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68 Cards in this Set
- Front
- Back
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Disability Income Insurance pt. 1
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• Disability Income Polices are designed to
replace a portion of the insured’s lost wages when the insured is unable to work due to an accident or illness • Also referred to as loss of time coverage • Designed to protect an individual’s most important asset—the ability to earn an income |
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Disability Income Insurance pt. 2
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A contract that normally pays a monthly benefit,
following the elimination period, for total disability due to accident or sickness – Benefits may also be paid for partial or residual disability as well as total disability – Benefits are paid in accordance with policy’s terms and conditions |
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Probationary Period
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• A limited period, as stated in the policy, that
begins when the policy goes into effect – Period of 30 days common but may vary by type of policy (i.e. 15 or even 60 days for long-term policies) • During this period, disabilities resulting from sicknesses are not covered – Major purpose is to relieve the insurer from paying benefits for pre-existing conditions • Disabilities resulting from accidents are not subject to the probationary period |
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Elimination Period pt. 1
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• Period for which an insured person must be
disabled before benefits begin – May be thought of as a time deductible rather than a dollar deductible – Benefits not payable during the elimination period, begin only after this period of time is satisfied • Determined by the insured (chosen from options available from the insurer) – Various options available (i.e. 30, 60, 90, 180 days or longer) |
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Elimination Period pt. 2
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• The longer the elimination period, the smaller
the insurance premium • Not retroactive • Applies for each new disability |
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Benefit Period pt. 1
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• The maximum length of time the insured is
eligible to receive a benefit • After elimination period satisfied, benefit period begins – Insured eligible to be paid benefits for this specific period, provided the insured remains totally disabled |
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Benefit Period pt. 2
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• Length of benefit period selected by the
policyowner (from options available from insurer) – Stated as a number of years or to a specified age • Typical periods available include 1 year, 2 years, 5 years, 10 years, and to age 65 • The longer the benefit period, the higher the policy’s premium • Applies for each new disability |
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Total Disability pt. 1
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• Meaning of total disability very important, and is
always defined in the policy • Different companies may use different definitions, but will be based on work activity • Work activity looked at by insurers in terms of two dimensions – Own occupation – Any occupation |
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Total Disability pt. 2
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Regardless of which definition is applicable,
many insurers require the insured to be under the care of a physician in order to qualify for a disability benefit |
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Own Occupation
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• Concerns the occupation in which the particular
individual is normally engaged • Total disability is defined as an insured’s inability to perform any or all of the primary or material duties of the insured’s own occupation – Refers to the insured’s own occupation at the time disability begins • This definition is the most generous to the insured and is the most expensive |
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Any Occupation
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Defines total disability as the insured’s inability
to perform the duties of any occupation for which the insured is reasonably qualified by education, training, or experience • This definition is less generous to the insured, but is less expensive |
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Loss of Earnings pt. 1
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• Between the two definitions of total disability,
there are several variations • Some policies use a two-tier definition that refers to insured’s own occupation during an initial period of disability and then shifts to any occupation – Usually define total disability as the inability to perform the duties of insured’s own occupation for a period of two to five years |
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Loss of Earnings pt. 2
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• Some policies use a two-tier definition
(continued) – After that point, define total disability as the inability to perform the duties of any occupation for which the insured is suited by reason of education, training, experience, or prior economic status • This is known as the loss of earnings test for disability |
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Occupational Versus Nonoccupational
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• Short-term policies often cover only
nonoccupational disability • Most long-term plans cover both occupational and nonoccupational sickness and accidents • When occupational benefits are provided (i.e. as in through a long term disability group policy), they are often reduced by benefits received from workers’ compensation and Social Security |
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Medically Defined
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• Some older policies also require that, in addition
to meeting definition of total disability in the policy, insured must also be confined to the house and under the treatment of a doctor • This is called medically defined disability |
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Presumptive Disability pt. 1
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• Another criterion in many disability income
policies by which total disability may be classified • Aside from or regardless of the occupational considerations in the policy • Is a condition that automatically qualifies insureds for total disability classification, whether or not they can work |
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Presumptive Disability pt. 2
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Conditions generally considered to be
presumptive disabilities include – Loss of use of any two limbs – Loss of both hands, both feet, or one hand and one foot – Total and permanent blindness (sometimes in both eyes) – Loss of speech and hearing |
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Presumptive Disability pt. 3
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• Presumptive disability may also be determined
