IMPORTANT POLICY DEFINITIONS
o DEFINITION OF DISABILITY
o EXTENT OF DISABILITY
o “RESIDUAL” BENEFITS
o PRESUMPTIVE DISABILITY
o BENEFIT SIZE
o BENEFIT PERIOD
o ELIMINATION PERIOD
o RECURRENT DISABILITY
o LENGTH OF COVERAGE
• MAJOR POLICY PROVISIONS
o WAIVER OF PREMIUM
o PREEXISTING CONDITIONS
• EXCLUSIONS
o GRACE PERIOD
• COMMON OPTIONAL BENEFITS
o REDUCED ELIMINATION PERIOD IF HOSPITAL-CONFINED
o HOSPITAL CONFINEMENT BENEFITS
o ACCIDENTAL DEATH AND DISMEMBERMENT
• RENEWABILITY OF THE POLICY
• SUMMARY


IMPORTANT POLICY DEFINITIONS

Before deciding on how much to insure and whom to insure with, the following should
be clarified and agreed upon.
Definition of Disability
This may be defined as inability to perform usual duties/job, or a disability that precludes
gainful employment.
"Total disability" requires the individual to be totally disabled from engaging in any
employment or occupation for which he/she is or becomes qualified for by reason of
education, training, or experience, and such individual is not in fact engaged in any
employment or occupation for wage or profit.
"Total disability" may be defined in relation to the inability of the person to perform
duties, but such inability may not be based solely upon an individual's inability to
perform "any occupation whatsoever" or "any occupational duty" or engage in any
training or rehabilitation program; however, an insurer may specify the requirement of
the inability of the person to perform all of the substantial and material duties pertaining
to his/her regular occupation.
The definition may reasonably require regular care and attendance by a physician, other
than the insured or a member of the insured's immediate family.
The definition may require that the total disability be "continuous" or "uninterrupted"
for a specified period of time or to a specified age. If the insured's total disability
continues to a specified age or for a specified period and shall continue thereafter, the
definition may predicate continuance of benefits on the insured's inability to perform any
work or occupation for which he/she is reasonably trained or qualified by education or
experience.

Extent of Disability

There are policies that cover partial disability for a limited time, and only if it follows total
disability from the same accident/cause. Others require that an individual be totally
disabled before payments commence.
This term is defined in relation to the insured's inability to perform one or more, but not
all, of the "major," "important," or "essential" duties of employment or occupation or
may be related to a "percentage" of time worked or to a "specified number of hours"
or to "compensation." If a policy provides total disability benefits and partial disability
benefits, only one elimination period may be required.
"Residual" Benefits
Residual disability is defined in relation to the insured's reduction in earnings and may
be related either to the inability to perform one or more, but not all, of the "major,"
"important," or "essential" duties of employment or occupation, or to the inability to
perform all usual business duties.
A policy which provides for residual disability benefits, may require a qualification
period, during which the insured must be continuously, totally disabled before residual
disability benefits are payable. The qualification period for residual disability benefits
may be longer than the elimination period for total disability.
These supplement income to bring the insurer at par with pervious income in case this
is reduced due to inability to fulfill responsibilities. Residual benefit generally allows
partial payment without prior total disability.

Presumptive Disability

This provision qualifies an insured for the full benefits of his/her policy based on the fact
that specific conditions exist. These conditions include the loss of two or more limbs,
speech, sight or hearing. An insured can qualify for presumptive disability even if
he/she can perform all or some of his/her regular assignments.
Benefit Amount
The indemnity amount is usually stated in a monthly amount and bears a relationship to
the insured’s earned income. In an effort to discourage insureds from remaining at
home, some insurance companies limit the size of the benefit payments to 70 to 80% of
monthly income. Lower-paid workers can expect to receive more of their pre-disability
incomes while higher-paid workers generally receive less.

Benefit Period

The Benefit Period is the period of time that benefits contract are payable for a
particular claim under the disability. Usually, an insured may select a benefit period of
one year, 2 years, 3 years, 5 years, 10 years, or to age 65, 67, or even lifetime.
Elimination Period
Policies now offer the flexibility of choosing how long an insured wishes to wait before
payments begin. Typical elimination periods for both accident and sickness are 15
days, 30 days, 60 days, 90 days, 180 days and 365 days. This selected period will
depend on the cash flow available to the insured. Delaying the start of payments will
translate into reduced premiums.

RECURRENT DISABILITY

The specific purpose of the clause is to state how long a period of time must elapse
between disabilities for the same physical impairment in order to be considered an
entirely separate disability. Any disability that recurs within 6 months following the
original disability is deemed to be a continuation of that original disability.
Length of Coverage
While benefits may be payable from one year to lifetime payments, it is important to
decide if this type of insurance coverage is needed beyond a person’s working life. A
shorter coverage means less premium dollars; however, disability insurance may be
required for securing a situation where a comeback into the workforce is not possible.
MAJOR POLICY PROVISIONS

WAIVER OF PREMIUM

This provision usually waives the payment of any premium that becomes due after 90
days of total disability.
PREEXISTING CONDITIONS
This provision provides for a contestable period of 2 years and at the same time states
that benefits are not payable for disabilities that manifest themselves prior to the
issuance of the contract. A preexisting condition cannot be challenged if it was
disclosed on the application or medical examination.

Exclusions

Most disability contracts today have exclusions for:
• Acts or accidents of war
• Incarceration due to a criminal conviction
• Benefits for a normal pregnancy during the first 90 days of the disability
• Disability due to alcohol or drugs
• Self-inflicted injuries

GRACE PERIOD

A period of time after the due date of a premium during which the policy remains in
force without penalty. The grace period is 30 days.

COMMON OPTIONAL BENEFITS

The following are common optional benefits:

REDUCED ELIMINATION PERIOD IF HOSPITAL-CONFINED

This optional benefit waives the normal elimination period under the disability contract if
the individual is hospitalized.

HOSPITAL CONFINEMENT BENEFITS

This benefit, regardless of when an individual is hospitalized, pays an additional monthly
indemnity along with the basic monthly indemnity, while the insured is hospital-confined.

ACCIDENTAL DEATH AND DISMEMBERMENT

This benefit provides a flat, face amount payment for accidental death and
dismemberment. Usually, the benefit is a multiple of the base monthly indemnity.
This option is a guaranteed insurability benefit that provides for periodic increases in the
basic indemnity, without evidence of insurability. Normally the options are available
every year or every other year up to age 45 or 50.

FUTURE-INCOME OPTION

This option is a guaranteed insurability benefit that provides for periodic increases in the
basic indemnity, without evidence of insurability. Normally the options are available
every year or every other year up to age 45 or 50.

INFLATION ADJUSTMENT

The cost-of-living adjustment increases benefit payouts by a specified percentage after
each year of disability. Of course, this means higher premiums.
Renewability of the Policy
Some polices may include a waiver of premium clause if an insured is disabled for 90
days; others may offer the additional purchase of disability coverage without medical
examinations.
An important consideration is the renewability of the policy and most disability income
insurance comes with either the Non-cancelable policy clause or the Guaranteed
renewable policy clause. A non-cancelable policy ensures continuation of a policy by
making timely premium payments. The insurance company is not allowed to change
the premiums and benefits contained therein. Guaranteed renewable policies will be
automatically renewed, with the same benefits, but the premium may be increased if it is
changed for an entire class of policyholders.

SUMMARY

This lesson covered the details of Disability Insurance. We learned about the Social
Security benefits that come under disability insurance and also the conditions of
eligibility of a person for this type of insurance. We also discussed the different policy
definitions related to Disability Insurance.