, however, may result in a decline of coverage. If you have been diagnosed with any of the following medical conditions, be aware that you may not be able to obtain coverage.

  • Bipolar disorder
  • Cancer
  • Cirrhosis
  • Chronic fatigue
  • Emphysema
  • Fibromyalgia
  • Juvenile diabetes
  • Kidney disease
  • Heart attack
  • Hepatitis C
  • Multiple sclerosis
  • Pancreatitis
  • Rheumatoid arthritis
  • Stroke
  • Systemic lupus

Not all disability insurance carriers underwrite the same, so it doesn’t hurt to apply. The severity, treatment, and amount of time since you have been diagnosed are all factors the underwriters will consider when evaluating an application.

Sometimes instead of declining an application altogether based off the history of a specific medical condition, an underwriter will offer to approve the application with an exclusion rider that states no coverage will be provided for a disability resulting from the specified condition.


Disability insurance helps to replace lost income, so it deems necessary to document the financials of an applicant to determine a benefit amount. Disability insurance will only cover earned income. For example, income from sources other than active work efforts, such as dividends or rental properties, is considered unearned income and is likely to continue accruing even in the event of a disability. So, it may be necessary to prove to the insurance company what your earned income is by providing copies of current and prior years tax returns.

Advantages of disability income insurance:

  • While life insurance protects the family should you die, disability insurance protects the family should you lose the ability to work.
  • Disability insurance helps provide security. It pays a monthly income to help protect the family home, savings accounts, retirement funds and other assets should you become disabled.
  • Monthly benefits are received tax-free.
  • You own the policy and it will stay in place throughout your working years as long as the premiums are paid.

Consider the effects a disability could have on you and your family’s lives, your standard of living, and savings. In addition to helping individuals obtain life insurance coverage, we work every day with people needing disability insurance as well.

Head over to our disability insurance page if you are interested in obtaining a quote. We just need a few pieces of information and then our team will shop the market and provide you with personalized disability insurance quotes with the best options available.

» Learn more: Common Financial Challenges – Belief Versus Reality

Image credit to: stevepb
Source used:
Lynch, Kevin M. and Glenn E. Stevick Jr. Fundamentals of Insurance Planning, 2015.

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