using a loss of earnings test – Insured’s level of earnings before disability is compared to level of earnings after disability – If post-disability earnings fall below pre-disability earnings by a given percentage, insured considered totally disabled and eligible for full benefit even if some level of earnings remains |
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Partial Disability pt. 1
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Insured cannot perform every duty of the
occupation but can perform one of more important duties of the insured’s occupation – Insured partially disabled, not totally disabled • Applies largely to accident disability • Usual partial disability indemnity is 50% of the monthly or weekly indemnity for total disability • Benefits usually paid for a relatively short period—commonly three or six months |
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Partial Disability pt.2
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• Insured might receive both total and partial
disability benefits as the result of a single accident – Total disability benefits while totally disabled – Upon being able to return to work and perform some, but not all, of duties could then receive partial disability benefits (as long as still eligible for benefits) |
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Residual Disability pt. 1
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• Many recent policies have replaced the partial
disability provision with a residual disability provision • This benefit is usually a percentage of the total disability benefit for periods of partial disability as defined in the policy |
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Residual Disability pt. 2
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• Earnings come into play in the residual benefit
provision – Earnings during partial disability must be at least a stated percentage less than earnings before disability (i.e. 20% less) – The percentage of reduction in earnings is multiplied by the normal total disability benefit to determine the residual benefit |
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Recurrent Disability pt. 1
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• A second period of disability from the same or a
related cause of a prior disability is a recurrent disability – Example: the period of disability appears to be over, but then the disability recurs as a result of the same illness or accident |
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Recurrent Disability pt. 2
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• Most disability income policies stipulate that if
the insured returns to work for a specified period of time after the original disability, a recurrence must be handled as a new claim rather than as a continuation of a prior claim – Requires that the insured meet a new elimination period – New benefit period also applies |
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Recurrent Disability pt. 3
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• Under recurrent disability benefit, if the insured
returns to work after a qualifying disability and the disability recurs within the specified time period, the insured is eligible to restart benefits immediately – Recurring disability is not considered a new disability – Prevents insured from needing to satisfy a new elimination period – Encourages insured to return to work as soon as is realistic |
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Recurrent Disability pt. 4
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• Recurrent period specified in the policy (i.e.
three to six months) • When recurrent disability benefits are applicable, only the balance of the benefit period applying to the original disability applies to the recurrent disability |
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Types of Disability
Benefits and Exclusions pt. 1 |
• Pure loss of income (income replacement
contract) – Pays a percentage of lost income when the insured cannot work due to a qualifying disability • Benefit usually a capped percentage of the insured’s pre-disability earnings (i.e. 60-80%) • Typically determined at the time of the disability – This method commonly used with group disability policies |
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Types of Disability
Benefits and Exclusions pt. 2 |
Indemnity policy (flat amount)
– Pays a flat monthly benefit when the insured cannot work due to a qualifying disability • Indemnity amount chosen by insured at the time of application – Benefit may be paid out regardless of any other benefits insured is entitled to • This method commonly used with individual disability policies |
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Short-Term Disability (STD) pt. 1
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By definition, a short-term policy is one whose
maximum benefit period does not exceed two years (24 months) in length • Individual short-term policies provide for – Short elimination periods (0 to 14 days, but possibly up to 30) – Short benefit periods (maximum of 24 months, but 3 to 6 months more typical) |
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Short-Term Disability (STD) pt. 2
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• Most group short-term policies provide for
– Short elimination periods (usually 30 days or less) – Short benefit periods (i.e. six months to two years maximum) – Benefit amount usually limited to a percentage of compensation (60-80%) • Could be used to provide benefits for insured during the five month waiting period for Social Security disability benefits, providing – That disability continues – Insured qualifies for Social Security disability benefits |
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Long-Term Disability (LTD) pt. 1
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• LTD policies provide for longer elimination and
benefit periods than do short-term policies – Elimination period typically three to six months, or even longer, particularly when coordinated with short term disability benefits – Benefit periods can be a stated time period (i.e. two, three, five years, etc.), or up to age 65 or 70, or even longer • For group long term policies – Benefit amount is typically limited to a percentage of compensation (60-80%) |
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Long-Term Disability (LTD) pt. 2
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• For group long term policies (continued)
– LTD policies usually provide for integration of plan benefits with other disability income benefits. Payable to the insured • Purpose for having integration with these other sources of disability income is to prevent overinsurance on the part of the insured |
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Long-Term Disability (LTD) pt. 3
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For group long term policies (continued)
– The LTD benefit may be offset by any of the following • Any benefits provided by another formal employer plan • Benefits payable under workers’ compensation or any similar statutory program • Any benefits payable under Social Security • Individual disability policies have no offsets |
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Lump-Sum Benefits
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• Lump-sum payments under disability policies
