How Does Disability Insurance Work?


To receive disability insurance, the purchaser (the insured) fills out an application for the insurance usually with the aid of an agent. The insurance company then reviews the application and approves or denies it.

Disability Insurance Policy Terms

Disability insurance comes in many different forms and with many different terms. The key terms in a disability insurance policy are the definition of disability, the length of time the insured must be disabled to receive payment, the amount of the payment and the length of time the payment will be made.

Definition of Disability

One of the critical terms of a disability insurance policy is the definition of disability. While the specifics vary from policy to policy, the main factor is whether someone must be disabled such that they cannot do their own job, known as Own Occ, or whether they must be disabled such that they cannot do any job, known as Any Occ. For example, a watchmaker may not be able to do his job with an injury to his hands, but could still perform the functions of a job that uses the telephone. Which version he has determines if his injury counts as a disability. Own Occ costs more than Any Occ.


The other major terms in a disability policy include the payment to be made in the event of a disability. Unlike other policies that pay a lump sum upon a qualifying event, most disability policies pay a recurring amount on a regular basis, typically monthly. The amount to be paid, and for how long, are variables in a disability policy. The purchaser may choose a policy that pays $3,000 per month for up to five years, for example. Some policies may pay through age 65, or for other lengths of time. In any case, a person cannot purchase disability insurance for an amount greater than his current salary. There are riders available that increase the payout amount each year to keep up with inflation and wage increases.

Collecting Disability Insurance

Assuming the insured has a valid in-force policy when he becomes disabled, he can file a claim with the insurance company. The insurance company will review the claim to make sure that it conforms with all the terms of the policy and to prevent fraud. After a claim is approved, the insurance company will pay each month until the insured returns to work, or payments are completed based on either length of time or other terms in the policy.