Mellody's Mail: Disability Insurance

— -- QUESTION: You spoke of disability insurance on Feb. 2. Please give me more information about that, because I need to consider getting some.

ANSWER: This is an excellent question and I commend you for proactively seeking more information on this topic as disability insurance can prevent financial ruin in the case of a medical crisis. Essentially, disability insurance can provide you with income when an illness or injury prevents you from working. Generally, it is designed to pay 60 percent of your current income, which should be enough to cover your basic expenses.

Coverage from disability insurance is divided into two periods: short term and long term. The length of both short-term and long-term coverage will vary depending on the state in which you live as well as your specific policy. Typically, short-term coverage expires after six months, while benefits from long-term disability are usually paid for one, two, five or 10 years, or up to age 65, depending on the policy.

Many employers offer disability insurance at no cost to the employee, so as a first step, you should speak with someone in your human resources department to get more information on the type of coverage, if any, your employer provides. If your employer does not provide disability insurance or if you are concerned that the coverage it offers will not be enough to cover your expenses, you can purchase an individual, private policy. The annual premium on individual coverage will vary and depend on a number of factors, such as your age, sex, job, income, medical history and lifestyle. Prices vary from $2 a day upward to thousands of dollars a year. When looking at disability insurance, there are a few key points to be sure you understand:

Elimination period: Unlike health insurance, disability insurance does not have a deductible. Rather, there is an elimination period, which is the number of days you must wait for your coverage to start. Usually, the elimination period is measured in 30-day increments with the typical waiting period for group plans being 90 days. Keep in mind, a longer period requires a larger emergency savings fund to cover you during the gap. However, the longer the elimination period, the lower the premium.

Coverage for your "own occupation" versus "any occupation": If disability coverage is specifically for your current occupation, you are considered disabled if you cannot perform the functions related only to your job. Conversely, if your coverage is for any occupation, you would not qualify for benefits until your have been declared unable to work at any job.

In addition to these factors, when seeking individual coverage, you may want to consider a guaranteed renewable policy or non-cancelable policy. These two types of policies ensure that once you have been approved, the insurance company cannot cancel your coverage, unless they stop covering your job category altogether. There is one important distinction between the two policies -- your rates can be raised with a guaranteed renewable policy, but with a non-cancelable policy, they cannot. The downside to these types of policies is the premiums tend to be higher.

E-mail Mellody with your personal finance questions.

Mellody Hobson, president of Ariel Capital Management (arielmutualfunds.com) in Chicago, is "Good Morning America's" personal finance expert. Ariel associates Matthew Yale and Aimee Daley contributed to this report.