were once paid more often than they are today • Although lump-sum benefits may be paid for presumptive disability, or under special disability policies covering business buy-sell agreements, it is more common for disability income benefits to be received in the form of installment payments |
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Exclusions
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• Common exclusions found in disability income
policies are losses arising from – War – Military service – Attempted suicide – Overseas residence – Aviation under certain circumstances (pilot or crew of aircraft) – Losses that result when an insured is injured while committing a felony |
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Rehabilitation Benefit pt. 1
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• Facilitates vocational training to prepare insured
for a new occupation – Insured not able to return to his normal occupation but still able to work at some kind of job • Applies when insured is totally disabled and receiving benefits – If insured chooses to participate in a vocational rehabilitation program approved by the insurer, then total disability benefits will continue as long as the insured • Actively participates in the training program • Remains totally disabled |
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Rehabilitation Benefit pt. 2
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• Applies when insured is totally disabled
(continued) – Some insurers may provide a lump-sum benefit for vocational training |
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Future Increase Option
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• Also referred to as guaranteed insurability option
or guaranteed purchase option • Enables the insured to purchase additional disability income protection, regardless of insurability, at specified future dates • Rate for additional coverage at insured’s attained age at time of purchase |
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Future Increase Option
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• This benefit has some limitations
– Insured able to purchase only a specified, predetermined amount of disability income insurance at each option date – To guard against overinsurance, insurer will usually limit amount of additional coverage – Insured’s earned income must warrant additional coverage |
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Future Increase Option
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• Option dates available vary by insurer; common
ones include – Option dates every three years from ages 25 to 40 – Option dates coinciding with the insured’s birthdays, marriage, and the birth of children |
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Cost-of-Living Benefit
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• Designed to protect against increases in the cost
of living while on a fixed disability benefit • Automatically increases the insured’s monthly disability benefit (total or residual) once insured is on claim (receiving disability income benefits) – Increase typically occurs after insured is on claim for 12 months and each 12-month period thereafter as long as insured remains on claim |
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Lifetime Benefits
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• Extends the benefit period from age 65 to
lifetime • Extension may apply to accident-only benefits or to accident and sickness benefits • Most companies place some time limitations for the lifetime sickness benefit – Based upon when insured becomes disabled due to sickness, reduced benefits may apply |
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Social Security Rider pt. 1
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• Provides an additional monthly benefit payable
to the insured during the five month waiting period for Social Security disability benefits – Due to Social Security’s rigid definition of disability, insured may or may not qualify for Social Security benefits • Rider may or may not continue to pay benefits after Social Security benefits begin |
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Social Security Rider pt. 2
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• Two different methods by which this type of rider
may provide benefits – All or nothing rider • Insured paid a benefit only if Social Security pays nothing • If Social Security provides any benefit, then rider pays nothing – Offset rider • Benefit provided by the rider will be reduced, or offset, by amount of any benefit provided by Social Security |
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Social Insurance Supplements pt. 1
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• Designed to fill gaps left by various government
benefit programs • Concept similar to Social Security rider, except this coverage also may mesh with workers’ compensation benefits and benefits provided by state disability funds • May be included as part of disability income policy or may be added to policy by rider • Benefits usually payable during any waiting periods for social insurance benefits or if the social insurance benefits are denied |
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Social Insurance Supplements pt. 2
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• Benefits paid monthly until government benefits
begin • If for any reason government benefits stop, insurer steps in and begins monthly payments again • Benefits only payable during benefit period specified in contract and only while insured remains disabled |
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Additional Monthly Benefit (AMB) Riders
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• Short-term rider that provides additional benefits
during the first 6 or 12 months of a claim • Some companies may call these Social Security riders because the benefit is payable during the Social Security waiting period • Additional benefits during early months of disability may be used to – Supplement government benefits or short-term disability benefits provided by an employer – Help pay extra transitional expenses that might be incurred when an insured is first disabled |
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Hospital Confinement Rider
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• Pays the regular total disability benefit during the
elimination period when insured is hospitalized – Any period of hospitalization during elimination period triggers payment of the benefit • Benefits paid only as long as insured is hospitalized |
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Impairment Rider
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• Excludes coverage for a specific ailment or
condition that otherwise would be covered • Benefits both applicant and insurer – The applicant is able to obtain coverage that might not otherwise be available for other health care needs – Insurance company able to protect itself from undue risk from this particular condition and is still able to provide health coverage • Impairment riders written on an individual basis for a specific person’s medical condition |
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Nondisabling Injury Rider
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• This benefit does not pay a disability benefit but
rather provides for the payment of medical expenses incurred as the result of injury that does not result in total disability • Sometimes referred to as a medical reimbursement benefit |
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Waiver of Premium
