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36 Cards in this Set
- Front
- Back
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Disability Insurance |
-earning power ins. -b/t 35-65, chances of incurring disability lasting 90 days or longer is much greater than death -most ppl don't have this b/c they perceive premium costs being much higher than benefits or they think they are covered though employer plan. |
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Defining disability |
-traditionally called loss of time ins b/c occupational definition. Employee cannot work and losses income. -partial vs total disability depends on ability to perform certain tasks -residual disability has replaced partial disability as a means of paying proportionate benefit to an insured that can work but at a reduced pay |
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Total disability |
Disability contract defines disability in 3 ways: -own occupation definition, which is usually referred to as "own occ." -Modified own occupation, with a time limit (e.g. 2 years) on "own occ" protection. -Any gainful occupation definition, which is popularly, if somewhat inaccurately, called "any occ." Total disability means that: -You are unable to perform the duties of occupation for which s/he is reasonably suited, and -You are under the care and attendance of a physician." |
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Own Occupation |
-deems insured totally disabled when they cannot perform major duties of their reg job. Most liberal definition of disability available& best to have. -reg occupation is the one insured was engaged at the time the disability began. Under this definition, the insured can be at work in some other capacity & still be entitled to benefits if they cannot perform the important tasks of their own occupations in the usual way. Most common variation clauses: -Cannot perform the major duties of their regular occupation, and -Are not at work in any other occupation. If insured is disabled from their reg job, ins co can terminate benefits only if insured has voluntarily chosen to work at some other job. |
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Any gainful occupation clause |
-insureds are considered totally disabled when they cannot perform the major duties of any gainful occupation for which they are reasonably suited because of education, training or experience. -b/c insured may be able to work at any of several suitable occupations, even though he or she is incapable of working at his regular job, this clause is a more restrictive definition of disability than the own occupation definition. It can limit recovery of benefits under the policy. |
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Presumptive disability |
-insured is always considered totally disabled, even if he is at work, if sickness or injury results in loss of the sight of both eyes, hearing of both ears, ability to speak, or the use of any 2 limbs. -Usually, insurer begins benefits immediately on date of loss &waives medical care requirement. Insured can work in any occupation &full benefits will be paid to the end of the policys benefit period, while the loss continues. |
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Benefits Provisions |
3 basic components that define payment of benefits: -The elimination period, -The benefit period, and -The amount of monthly indemnity. All other parts of policy relate to these common elements &are used to limit or expand their value in meeting the specific needs of the insured at the time of loss. Strength of a particular disability income plan lies in how liberally ins co permits these elements to operate w/i policy provisions &through its own admin practices. |
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Elimination period |
-also called waiting period, # of days at start of disability where benefits aren't paid. Puts limitation on benefit like the concept of deductible. Meant to exclude consequential illness that last a few days & can be covered through personal funds. -deductibles and elim periods are a form of risk retention. The more risk retained, the less the premium. Where needs exists but affordability is important, wise to choose less than optimal elim period, monthly benefits & benefit period can be a good decision. |
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Elimination Period Cont'd |
-typically, 30 days to 1 year, 3 mos is the most common. Benefits paid at end of mos. For 3 mos elim period, insured won't be paid until 120 days after disability-most insurers typically have same elim period for both illness and injury -temp break (under 6 mos) is allowed for attempts in trying to return to work. If the same injury or different cause, insurer combines 2 periods of disability to satisfy elim period. |
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Benefit period |
-longest period of time for which benefits will be paid under disability policy -usually same for sickness & injury -can last 2-5 yrs, to age 65, or for life continuous, if disability begins before 55 or 60. -most disability are short duration, 98% recover in less than 1 yr. Most recover w/i 6 mos -if disability lasts longer than 1 yr, and insured is older, being able to return to work diminishes greatly |
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Recurrent Periods of Disability |
-deals w/ consecutive or recurring period of disability& identifies whether co is dealing w/ new or continuing claim -typical provision states that co will consider recurrent periods of disability from same cause to be 1 continuous period, unless separated by recovery of 6 mos+. 12-mo recurrent provision is common in policies w/ benefit periods to age 65 or longer. Advantageous for insured for the following: -new elimination period will not be required for disability that recurs w/i 6 mos -This, in turn, protects the insured from multiple elimination periods, -benefits for recurring loss becomes payable immediately for unused portion of original benefit period, and -provision allows for a new benefit period, & new elimination period, if loss results from a different cause at any time after an earlier disability, or if loss recurs due to same cause >6 mos after recovery. |
