What Does Disability Insurance Cover? Key Terms, Exclusions and Special Riders

Disability insurance is a type of policy that provides financial protection by replacing a portion of your income if you can’t work due to a disability. But what does disability insurance cover?

First, to get any disability covered, it must last longer than the elimination period. For example, suppose Ryan has an own-occupation policy that provides a $10,000 monthly benefit. It has a 90-day elimination period, and benefits last until age 65. 

If we break it down, you’ll see the 90-day waiting period — that means Ryan has to be disabled for more than 90 days before his policy will do anything for him. 

What would qualify him as being disabled? That’s where the own-occupation rider comes in. Anything that prevents him from doing his specific occupation can count as being disabled, even if he can work a different job. As long as he remains unable to do his duties, the insurance company will pay him $10,000 a month until he returns to work, or if he doesn’t, until age 65. 

What conditions qualify for disability insurance?

Any medical condition the insurance policy contract doesn’t exclude is generally covered as long as it prevents you from working longer than the elimination period. Of course, it depends on whether you have an individual policy or group disability coverage and what your policy includes, but here are some examples of what long-term disability insurance covers:

• Broken bones
• Cancer
• Chronic back pain (for the dentists out there)
• Nerve damage (hand tremors could disable a surgeon)
• Fatigue
• Anxiety
• Depression
• Substance abuse
• Muscle and joint disorders
• Loss of limbs
• Injuries sustained at work or on vacation
• Pregnancy (it technically can, but it’s very complicated)

Most long-term disability policies have exclusions for typical pregnancy complications. However, your policy might still kick in for something that’s not a usual complication from pregnancy (always check your contract language).

What will disability insurance not cover?

Again, this isn’t an exhaustive list, but disability income insurance doesn’t usually cover:

• Self-inflicted intentional injuries
• Injuries sustained in a war zone
• Active duty military service
• Disabilities resulting from you committing a felony
• Injuries from participating in a riot or insurrection
• Pre-existing conditions

Policies exclude most pre-existing conditions you have from the definitions of disability when you sign up for the policy. For example, suppose Ryan has a diagnosis of carpal tunnel syndrome from a year ago. In that case, the insurer is likely to exclude his wrists from disability insurance coverage on the policy —  even if he’s since recovered.

What’s the point of a disability policy when it won’t cover the most likely scenarios to disable you? That’s where a GSI policy can be crucial.

The GSI loophole for pre-existing conditions

GSI, or guaranteed standard issue, is an agreement between the insurance company and a residency program. Basically, it’s where the insurer agrees to cover every person who applies for insurance without medical underwriting. 

With no medical exam, the company won’t know if you have pre-existing conditions or not. In Ryan’s case, his wrists are now covered (super important if he was a surgeon, dentist or concert pianist). 

A word of caution: GSI policies typically cost more than a regular policy to offset this adverse selection risk to the insurance company.

Related: Average Cost of Physician Disability Insurance: What Impacts Your Premiums?

Are there any mental health limitations?

As mentioned earlier, if you already have a diagnosis for any mental health-related disorders (like anxiety, depression or ADHD), the insurance company typically won’t cover those.

The good news is, if you’re a healthy individual, there is frequently no limitation to the benefit amount you can receive from your policy. If depression prevented you from working ever again, and a physician would vouch for you, then the policy can pay until the end of the benefit period. 

It’s worth noting that policies sometimes cap the benefit period for mental health-related disorders. The caps are usually state- and occupation-specific — think high-cost-of-living states and high-stress occupations. 

For example, general dentists and anesthesiologists are frequently limited to 24 months of benefits for mental health or substance abuse-related issues. 

On the bright side, if your policy has limits like this, your premium is reduced to make up for it. You can also choose to add a limit to reduce your costs. So, if Ryan was eligible for unlimited mental benefits, he could decide to limit the period of time mental health disabilities are covered to lower the premiums he pays each year.

Special use cases of disability insurance

One last time, I implore you to read all your policy’s fine print. Besides knowing the limitations, you might find disability insurance benefits you didn’t even realize you had.

Partial disability

Also called “residual disability,” a partial disability rider alters your policy so it pays out a partial benefit if an injury or illness directly causes your income to decrease. 

This is, in my opinion, one of the most essential features of a disability insurance policy because most disabilities aren’t permanent. The chronic back pain example from earlier is more likely to limit your working hours to a part-time equivalent and thus cap your income rather than stop you from working altogether.

Presumptive Disability

Specific conditions qualify you to skip the elimination period and receive benefits immediately. Those typically include:

• Loss of hearing in both ears
• Loss of sight in both eyes
• Loss of any two limbs 
• Loss of speech

What if you can still do your job after experiencing one of these life-changing conditions? Consider someone who crunches numbers in Excel all day and doesn’t need to speak to anyone. If they permanently lose their ability to speak, the insurance company would still pay their monthly benefit until the end of the benefit period, even if they can continue their regular job without losing income.

Catastrophic disability

If a disability is so severe that you can’t perform two tasks of daily living — such as feeding yourself, bathing, using the bathroom or dressing — the catastrophic rider can pay out an additional benefit payment. You can use this extra benefit to hire someone to help take care of you.

The catastrophic disability rider is optional, but it’s pretty cheap for the quality of benefits it provides. If you are bedbound, the amount of money needed to maintain your and your family’s standard of living is going to go up in a big way.

Survivor benefits

Survivor benefits are a lesser-known feature often buried deep in the contract language. It’s a provision in some policies that can pay a lump sum to your estate if you pass away while receiving disability benefits. 

It’s pretty niche, and you might not know you have it unless you scroll pretty far down in your policy terms. 

Get coverage you need

Understanding what disability insurance covers is crucial. Always read the fine print and consult with an insurance professional to get the most out of your disability insurance policy.

To learn more about how disability insurance can protect your income and to find a policy that fits your needs, get a quote using the form below. We can help you understand your options and select the best coverage for your situation.