(with Disability Income) |
• Specifies, that in event of disability, premiums
will be waived retroactively to beginning of the disability • Definition usually permanent and total disability – A few companies have gone to a definition in terms of occupation |
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Accidental Death and Dismemberment
(AD&D) pt. 1 |
• Accidental death part provides a death benefit
that is payable in the event of death resulting from accidental bodily injury (principle sum) • Dismemberment part provides a benefit in the event that an accident results in loss of limbs or sight – A schedule is made part of the policy which lists various dismemberments and applicable benefits payable |
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Accidental Death and Dismemberment
(AD&D) pt. 2 |
• Dismemberment part provides (continued)
– In polices with weekly disability income benefits, sum payable usually expressed as a multiple of the weekly indemnity – In policies without weekly benefits, sum payable usually expressed as percentages of the death benefit or as percentages of a limit in policy known as capital sum • Usually for benefits to be paid, death or dismemberment must occur within 90 days of the date of the accident |
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Other Provisions pt. 1
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• There are some riders available for disability
income policies that provide benefits similar to those of life insurance policies – An annual renewable term life insurance feature may be attached to a disability income policy, providing a death benefit as well as disability income coverage |
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Other Provisions pt. 2
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• There are some riders available (continued)
– A return of premium rider may be attached to a disability income policy • Provides for the return of a percentage of premiums paid (usually 80%) during a specific term period (usually every 10 years) minus the claims paid during the term period • A refund is made every 10 years and at age 65 or as of the date of death |
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Business Overhead Expense (BOE) pt. 1
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• Designed for the small businessowner and
people in private practice • Purpose is to cover certain overhead expenses that continue when the businessowner is disabled – Indemnifies the business (not the owner) for such business expenses as • Rent, taxes, insurance premiums, utility bills, employees’ compensation, etc. • Not the owner’s salary |
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Business Overhead Expense (BOE) pt. 2
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• Purpose is to cover (continued)
– Pays actual monthly overhead expenses up to the benefit amount • Benefit amount typically determined by the average eligible overhead expenses of the business • Policy generally has elimination period of 15 or 30 days and benefit period of one or two years |
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Business Overhead Expense (BOE) pt. 3
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• Premiums tax deductible to the business,
benefits received taxable to the business – However, taxable benefits are then used to pay taxdeductible business expenses |
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Key Person Disability Insurance pt. 1
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Pays a monthly benefit to a business to cover
expenses for additional help or outside services when an essential person is disabled – Indemnifies the business for the lost services of a key person |
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Key Person Disability Insurance pt. 2
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• Key person’s economic value to the business is
determined in terms of the potential loss of business income that could occur as well as the expense of hiring and training a replacement for the key person – This value then becomes the disability benefit that will be paid to the business |
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Key Person Disability Insurance pt. 3
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• Benefit amount may be paid in a lump sum or in
monthly installments • Policy generally has elimination period of 30 to 90 days and benefit period of one or two years • Business is owner and premium payor of policy • Premium paid not tax deductible; benefits received by business tax free |
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Disability Buy-Sell Insurance pt. 1
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• A disability buy-sell or buyout policy provides
funds needed to buy out a disabled business partner, just as life insurance provides funds in the event of a partners death • Is the funding vehicle for the buy-sell agreement, in this case in the event of disability • The buy-sell agreement specifies the value or a method of determining the value of the owner’s business interest |
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Disability Buy-Sell Insurance pt.2
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• Usually has a longer elimination period, such as
one or two years • Benefits may be paid in a lump sum (typically most common) or in monthly installments – Will be specified in the buy-sell agreement • Premiums not deductible; benefits received tax free |
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Group Disability Insurance
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• As compared to individual disability income
policies, group disability income policies are generally less costly and are more liberal in regards to underwriting requirements due to the fact that the group is being underwritten versus the individual themselves |
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Short-Term Disability (STD) pt. 1
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• Typically designed to provide coverage for nonoccupational
illnesses and injuries • Provides a short term benefit for employees who cannot work due to a disability – Typically 6 to 24 months • Elimination period is often designed to coordinate with the employer’s sick leave policy |
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Short-Term Disability (STD) pt. 2
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• Monthly benefit is typically a percentage of the
employee’s wage at the time of disability – Example 60-80% • Traditionally is the more generous “own occupation” definition of total disability |
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Long-Term Disability (LTD) pt. 1
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• Typically designed to provide coverage for both
occupational and non-occupational illnesses and injuries • Provides a long-term benefit for employees who cannot work due to a disability – Often up to age 65 |
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Long-Term Disability (LTD) pt. 2
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• Elimination period is longer than for short-term
disability – If employer also offers short-term disability coverage, the LTD elimination period may be designed to coordinate with the benefit period for the short-term coverage • Monthly benefit is usually a percentage of the employee’s wage, up to a maximum benefit – Example 60-80% |