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Monthly Indemnity |
-when applying for disability ins, amt of monthly benefit & length of each benefit period is selected -many insurers will terminate contract at 65 to integrate w/ SS benefits or private pension plans -monthly benefits is about 60-70% of insured's income or up to co's underwriting limit. -discourages malingering &encourages rehab -takes into acct other sources of coverage ie SS, employer plan, group plans -may reduce benefits for insured with high assets >$3M, may reduce benefits to 50% |
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Monthly Indemnity Cont'd |
-insurers typically put a dollar limit on coverage. Max $15-20K for total disability. Separate from other indemnity limits for special biz ins policy -ST disability usually covers 60% of weekly wages -LT covers 70% -if work PT during recoup, residual benefits can be received. Indemnity reduced since insurer pays diff b/t pre-disability income and post disability income. This provision is known as rehabilitation benefit |
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Taxation of benefits |
-if employer pays, it's tax deductible as biz expense and not taxable income for employee -if employee pays, it is NOT tax deductible -benefits paid under insured plan or non-insured salary plan are taxable income to employee -under non-contributory plan, benefits are included in EE's gross income -under partial contributory plan, benefits received due to EE's contribution is tax free & benefits attributed to ER contribution is incl in gross income (EE eligible for tax credit). -tax credit available to who are totally or permanently disabled, credit taken on Fed income tax return. -$750 max for individual &$1125 for married filing jointly -benefits received from individually purchased plans are not taxable and premiums also not tax deductible. |
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Benefits provisions |
-describes circumstances of loss, the way co will pay benefits, and when it will end See below for typical benefits provisions: -You must become totally disabled while this policy is in force. -You must remain disabled until the end of elimination period. No indemnity is payable during that period. -After that, monthly indemnity will be payable at the end of each month while you are totally disabled. -Monthly indemnity will stop at the end of the benefit period or, if earlier, on the date you are no longer totally disabled. |
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Waiver of Premium Benefits |
-waives any premium after insured becomes disabled for lesser of 90 consecutive days or elim period and allows for refund of any paid premium during this period -further premiums waived while insured is disabled, until age 65 -some cos may waive premium that fall due w/i 90 days of recovery period -waiver terminated when insured reaches 65 |
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Other benefit provisions (4) |
Minor but competitively necessary provisions not appropriate as optional benefit rider 1. Transplant benefit 2. rehabilitation benefit 3. non-disabling injury benefit 4. principal sum benefit |
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Transplant benefit |
-insured becomes totally disabled due to a transplant of an organ from his/her body to another individual -also includes plastic surgery to correct appearance / disfigurement |
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Rehabilitation benefit |
-allows for a specific sum, often 12X sum of monthly indemnity & any supplemental indemnity to cover cost not paid by other policies or public funding when insured enrolls in formal retraining program to return to work -some disability plan will cover cost of retraining program and will pay for childcare so parent can go to retraining |
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Non-disabling injury benefit |
-pays up to a specific sum, usually 1/4 of monthly indemnity, to reimburse for med expenses incurred for treatment that did not result in total disability |
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Principal sum benefit |
-lump sum paid if insured dies accidentally. Death can be caused directly or independently by injury and that it occur w/i a specified # of days, usually 90 or 180 days following the day of the accident -pays a single sum, upto 12X sum of monthly indemnity & any supplemental indemnity if injury results in loss of sight and insured survives loss for 30 days. This is in addition to other indemnity payable under the policy, pays for 2 such losses in insured's lifetime -usually limited to irrecoverable loss in sight of one eye or complete loss of a hand / foot through severance above wrist / ankle |
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Exclusions |
No benefits will be paid for disability as a result of: -War or act of war -Self-inflicted injury or sickness -Pregnancy (in some states, e.g. MA, state law requires that pregnancy be treated as any other illness, &therefore it is covered) -Aviation–serving as pilot /crew member of an airplane -Narcotics – use of illegal drugs or taking those not prescribed by your physician -Incarceration or loss of professional license -Illegal occupation -Committing or attempting to commit a felony |
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Limitations |
