Disability Insurance Provisions
Automatic Increase Benefit
This policy provision increases the policy’s monthly benefit on the policy’s effective date anniversary without evidence of medical or financial insurability. It typically continues for 5 years and increases the benefit by 4%. You can refuse an increase. You may also apply to renew this benefit for an additional 5 years.
A benefit period is the maximum amount of time the insured will receive benefits for a continuous disability. The benefit period is subject to underwriting requirements. The insured may select a benefit period of two years, five years or up to retirement age of 65/67/70.
A concurrent disability occurs when there is more than one injury or illness. Though there is more than one injury/illness causing disability, the concurrent disability benefits are paid as if there is only one injury or illness; the insured will be considered to have one disability. Once a continuous period of disability begins, it remains one period, no matter what or how many injuries or illnesses caused the start or continuation of disability.
Cosmetic or Transplant Surgery
A disability caused by cosmetic surgery or transplant surgery (Lasik, transplanting a kidney)is considered the same as a total disability due to an illness/injury after six months of the policy being in force.
Cost of Living Rider
A cost of living rider increases the disability benefit after 1 year of disability and each year thereafter that you remain disabled. It is increased on either a fixed basis or based on the change in the CPI-U.
Also referred to as the qualifying or waiting period, the elimination period is the time during which the insured must remain disabled before benefits will begin. The better plans allow the elimination period to be satisfied within a larger accumulation period.
Disability policies include specific conditions in which a disability will not be covered. For example, many plans will not provide benefits for disabilities arising from being in a war, participating in a riot, committing a felony, or self-inflicting an injury.
Future Purchase Option Rider
The future purchase option rider allows the insured to buy additional monthly benefits on specific option dates. This is regardless of the insured’s health, as long as the earned income at the time justifies the increase in benefits.
A grace period is the 31 days immediately following the due date of a premium. The policy will continue during the 31 days, but if the premium is not paid by the end of the grace period, all coverage will be terminated.
If premiums are paid by the end of each grace period, no changes can be made to any part of the policy, except the price of the premium. After three years, the premium price can change, but only if the change applies to all policies with the same benefits insuring the same risk class.
Maximum Benefit Period (Benefit Duration)
The maximum benefit period is the longest length of time benefits are payable as long as the employee remains continuously disabled.
A non-cancelable rider changes a policy and all riders from a guaranteed renewable status to a non-cancelable and guaranteed renewable status. With this rider, the insurer cannot change the policy or its premiums as long as all premiums are paid by the end of each grace period.
An underwriting category in which insured are placed based on their specific customary job duties.
This policy provision or rider pays a specified benefit percentage if the insured is unable to work as effectively as before or earn at least 80-85% of their pay derived from their specialty/occupation.
Pre-Existing Condition Limitations
A pre-existing condition is a physical or mental condition that existed before the effective date of the insurance coverage. Most policies exclude or reduce benefits for pre-existing conditions.
A premium is the periodic payment required to keep an insurance policy in effect.
Presumptive Total Disability
The grounds for presumptive total disability, a total and permanent loss because of injury or illness, can be defined as one of the following:
- Loss of speech;
- Loss of hearing in both ears, not restorable by hearing aids;
- Loss of sight in both eyes – this means that both eyes must measure at or below 20/200 after efforts have been made to correct vision;
- Loss of use of both hands;
- Loss of use of both feet;
- Loss of use of one hand and one foot.
This provision protects employees who return to work, but become disabled again from the same or a related cause. If this situation occurs within a certain period of time, the insured is considered still disabled from the original disability and is not subject to a new elimination period. The recurrent disability provision encourages employees to return to work without the fear of losing benefits if the disability continues.
The term regular occupation refers to the insured’s job at the time the disability began.
The rehabilitation benefit is an added benefit for those who join a vocational rehabilitation program approved by the insurer. While still receiving total disability benefits for up to 36 months, the rehabilitation benefit will pay any reasonable costs of the program that are not covered by other plans, policies or programs.
Relation of Earnings to Insurance
This term means that income from all sources including insurance cannot exceed 100 percent of the insured’s pre-disability earnings.
Return to Work Provision
An additional incentive is usually provided for a period of time to encourage disabled employees to return to work. This is called a return to work provision. The insured can receive up to 100 percent of pre-disability earnings, based on a combination of disability benefits and return-to-work earnings, under this provision.
The survivor benefit is an amount payable to the insured, the insured’s estate, or the insured’s designee if the insured dies while receiving total disability benefits. The survivor benefit is a lump sum payment that provides benefits to the insured’s eligible survivors. This is an optional benefit for most policies.
Waiver of Premium
As long as benefits are being paid out, no further disability premium payments are required from individuals who become disabled and qualify for benefits. The waiver of premium is typically issued after the insured has been continuously disabled for a specified period of time.
Critical Disability Insurance Provisions
This is the most important definition when insuring someone in a highly specialized occupation. For example, if a surgeon can no longer perform surgical procedures but can return to work full time as a general practitioner, he still qualifies for full disability benefits under the own-occupation provision.
This provision gives the insured total control over the policy. The insurance company cannot raise rates, reduce benefits, or add exclusions after the policy is in force. This provision also extends the presumptive disability benefit to lifetime.
Policies pay residual benefits whenever income is reduced by 20 percent or more with a loss of time or duties due to disability. For example, if a policyholder earned $100,000 annually, was disabled and then returned to work earning $50,000 annually, she would have a 50 percent loss of earnings, and thus qualify for a 50 percent residual benefit.
Future Purchase Option Rider
The future purchase option rider allows the insured to buy additional monthly benefits on specific option dates. This is regardless of the insured’s health as long as the earned income at the time justifies the increase of benefits.