Lesson 7: Disability Income Insurance

Disability provides an income stream for an individual who is unable to continue working due to accident or illness. However, under _____ disabled does not qualify for benefits.

20%

For individual policies, the average short-term benefit period ranges from:

6 month to two years

The normal amount of income that can be replaced by a long-term disability policy is _____.

60%

Any Occupation ("acc")

A definition of total disability that requires that for disability income benefits to be payable, the insured must be unable to perform any job for which he or she is "reasonably suited by reason of education, training, or experience."

Own Occupation ("occ")

A definition of total disability that requires that in order to receive disability income benefits, the insured must be unable to work at his or her own occupation.

Residual Disability Benefit

A disability income payment based on the proportion of income the insured has actually lost, taking into account the fact that he or she is able to earn some income.

Presumptive Disability Benefit

A disability income policy benefit that provides that if an insured experiences a specified disability, such as blindness, he or she is presumed to be totally disabled and entitled to the full amount payable under the policy, whether or not he or she is able to work.

Calculating Benefits

Are distributed monthly and are in predetermined amounts. Two methods insurers used to determine benefits payable. Most group policies use the percentage method (percentage-of-earnings approach) to calculate the amount of their earnings prior to any accident. The normal amount of income that can be replaced by a long-term disability policy is 60% Using the percent-of-earnings approach, policies can vary the benefit amount to be paid according to the length of the disability. the second method insurers use to calculate the benefit is called the flat rate method. Disability income policies are usually noncancelable policies.

Guaranteed Insurability Rider

Arrangement whereby additional insurance may be purchased at various times without evidence of insurability.

The time period after an accident that if an injury manifests from an earlier accident, an insurer will cover it.

Delayed Disability Provision

Total Disability

Disability preventing insureds from performing any duty of their usual occupations or any occupation for remuneration; actual definition depends on policy wording.

Elimination Period

Duration of time between the beginning of an insured's may be purchased at various times without evidence of insurability.

Under the Non-Disabling Injury provision, the actual cost of medical treatment along with income benefits is mandatory.

False

Guaranteed Insurability Rider

Guaranteeing the insured the opportunity to purchase additional coverage during the company's specified enrollment periods without having to provide proof of insurability. Most require the insured to exercise the option for additional coverage prior to reaching a specific age.

Presumptive Disability Provision

If a person has one of the disabilities listed below, they are "presumed" to be totally disabled and are entitled to receive the full benefits under the policy regardless of whether he or she is able to work at any job. - Blindness - Deafness - Loss of two or more limbs Benefits are often paid in a lump-sum settlement with the insured.

Partial Disability

Illness or injury preventing insureds from performing at least one or more, but not all, of his or her occupational duties.

Probationary Period

In disability income policies applies to sickness only, not accidents. The period of time that must pass following the policy's effective date before benefits are payable. This is a one-time only period that usually lasts 15 or 30 days. The reason for the probationary period is to protect the insurer from preexisting illnesses during the policy's initial timeframe.

Cost of Living Adjustment Rider (COLA)

Is geared toward adjusting the benefit according to an individual's current living conditions, after disability benefits have begun. Fairly expensive rider, once a year the benefit amount is modified to reflect changes in the consumer price index (CPI). At termination the policyowner has two options. Opt to keep the policy at the new (increased) benefit level by paying a higher premium OR choose to let the benefit return to the original amount and pay the original premium decided upon.

Elimination Period Provision

Is similar to a deductible. The time immediately following the accident when benefits are not yet payable. A person pays out of pocket for short-term disabilities, which in return helps keep premiums lower. Naturally, the shorter the elimination period, the higher the premium. An insurer takes into account the insured's living expenses when it determines the elimination period. The length of time varies greatly per individual.

Non-Disabling Injury Provision

Pays the actual cost of medical treatment for non-disabling injuries that result from an accident, and is generally limited to a percentage of the weekly or monthly income benefit specified in the policy and is payable in lieu of other benefits under the policy.

The Purpose of Disability Coverage

Provides an income stream if an individual is unable to continue working for a period of time due to a disabling accident or illness. In order to qualify for disability benefits, the individual must be at least 20% disabled. A disabling accident is considered external and violent in nature. the insuring clause states the very purpose of the disability policy; contains the face value of the policy, the insured's name, and the name of the insurer. Disability income policies cover two causes of loss (perils) : - Accidents - Sickness

Social Security Rider

Provides extra income when social insurance benefits are not being received by the insured or if the benefits are being received in an amount less than estimated and expected in the rider. If and when total disability is determined, the applicant must show that he ahs applied for social insurance benefits. Once the Social Security Administration has determined the benefit payable, the difference between that figure and the expected benefit listed in the rider is payable as an additional disability income benefit.

Cost of Living Adjustment Rider (COLA)

Provides for an automatic increase in benefits (typically tied to the CPI), offsetting the effects of inflation.

Waiver of Premium Rider

Provision exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually 90 days or six months in health policies.

Probationary Period

Specified number of days after an insurance policy's issue date during which coverage is not afforded for sickness. Standard practice for group coverages.

Recurrent Disability Provision

States a time period for which the disabled may need additional coverage and may receive it without having to wait for an additional elimination period to lapse. If the injury occurs within the specified time period, insurers consider this a continuation of prior disability. If the injury occurs after the stated time period, it is treated as a new injury and the insured must wait out the elimination period again in order to receive benefits.

Waiver of Premium RIder

The insured may be exempt from making premium payments during the period of total disability. The insured must be totally disabled for a contract-specific time period (usually 3 or 6 months) The waiver of premium rider generally does not extend past the insured's age of 60 or 65. Usually included with guaranteed renewable and noncancelable individual disability income policies. Since the rider increases the insurer's risk, premium payments are increased as well.

"OCC" and "ACC" (Disability Income Insurance)

The interpretation is dependent upon whether the individual is unable to perform the job he/she was performing before the disability or illness occurred or for which the individual is suited by education, training and experience (occ), or if the disabled person is unable to perform any type of work (acc)

Benefit Period Provision

The length of time benefits can be payable to a disabled insured. Classified as either short-term or long-term. there is no standard length of time for either of these categories. It all depends on what the policy states. The longer the benefit period is, the more expensive the policy. For individual policies, the average short-term benefit period ranges from six months to two years. An average long-term benefit period is usually more than a few years, such as 5, 10, or 20 years. Sometimes a long-term benefit period will cover the insured until the individual is age 65.

Delayed Disability Provision

Time period after an accident in which if any injury manifests itself from that accident, the insurer will cover it. Usually stipulates a 30, 60, or 90-day time period. Since injuries do not always show up immediately, this provision allows for some time after an accident in order to assess the damage.

Disability policies are usually noncancelable.

True

If a person suffers the loss of both legs, they are presumed to be disabled under the Presumptive Disability provision

True

The Elimination Period provision is similar to a deductible.

True

The Probationary Period is a one-time only period that usually lasts 15 or 30 days.

True

The Recurrent Disability provision was designed for those instances when persons who have experienced a disability may relapse and re-injure themselves.

True

The cost of living adjustment rider is geared toward adjusting the benefit according to an individual's current living conditions, after disability benefits have begun.

True

The probationary period in a disability income policy applies to sickness only, not accidents.

True

The insured may be exempt from making premium payments during the period of total disability.

Waiver of Premium Rider

Insurance companies define disabilities in two ways depending upon weather the individual is unable to perform the job he was performing before the disability or illness occurred ______ or if the disabled person is unable to perform any type of work ______.

occ; acc