Attending Physician Statement (APS) – A report completed by the proposed insured’s physician which documents current and prior health history. Used by the insurance company in the evaluation process of underwriting an application.
Automatic Increase Benefit – A policy provision that increases annually, the policy monthly benefit increases by a stated percentage with no medical or financial underwriting.
Benefit Period – The length of time that disability benefits will be paid for. Examples of this would be a five year or age 65 benefit period.
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.
Buy-Sell or Buy-Out – A policy that pays to a corporation or co-business owner a lump-sum or installment payments to buy out the interest of the disabled business owner.
Catastrophic Disability – Insured is unable to perform two or more of the activities of daily living without stand-by assistance or has a severe cognitive impairment that requires substantial supervision.
Conditionally Renewable – A policy that can be renewed each by the insurance company provided the insured meets certain criteria (e.g., continuous full time employment, premiums are current, etc.).
Cost of Living Rider – Disability income benefit increases each year by a specified percentage each year or the rate of increase for a benchmark index (e.g., Consumer Price Index), once the insured has been disabled for at least one year.
Covered Expenses – For a business overhead expense policy, the expenses that are eligible for reimbursement by the insurance company. Examples are rent, employee salaries and utilities.
Cross-Purchase – Each owner owns a policy on all other covered owners for a disability buy-out plan. With two owners, two policies are needed. With three owners, six policies are needed. Each owner is the beneficiary for the policies they own on the other business owners.
Disability Income – Monthly benefit paid to the insured in the event of a disability due to accident or sickness based on loss of income.
Earned Income – Income that an insured has to engage in actively to generate. Examples are salary, bonuses, commissions. Income that is created from dividends, rental and interest income is considered unearned income and is not eligible for disability coverage.
Elimination Period – Period of time insured client has to be disabled before they are eligible for benefits. The shorter the elimination period, the higher the premium paid for coverage. Typical waiting period is 90 days for long term disability plans.
Employer Paid Disability Benefits – Benefits paid by an employer for the benefit of the employee are taxable to the insured at time of claim. Taxation can be avoided if the employee recognizes the premiums paid by the employer as income in the year they are received.
Entity Purchase Agreement – In a disability buy-out, the company owns individual policies on each owner. The company is the beneficiary and uses the funds received to buy out the disabled owner.
Exclusions – Provision in the policy that excludes payment if specified activities are engaged in. Examples include intentionally self-inflicted injuries, act of war, declared or undeclared and committing or attempting to commit a felony.
Exclusion Rider – Amendment to the policy that excludes coverage for a specified condition or impairment. It enables an insurance company to issue coverage in situations where coverage otherwise would not be available. An example would be a client who has Type 2 Diabetes.
Financial Underwriting – Disability insurance is based upon replacing an insured’s earned income. The insurance companies may request copies of tax returns and financial statements to verify earned income, unearned income and net worth to ensure that the amount applied for can be approved.
Future Insurability/Guaranteed Insurability Options – Rider that can be added to the policy that enables a client to purchase additional coverage at specified dates in the future with no medical underwriting. The insured does have to provide proof of income to qualify and is subject to issue and participation limits
Gender Pricing – Women pay more than men for disability insurance because they have higher morbidity claims. It is the opposite of life insurance where men pay more because they have higher mortality claims.
Guaranteed Renewable – Policy renews each year as long as the insured is current on their premium payments. Company can raise premiums on a class wide basis (subject to approval by the state in which the policy was issued).
Guaranteed Renewable/Non-Cancelable – Terms of the policy cannot be altered by the company. Policy automatically renews each year as long as premium payments are made in a timely fashion. Premiums remain level and cannot be raised by the company.
Inspection Report – Report requested by an Underwriter. It is done to verify credit and employment histories, and may include interviews with the client and related parties.
Installment Pay Option – Used with disability buy-out insurance. If the insured receives payments over a period of time (e.g., 24 months) instead of a lump sum payment, it lowers the cost of coverage. Client can also elect to receive a partial lump sum payment and the balance paid out over a specified monthly payment period.
Keyperson Coverage – Payments are made to the company instead of the individual in the event of disability for the financial loss suffered by the company.
Long Term Disability Plans – Coverage periods of 2 years, 5 years, 10 years and up to Age 70. Elimination period are usually 90 days.
Lump Sum Payment – Single sum payment that is made once the Disability Buy-Out definition of disability trigger and elimination period have been met.
Medical Underwriting – Process used to determine if an insured qualifies for coverage based on a review of their medical history by the Underwriter.
Net Worth – Total assets owned by an insured. In some situations, a net worth above a certain level ($5,000,000) may mean the client cannot obtain coverage.
Occupation Class – Clients are classified according to their job duties and the level of risk of injury associated with their profession. A person who works as a plumber would have a lower occupation class (less favorable) than an engineer. The higher the occupation class, the lower the premium charged.
Own Occupation (Modified) – Insured is unable to perform the material and substantial duties of their occupation and are not working.
Own Occupation (True) – Insured is unable to perform the material and substantial duties of their occupation. The client can choose to work in a new occupation and collect their full disability benefit as long as they are considered totally disabled in the job they were doing prior to disability.
Physician Care Requirement – Contract clause that states that in order to continue to collect on a claim, the insured would need be under the care and periodic review of a licensed physician
Pre-Existing Condition – Policy provision that is used to define certain illnesses or injuries that occurred or manifested themselves prior to the policy effective date. Failure to disclose them could result in the denial of a claim.
Premium Mode – Method of payment by the client (annual, semi-annual, quarterly, monthly).
Presumptive Disability – If a client has a loss of sight in both eyes, or loss of hearing in both ears, loss of speech or loss of two limbs they are considered to be totally and permanently disabled and no further medical supervision is required.
Rating – An extra premium expressed as a percentage (e.g., 25%) placed on the policy due to a medical impairment which has a greater risk of a claim.
Recurrent Disability – Covers situations where a client has returned to work, but becomes disabled again due to the same prior injury or illness. Depending upon the situation, the company may not require that a new elimination period be satisfied.
Residual/Partial Disability – Has a partial loss of income of at least 15% – 20% (varies by carrier) due to injury or sickness. Without this rider, the company will only pay a claim in the event of a total disability.
Rehabilitation – Coverage provided by the insurance company to pay for expenses associated with occupation rehabilitation as an incentive for the insured to return to work.
Salary Substitute Rider – Rider on a business overhead expense policy. Enables an insured to have funds available to pay for a replacement while they are on disability.
Short Term Disability Plans – The elimination and benefit periods are shorter than a long term disability plan. Elimination periods be as short as 7 days with benefit periods of up to two years. Most of these plans are found in the group disability market and are employer paid.
Social Insurance Substitute Rider – Coordinates benefits that an insured receives from social security disability and other governmental programs. If the insured does qualify for SSDI, their benefit is reduced. The goal is to prevent cases of over insurance (the client receiving more income while on disability, than they did while working).
Total Disability – Client is unable to perform the material and substantial duties of their occupation.