Disability Insurance Glossary
This is the period of time the insured must accumulate during a period of time before benefits are paid. (similar to a standard Elimination Period) Example: insured must be disabled any 90 days during a seven-month period before benefit payments begin.
ATTENDING PHYSICIAN STATEMENT (APS):
A report, completed by the proposed insured’s (or, in a claim situation, the insured’s) physician, which documents current and prior health history. Used in the evaluation process of approving an application (or claim).
AUTOMATIC INCREASE BENEFIT:
A policy provision that increases, annually, the policy monthly benefit by either a stated percentage or the latest Consumer Price Index measure, without the evidence of either medical or financial insurability.
Amount paid to insured at the time of claim.
The length of time for which disability income benefits will be payable to the claimant under a policy. Examples: two years, to age 65, and in some cases, lifetime.
BUSINESS OVERHEAD EXPENSE:
A policy that reimburses the insured business owner, during a disability, for covered business expenses that are incurred in the day-to-day operation of the business. (See Business Owners for a more detailed explanation.)
BUY-SELL (OR BUY-OUT):
A policy that pays to a corporation or co-owner either a lump-sum or installment payments on the disability of an insured owner to provide the necessary funds to buy-out the business interest of the disabled owner. (See Business Owners for a more detailed explanation)
In a Business Overhead Expense policy, this is the fund that accumulates unused benefits to be paid out to the insured at a later date.
Under this policy provision, an insurance company agrees to renew a disability income policy, providing the insured meets certain qualifications, such as full-time employment.
COST OF LIVING RIDER:
An optional benefit that increases the disability benefit by a percentage (3 or 6 percent) or the latest Consumer Price Index measure after the insured has been on claim for one year. Some policies increase the percentage by simple measures and some by compound.
In a Business Overhead Expense policy, this is a listing of typical business expenses that are eligible to be reimbursed during an insured’s disability. Examples: rent or mortgage payments, electricity, employee salaries.
In a disability buy-sell situation, this arrangement has the owners themselves as owner and beneficiary of the policy proceeds. Generally used only where two owners are involved.
Policy that “buys out” the business partner in the event
that a disability occurs.
A monthly benefit paid to an individual in the event of an accident or sickness to help replace earnings lost.
The policy deductible, usually the number of days from the onset of disability, for which no benefits are payable. Choices are usually 30 days, 60 days, 90 days, or 180 days.
A table used by an underwriter and agent to determine the maximum amount of monthly benefit the insured can purchase when the employer is paying the premium. This limit is higher than the ordinary issue limit because of the taxation on benefits when received due to the employer’s deducting the premium paid as an ordinary business expense.
ENTITY PURCHASE AGREEMENT:
In a disability buy-sell situation, this arrangement has the corporation as owner and beneficiary of the policy proceeds. Generally used in situations where there are more than two owners.
A policy provision that indicates what will not be covered under the disability income policy. Example: complications of pregnancy
Attached to and made a part of the policy, this document, which the insured generally must sign, indicates a condition(s) which is specifically not going to be covered under this insured’s policy. Example: any disease or disorder of the lungs. Riders like these are placed as a result of the individual evaluation of the insured’s history.
A premium paying arrangement for which a deduction is allowable under Section 162 of the Internal Revenue Code for a salary bonus to the insured and used to pay the disability policy premium.
A method of evaluating data relevant to earned income, unearned income, net worth, fringe benefits and other components of compensation to determine the proper amount of monthly benefit for which the insured qualifies. Typical requirements are a pay stub, tax return or a copy of employment contract.
FUTURE INCREASE OPTION:
An optional benefit in a disability income policy that allows the insured future increases to the policy monthly benefit at specified dates (typically on insured’s policy anniversary), with a requirement of only financial (and not medical) insurability.
Premiums start out less expensive than level premiums but increase each year. If the insured starts with a graded premium, they may change to a level premium on a policy anniversary. Premiums will then be based on attained age.
GROUP DISABILITY POLICY:
Policy through an employer.
GROUP DISABILITY REPLACEMENT RIDER:
Rider that allows policyholder to purchase additional benefit when they leave their employer or lose their group benefits. No medical underwriting required to exercise the benefit.
Policy issued without any medical underwriting. Group disability policies are often “guaranteed issue.”
Under this policy provision, the insurance company agrees to renew the policy (can’t cancel the policy) for as long as premiums are paid on a timely basis by the insured. Premiums may be increased with prior notification, but policy provisions can never be changed.
Information, ordered by the underwriter that provides a summary description of the insured’s employment, health history, and habits as a result of a direct interview and interviews with business and personal associates.
In a disability Buy-Sell policy, this policy provision offers an alternative payout to a Lump-Sum settlement by having the insurance company pay out a level benefit in monthly installments for a specified period of time.
KEY PERSON POLICY:
A product designed to reimburse the business for financial loss during the key person’s disability until recovery or a suitable replacement can be found.
Premiums in the policy are locked in and will never increase until age 65.
LIFETIME EXTENSION RIDER:
A rider that extends the benefit period after age 65. The amount of benefit the claimant receives is based on the age when the claim started.
In a disability Buy-Sell policy, benefits are usually payable in a Lump Sum at the trigger (or effective) date of the buy-sell. The trigger date is the day following expiration of the Elimination Period
The process of evaluating a disability income application for approval by reviewing the potential insured’s individual health history.
Definition of disability that will pay benefits if the insured cannot work in their occupation. Any earnings in another occupation will offset the benefits.
