BELOW IS A LIST OF COMMON TERMS USED WITHIN THE DISABILITY INSURANCE INDUSTRY
A written statement by a prospective insured that provides information about the applicant to be used in determining insurability and pricing.
The APS is a report written by the insured’s physician that documents his or her past and current health history. Insurance companies use this report to review applications for insurance and/or to evaluate benefit eligibility, in the event of a claim.
A beneficiary is a person or entity who is named to receive proceeds or benefits from an insurance policy. There are three types of beneficiaries. Primary beneficiaries (such as a spouse) are first entitled to the proceeds. Secondary beneficiaries (such as a child) are entitled to the proceeds if the primary is no longer living when the insured dies. And, tertiary beneficiaries (such as a grandchild) receive the proceeds if both the primary and the secondary beneficiaries are no longer alive when the insured dies.
A benefit period is the maximum amount of time the insured may receive proceeds 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 66 or 67.
Business Overhead Expense
This type of policy reimburses business owners for covered business-related expenses that are incurred during their period of disability.
If a policy owner pays a premium at the time of insurance application, she will receive a conditional receipt. With this receipt, the insured receives interim coverage during the underwriting process. This is subject to the terms and conditions of the receipt.
Cost of Living Rider
A cost of living rider increases the disability benefit each year according to a percentage derived from the Consumer Price Index measure.
Disability benefits are any proceeds the insured receives for a disability covered in the policy provisions.
The monthly benefit received by the insured to help replace lost earnings during his or her period of disability.
Disability insurance is a type of health insurance which pays the insured a monthly benefit, replacing earnings lost from an accident or sickness.
The effective date is the day the policy begins.
Also referred to as the qualifying period, the elimination period is the time during which an employee must be disabled before benefits will begin.
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.
This document is attached to the policy and outlines the specific conditions that will not be covered under the policy. Excluded conditions often include preexisting conditions identified by medical history or physical exam.
Financial Strength Ratings
Insurance company ratings can provide information on the companies’ financial performance, stability claims paying ability and more. There are five major insurance industry ratings services: A.M. Best, Standard and Poor’s, Moody’s, Duff and Phelps, and Weiss.
Future Increase 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.
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.
A report ordered by the underwriter that summarizes an applicant’s health history, employment and habits. This information is obtained by interviewing the applicant directly and by interviewing his/her personal and professional associates.
A medical examination and report are often part of the application process for disability insurance policies. The information becomes part of the contract and is attached to the policy.
A method of evaluating an applicant’s health and medical history to determine if a policy will be issued and if so, the appropriate rates and exclusions.
Mental or Nervous Disorders
Any disability caused by or related to a mental or nervous disorder is often limited in coverage by long-term disability insurance policies. Contracts include a definition of mental and nervous disorders and the insured must meet that definition in order to receive benefits.
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 insureds are placed based on their specific, customary job duties.
Own Occupation is the most generous and preferred policy definition available. It defines disability as the insured’s ability to perform the duties of his or her own occupation.
This policy provision or rider pays a specified benefit percentage if the policyholder is unable to perform one or more duties of his own occupation.
If the insured, during a specified period of time (often three months) prior to coverage, received medical attention for the same reason as a claimed disability that began after the policy’s effective date of coverage, the disability will not be covered. Some policies have more restrictions that state if the insured did not seek medical attention for the condition but still experienced the symptoms prior to coverage, the disability may be excluded from benefits. 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.
Residual Disability Benefit Rider
To encourage a return to the workforce, most disability insurance carriers offer limited benefits to those who return to work part time or full time (with a loss of earnings). If the insured can work in a limited capacity and is earning less than a set level of income, he is eligible for limited benefits. If the insured is residually disabled, but not totally disabled, the residual disability rider provides a reduced basic monthly benefit.
A rider is any extra agreement that is part of the policy that expands or limits the policy’s conditions, coverage or benefits.
An employee qualifies as totally disabled if, due to illness or injury, he is unable to perform the substantial and material duties of his occupation; is not engaged in any other occupation; and is under the care of a physician for the illness of injury.
The process by which a company evaluates and classifies risks and measures and calculates the cost of protection, within the framework of the rules, rates, and coverage forms that are permitted by law in a particular state.
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.