Disability insurance provides benefits that replace part of your lost income when you become unable to work due to illness or injury. If you become injured or ill and can no longer work, disability insurance generally does not fully replace your income during your disability; it only replaces a portion of your income. Unlike workers compensation, disability income insurance supplements your income even in cases where the illness or injury is not job-related.
To receive benefits (income replacement) under a disability income insurance policy, you must meet the definition of total or partial disability as defined in the policy. Some companies define total disability in two stages. At the beginning of the disability, you are considered totally disabled if your disability prevents you from performing the basic duties of your occupation. However, at the end of a specified period (within two years) you are considered totally disabled only if you are unable to perform any job suitable to your education, training and experience. You are considered partially disabled if your disability prevents you from performing one or more, but not all, essential tasks of employment or occupation, reduces the percentage of time or specified number of hours you are able to work, or causes a reduction in compensation. Each policy is different and you should check the definitions of total and partial disability within the policy.
Disability policies usually include a waiting period that specifies the number of days you must be disabled before qualifying for benefits. Waiting periods generally range from 30 days to 365 days before benefits are available. These policies will also specify the length of time you will receive monthly income replacement benefits. Benefit periods can range from 1 year, 2 years, 5 years, up to age 65 or for your lifetime. The benefit may be stated as a dollar amount or as a percentage of your income.
Disability income insurance is usually offered as either a short term or long term policy. Short term disability insurance typically replaces a portion of lost earnings for a limited time, typically less than one year. Long term disability insurance replaces a portion of lost earnings for a specified time, typically greater than one year.
Many disability income policies offer additional benefits that you can buy. These can include:
Accidental Death and Dismemberment Benefit
Benefit payable if death or dismemberment occurs due to an accident.
The number of consecutive months, starting on the first day of disability, during which the elimination period must be satisfied.
Active, Full-time Employee
An individual that works for the employer on a regular basis (generally based on a minimum number of regular work hours) in the standard course of the employer’s business.
Automatic Increase Rider
An optional benefit which provides automatic increases each year for a limited number of years, despite changes in health, occupation or income.
The percentage of the insured’s pre-disability income upon which the payable benefit is based, up to an overall maximum benefit.
The longest period of time for which benefits are payable for continuous disability.
Business Overhead Expenses
The usual expenses required to maintain an office or run a business.
An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner’s share of the business and the exact terms of the buying and selling process are established before death or the onset of a disability.
Capital Sum Benefit
The benefit provided when the insured suffers the loss of a hand or foot, severed through or above the wrist or ankle, or loss of the entire sight in one eye with no chance of recovery. The loss generally must be the result of sickness or injury that the insured has survived for at least 30 days.
Consumer Price Index
A measure of inflation that quantifies the rate of change in the cost of living in the United States.
The right given to an insured person to change insurance without evidence of medical insurability, usually to an individual policy, upon termination of coverage under a group contract.
Cost of Living Rider
An optional benefit that provides for increases in disability benefit during periods of disability.
An insured’s monthly benefit times the number of months of disability after the elimination period.
An insured’s monthly expenses during a residual disability.
All income received by the insured during a residual disability.
Definition of Partial/Residual Disability
The actual terms and detailed description of “disability” sometimes used to describe when an insured is able to return to work part-time or even full-time (with a loss of earnings). If working in this limited capacity and is earning less than a certain level of income, the insured may still be eligible for limited benefits.
Definition of Total Disability
The actual terms and detailed description of “disability” that will be used to determine an employee’s eligibility for benefits. Examples include but are not limited to:
Own Occupation (Own Occ) Under this definition, an insured will be considered disabled only if he/she is unable to perform the duties of his/her occupation
Any Occupation (Any Occ) Under this definition, an insured will be considered disabled only if he/she is unable to work in any occupation for which he/she is qualified by education, training, or experience. This is somewhat similar to the definition that the Social Security Administration uses in determining disability.
The physical or mental inability of individual’s to perform major occupational duties because of illness or injury.
A type of insurance used to replace some portion of income in the event the insured cannot work due to illness or injury.
Salary, wages, commissions, etc., received as payment for active employment. This does not include unearned income from investments, annuities, rent, etc.
The number of consecutive days for which no benefits are paid following a claim and during which the insured must be disabled.
Evidence of Insurability
Medical and/or financial proof sometimes required of an applicant employee to demonstrate to the insurance company that he/she is insurable.
Specific situations under which benefits will not be paid by a policy.
Family Care Expenses
An optional benefit that provides credit or partial reimbursement for certain expenses incurred for family care.
Foreign Residency Limitation
A common limitation of benefits for when the insured is not a resident of the United States or Canada.
The payment of benefits at the rate of 1/30th of the monthly amount for each day the insured is disabled for less than a full month after the elimination period has been satisfied.
Future Increase Option
An optional benefit that allows the insured to purchase additional coverage at any age, regardless of health, subject to financial ability to afford the additional coverage.
