Rarely will you find an individual on disability claim that believes they bought too much disability insurance. Typically, the opposite is true, the disability policyholder wishing they bought more coverage, not less. During a disability claim it is common for expenses to increase while income decreases.
Issue and participation tables are used in the individual disability insurance market. The insurance company will list how much coverage they are willing to issue a client. The issue limit and participation limit may be the same, or less, amount. The participation limit is the total amount of coverage the insurer will participate in at time of application.
Issue limits are based on several factors such as earned income and occupation, and whether the applicant has other disability coverage such as through an employer. The clients occupational rate class will determine the issue limit in most cases, the riskier the occupation the less coverage will be available.
Disability insurance companies also have “select occupations” that are treated differently than other occupations. A new doctor or attorney as an example can likely buy more coverage than they typically could have based solely on income.
If a client has other disability insurance the new insurance company will want to know if the client pays for a portion or all of the other coverage, and whether the other coverage is a group or individual policy.
Participation limits follow similar rules as issue limits, but some disability insurance companies offer higher participation limits than issue limits. This will allow a client to use multiple insurers until the participation limit is reached. Example: An uninsured doctor qualifies for $30K a month in individual disability coverage. Based on their occupational rate class let’s say there are two insurers that have an issue limit of $20K a month but will participate up to $30K a month. The doctor would submit an application to both insurance companies, one for $20K a month, the other $10K a month. The doctor receives $30K a month in disability coverage even though both insurance companies have issue limits of $20K.
Historically speaking, interest rates are very low, and no one knows when they will substantially increase. During a disability, if an applicant is considering living off passive income generated by conservative investments, they may want to re-consider. Conservative investments equal low interest. At 1% return it would take $500,000 to earn a taxable $5K. Instead, a client could buy an extra $1000 a month of disability insurance ($12K a year) for a slight increase in premium.