-benefits paid for mental / emotional disorder limited to 2 yrs. Same for alcohol & substance abuse -preexisting condition handled in different ways by diff ins cos. Can be completely excluded via exclusion rider w/ specific language ie no coverage for disability from injury to or disorder of the cervical spine, its muscles, ligaments, discs or nerve roots. -other carriers may use the following limitations: Disabilities due to conditions not disclosed on the application, for which medical advice, treatment or medication was received, are not covered for the first 2 years that this policy is in force. -Other insurers use a waiting period such as 3/12 - any condition treated in the prior 3 mos is not covered for the first 12 mos |
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Supplemental benefits |
-some insurers may include one or more benefits in basic benefits provision. Available for add'l premium as optional rider Most common optional / supplemental benefits: -Residual disability benefit, -Partial disability benefit, -Social insurance supplement, -Inflation-protection benefit, -Increased future benefit, and -Guaranteed insurability option. |
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Residual Disability Benefit |
-provides reduced monthly indemnity in proportion to lost income when insured returns to work at reduced earnings. -own occupation policy, residual benefit available only when insured returns to his / her occupation -most insurers allow for total or partial disability to satisfy elimination period and waiver of premium |
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Defining residual disability (4 conditions) |
When due to injury/ sickness, you: 1. unable to do important biz duties 2. do normal biz duties in usual amt of time 3. lose at least 25% of prior monthly income 4. under care and attendance of a physician |
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Benefit formula |
-most insurers do not require a prior period of total disability before claiming residual benefit -residual claim can start from date of loss, reduced benefit amt available once elim period is met -vast majority of residual claim follow some period of total disability -residual claim make up only small portion of disability claim |
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Loss of Income |
-includes earned income and excludes unearned income from savings and retirement |
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Residual Indemnity |
( Loss of income / prior income ) * monthly indemnity benefit |
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Current Income |
-insureds earned income in each month while s/he is residually disabled. Insurers differ in treatment of current income, but they calculate it either on the basis of cash actually received or on an accrual method to exclude income that was earned but not collected before disability began. |
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Partial disability benefit |
-provided as optional benefit for less favorable occupational risks -typically 50% of monthly indemnity for total disability payable for up to 6 mos -if less, for the remainder of policy benefit period when insured returns to work on limited basis after a period of compensable total disability -partial disability defined by occupational terms w/ reference to time & duties |
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Social Insurance Supplement |
-designed to meet gap when worker's comp or SS doesn't cover disability -provides an amt that's approximate based on what injured would receive under SS for total disability -benefit paid when injured meets SIS definition for total disability but not receiving any benefit for social service plan. -can be fixed amt that stops when injured begins to receive benefit from social service plan -if offset method is used, insurer specifies min amt below which SIS will not be reduced while disability continues |
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Inflation protection benefit |
-for LT disability, benefit is adjusted yearly to keep up with inflation -computed by rate of change in price index ie US consumer price index -at one time, COLA riders were offered where benefits adjusted automatically which outpaced inflation which led to moral hazard -method is complex but generally compares index of current claim year to index when claim began. If index increased or decreased, benefit for next 12 mos is adjusted by % change of index. -benefit cannot reduce below amt specified in policy. some insurers apply cap where adjustments can be made 2-3 times original indemnity. |
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5 most common supplement / optional benefits |
1. residual disability benefit 2. partial disability benefit 3. social insurance supplement 4. inflation-protected benefit 5. increased future benefit |
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Increased future benefit |
-Often referred to as Automatic Benefit Increases, this optional rider means that at stated intervals, usually early in contract, the insurer offers to increase the monthly benefit. -Typical increase is by a certain percentage (e.g. 5%) so monthly benefit of $3,000 becomes $3,150. Designed to help insured keep pace w/inflation &pay raises. If increase is accepted, premium also increases by a small amount. -recommended even though there is an added cost |
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Guaranteed Insurability Option (GIO) rider |
-allows for larger monthly benefit increase ie $500 / mo -esp important for ppl starting careers w/ higher expected income ie. dr, dentist, biz owners -allows individual to buy more protection w/o having to provide evidence of health but must quality financially -offered at a specific age after a # of policy yrs or specific life event (marriage) -max limits on amt purchased & age of insured (stops at 40) -increased premium is calculated at insured's attained age (their current age) |