The total non-business related assets of an insured used in the financial evaluation of the disability insurance application. For disability Buy-Sell policies, net worth is that of the business and is used in the calculation of the value of the owner’s interest.
The renewal provision of the policy which states that the insurance company cannot change any policy provisions or increase premiums after the policy has been issued as long as the insured makes timely payments of premium.
A category of insured based on specific job duties that dictate the premium and contractual grouping under which the insured would be placed.
OUTLINE OF COVERAGE:
A simplified benefit summary of a disability policy provided by the insurance company and required by law in many states to be delivered to the individual insured either at the time of the sales presentation or policy delivery.
The total possible benefit payout under the Business Overhead Expense policy, this amount is calculated by multiplying the monthly benefit by the number of months in the selected benefit period. Example: a $3,000 monthly benefit and 18-month benefit period would provide an Overhead Maximum of $54,000 ($3,000 x 18).
A term that defines the most liberal wording of the total disability contractual provision. If the insured, due to sickness or injury can’t perform the duties of one’s own occupation, benefit will be paid even if income is earned in another occupation. If insured is a physician or dentist, their occupation will be deemed their medical specialty.
PHYSICIAN CARE REQUIREMENT:
This policy provision states one of the eligibility requirements for disability benefits, requiring that the insured be under the regular care and attendance of a physician. Many companies waive this requirement if it can be shown that future treatment would be of no benefit to the insured.
Date policy is initially issued and is yearly renewed.
POLICY SCHEDULE PAGE:
Found in the early pages of a disability income policy, this sheet details all the specific individual policy data such as name, policy number, monthly benefit, and premium.
The particular method of premium payment selected by the insured. The policy can be paid for annually, semi-annually, quarterly or monthly.
PRESUMPTIVE TOTAL DISABILITY:
A policy provision that waives the normal total disability eligibility requirements in the event of a catastrophic-type disability such as the loss of sight, hearing, speech or use of two limbs. Elimination period is also waived.
PROFESSIONAL OVERHEAD EXPENSE:
Disability policy designed to pay business expenses.
An underwriting decision to approve disability income coverage but at a higher than normal premium due to an increased risk which is usually associated with adverse medical history. An extra premium of anywhere from 15 to 100 percent or more can be applied.
A policy provision that defines when an injury or illness will be considered continuous if there has been a recovery for a short period (usually six months) and then a recurrence of the same or related cause. A condition considered recurrent will not necessitate new satisfaction of the Elimination Period.
REDUCED TERM DISABILITY INSURANCE:
Policy designed to pay back a loan.
Not to be confused with “own occupation,” regular occupation will pay benefits if the insured cannot work in their occupation, but benefits will be offset if insured earns money in another occupation or job.
A policy provision under which the insurance company agrees to assist in the expenses associated with a rehabilitation program that the insured enters following disability.
The process whereby the insured must go through the underwriting process to place the policy back in force after the policy has lapsed.
The policy provision that details the conditions upon which the insurance company agrees to continue to insure the disability income policy. Examples: Non-cancelable, Guaranteed Renewable, Conditionally Renewable.
RESIDUAL DISABILITY BENEFIT:
A policy provision or an optional benefit that promises to pay the insured a portion of the total disability benefit based on a loss of earnings. Usually requires at least 20 percent or more loss of earnings and the policyholder will receive a proportionate benefit. Typically if the insured has at least 75 percent or more loss of earnings they will receive the entire benefit amount.
Rider that pays a proportional benefit to the loss of
An added benefit to the policy.
SALARY CONTINUATION PLAN:
A program, also called a Section 105 plan, under which the employer makes deductible wage payments, in part or in full, to an individual who is unable to work due to illness or injury.
Usually associated with group insurance, this program pays a monthly benefit for total disability after a minimum Elimination Period for up to 13, 26, 39, or 52 weeks.
A policy provision defined as illness or disease, which first makes itself known to the insured following the policy effective date. Sickness covers both physical and mental illness unless otherwise specified.
SIGNIFICANT EARNINGS LOSS:
A provision under the Residual Disability Benefit that promises the full total disability benefit if the insured is back to work and suffers a substantial loss of income, usually 75 percent.
A federal program, which provides benefits to all working Americans in the form of disability, retirement or survivor benefits. Disability is strictly and narrowly defined and benefits begin in the sixth month of a disability that has an expectation of lasting at least 12 months or will result in the individual’s death.
SOCIAL SECURITY OFFSET RIDER:
An optional benefit that coordinates benefits with any benefits received through Social Security disability (and, often, other public programs) to avoid either underinsurance or over insurance.
SUPPLEMENTAL HEALTH STATEMENT:
A form that is a direct communication from the underwriter to the proposed insured that asks for more details about a specified medical condition(s).
Often the key policy provision in the disability income policy, this feature defines the eligibility requirements necessary for an individual to qualify for full monthly benefits.
TRANSPLANT DONOR/ COSMETIC SURGERY BENEFIT:
A policy provision that considers an insured to be disabled under the sickness provision if donating a body organ or as a result from plastic surgery.
Money that will be available to an individual whether or not he is disabled. It affects the amount of disability coverage that may be purchased based on earned income. Example: real estate property income.
WAIVER OF PREMIUM:
A policy provision that specifies the exemption of the insured from making premium payments following a specified number of days of disability, until the insured recovers. In many cases, any premium paid during the initial days following disability is refunded.
A system administered by each individual state that provides benefits if a worker is hurt or contracts an illness on the job.