Recap of Chapter Ten

1. Disability income insurance addresses the potential loss of earnings resulting from illness or injury. It is designed to provide financial protection by replacing a portion of the insured's income. (10.1)

2. Disability income insurance is also referred to as “loss of time” coverage. Once an individual meets the policy's definition of disability, benefits are paid on a weekly or monthly basis. These benefits are typically calculated as a percentage of pre-tax income (subject to a maximum limit) or as a fixed amount specified in the policy. (10.1)

3. Disability policies are structured to replace less than 100% of lost income. This limitation helps prevent malingering and avoids overinsurance by maintaining an incentive for the insured to return to work. (10.1)

4. The benefit period refers to the maximum length of time benefits will be paid for a single claim. This period may be defined as a specific number of years, until age 65, or for the insured's lifetime, depending on the policy. (10.1)

5. The elimination period is the waiting period that begins on the first day of disability and must be satisfied before benefit payments start. This duration is specified in the policy contract. (10.1)

6. “Non-occupational” illnesses and injuries are those that occur outside of, and are not related to, the individual's employment. (10.2)

7. “Occupational” policies provide coverage for disabilities resulting from illnesses or injuries that occur both on and off the job. (10.2)

8. Total disability is commonly defined using either an “own occupation” or an “any occupation” standard, or a combination of both. Many long-term disability policies initially apply the “own occupation” definition and later transition to the “any occupation” definition after a specified period. (10.2)

9. Under the “own occupation” definition, an individual is considered disabled if they are unable to perform the essential duties of the occupation they were engaged in at the time of disability, even if they are capable of working in a different role. This definition is less restrictive and generally easier to qualify under. (10.2)

10. Under the “any occupation” definition, an individual must be unable to perform the duties of any occupation for which they are reasonably suited based on education, training, or experience. This standard is more restrictive, making it more difficult to qualify for benefits. As a result, policies using the “any occupation” definition are typically less expensive than those using the “own occupation” definition. (10.2)

11. A residual disability benefit may be payable when an individual who was previously totally disabled returns to work but continues to experience a reduced capacity to perform job duties or earn income. (10.2)

12. A recurrent disability is a condition that has been treated and resolved but reoccurs within a specified period, such as six months. In such cases, the disability is treated as a continuation of the prior claim, meaning a new elimination period is not required and benefits resume accordingly. (10.2)

13. Presumptive disabilities are severe and permanent conditions that do not require ongoing proof of disability. The insurer recognizes that recovery to pre-disability condition is not possible. Examples include paralysis, loss of limbs, loss of sight, speech, or hearing. Some policies may also provide a lump-sum payment for these conditions. (10.2)

14. Many disability income policies include rehabilitation benefits, which offer additional financial support for vocational training. These benefits assist the insured in transitioning to a different occupation that accommodates their physical or functional limitations. (10.2)

15. In underwriting disability income insurance, an individual's occupational classification is the primary factor in determining risk, with avocations (non-work activities) also considered. Secondary factors include age and income. If an individual holds multiple occupations, the classification is based on the most hazardous occupation, regardless of the amount of time spent in that role. (10.3)

16. The benefit amount and the benefit duration are key factors in determining the final premium once a disability income insurance application has been approved. (10.3)

17. A change of occupation provision allows the insurer to adjust benefits if the insured changes to a more hazardous occupation without notifying the insurer. In such cases, the benefit may be reduced. Conversely, if the insured changes to a less hazardous occupation, they may be eligible for a premium refund. (10.3)

18. Applicants classified as substandard risks may still be approved for coverage, but with modifications such as: higher premiums, reduced benefit amounts or durations, longer elimination periods, or the addition of an exclusion (impairment) rider. This rider limits or excludes coverage for specific risks, which may be related to occupational, avocational, or health conditions. (10.3)

19. Group long-term disability (LTD) benefits typically begin when short-term disability benefits end. Therefore, the elimination period for LTD usually corresponds to the duration of short-term disability coverage. LTD benefits may continue for a specified period, such as until age 65 or for the insured's lifetime, provided the disability persists. (10.4)

20. Business Overhead Expense (BOE) insurance covers the ongoing operating expenses of a business, excluding the owner's income, if the insured becomes disabled. Key Person insurance provides funds to help an employer replace a disabled key employee. Additionally, disability policies used in Buy-Sell agreements may include an acceleration provision, allowing benefits to be paid as a lump sum rather than as monthly income. (10.5)

21. A Cost of Living Adjustment (COLA) rider increases the monthly benefit over time to reflect changes in the Consumer Price Index (CPI), helping preserve the insured's purchasing power during a long-term disability. (10.6)

22. A Guaranteed Insurability (Future Purchase Option) rider allows the insured to increase their monthly benefit at specified intervals or after certain life events, without providing evidence of insurability. However, proof of income may still be required. (10.6)

23. A Waiver of Premium rider suspends premium payments while the insured is disabled, ensuring that coverage remains in force without additional financial burden. (10.6)

24. A Lifetime Benefit rider provides benefit payments for the insured's lifetime if total and permanent disability occurs before a specified age (such as age 50). (10.6)

25. A Return of Premium (or cash value) rider refunds a portion of the premiums paid if the policy remains in force for a specified period. Any benefits previously paid are deducted from the total premiums before the refund is issued. If no claims were made, the insured may receive a full refund. Policies terminated early may provide a significantly reduced cash value. (10.6)

26. A Non-disabling Injury rider provides limited cash benefits for medical expenses—such as emergency room visits, diagnostic imaging, and related costs—when an injury does not result in total disability. (10.6)

27. A Hospital Confinement rider provides an additional daily cash benefit for each day the insured is hospitalized as an inpatient. In some policies, it may also waive the elimination period if hospitalization results from a covered illness or injury. (10.6)

28. A Social Insurance Supplement (SIS) rider pays a temporary income benefit while the insured is waiting for benefits from Social Security Disability, Workers' Compensation, or state disability programs to begin. It may also provide benefits if Social Security benefits are denied. (10.6)

29. An Additional Monthly Benefit (AMB) rider functions similarly to an SIS rider; however, its benefits are not reduced by other sources of income. These benefits are typically payable for a limited period, such as 6, 9, or 12 months from the onset of disability. (10.6)