A stated amount of time, in which a policyholder may pay a premium after the due date while keeping the full policy in-force.
A policy offered to employees of a company or members of a union.
An insurance policy provision that prevents the insurance company form cancelling or making changes to a policy for a stated period of time during which the policy is in-force. Policy premiums may increase, however.
A disability claim, as defined by the policy, cannot be denied once the policy has been in-force for at least 2 years with the exception of fraudulent statements in the applications.
A provision that increases pre-disability earnings annually according to a stated formula to help keep residual disability benefits from losing purchasing power due to inflation
Accidental bodily injury occurring while a policy is in force
An owner or highly skilled employee whose contributions to the business are critical to the continuing success of the company.
A premium that remains unchanged until the insured reaches a stated age.
Lifetime Disability Benefit
A lifetime benefit payable if the insured is continuously and totally disabled after a stated age.
Specific provisions included in disability policy that limit coverage in certain situations.
Loss of Income
The difference between an insured’s income before and after disability. Generally, if the loss is greater than 75%, it is considered to be 100% and the full disability benefit becomes payable.
The individual or entity named to receive all benefits per the policy.
A single and complete payment of all benefits due.
A provision that encourages disabled employees to participate in rehabilitation efforts whenever appropriate. Such a provision allows for termination of benefits if the employee refuses to cooperate or participate with a rehabilitation plan.
Maximum Monthly Benefit
The highest dollar amount the insured can receive on a monthly basis under a disability plan.
Maximum Benefit Period (Benefit Duration)
The maximum length of time for which benefits are payable under a policy plan as long as the insured remains continuously disabled.
Medical Care Requirement
An insurance company’s right to deny benefits for any period in which the insured is not under a physician’s care. Companies may require that care be appropriate, according to generally accepted medical standards, and be provided by a physician whose specialty is appropriate for the condition. The requirement may be waived if reasonable proof is presented that a physician’s care is no longer necessary.
Minimum Monthly Benefit
The minimum amount paid as a monthly benefit after reductions for other income.
The amount an insurer will pay for each month of total disability after the elimination period.
A policy that cannot be cancelled or changed by the insurance company as long as premiums are paid on time. Generally, premiums on such a policy cannot increase until the insured reaches age 65.
An additional policy benefit offered by the insurance company which may be included at the applicant’s request for an additional cost.
Receiving disability benefits in excess of income earned while working.
Own Occupation (Own Occ)
A definition of disability stating that the insured will be considered eligible to receive the policy’s full benefit as long as the he/she is unable to perform the standard tasks of his or her regular occupation(s) at the time of disability.
The physical or mental inability of an insured to perform at least some, but not all, standard duties of his or her regular occupation(s).
The total amount of coverage an insurer will allow on an individual after considering total amount of current insurance in-force or for which the insured is considered eligible.
A physical or mental condition which existed prior to the issuance of an insurance policy.
The presumption that the insured is totally disabled, even if still at work, if illness or injury results in the total loss of sight in both eyes, hearing in both ears, speech, or use of any two limbs. The elimination period is waived from the date of loss and total disability benefits are payable during the loss until the end of the benefits period. Ongoing care of a physician may or may not be required.
The calculation of average monthly expenses for the same period during which prior income is based for the purpose of residual disability coverage.
The insured’s earnings prior to disability. This may be calculated as average monthly earnings for the last full calendar tax year or as the average of the highest two of three preceding years, or using another measure.
Qualified Sick Pay Plan
Also called a Salary Continuation Plan, this is a plan offered by a business to continue the salary of specified employees should they become disabled.
A policy option that provides some benefits when the insured returns to work following a period of disability.
Recurrent Periods of Disability
Depending on the policy, separate periods of disability may be considered one continuous period if each period is due to the same cause(s) and is not separated by a minimal recovery time (usually 6 months).
A benefit to help reimburse the insured for costs incurred while participating in rehabilitation programs for the purpose of returning to his or her occupation(s).
The conditions around which a policy may be kept after it has been allowed to lapse.
Disability insurance that covers a partial disability as defined in the policy.
Salary Continuation Plan
Also called a Qualified Sick Pay Plan, this is a plan offered by a business to continue the salary of specified employees should they become disabled.
Social Insurance Offset / Substitute Rider
An option that pays a benefit if the insured is disabled and not receiving social insurance benefits.
Social Security Disability Insurance (SSDI)
A federal cash benefit that may be available if a person is disabled under the definitions of Social Security and eligible for benefits.
State Disability Benefit Insurance Laws
Laws enacted in California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico that require employers to provide disability benefits for the non-occupational disabilities.
The option to change a policy premium from or to annual, semi-annual, quarterly, or monthly.
The insured’s physical or mental inability to perform the duties of his or her occupation(s) due to illness or injury.
Unemployment Premium Waiver Option
An option that can waive premiums for a limited period of time in the event the insured becomes unemployed, regardless of disability.
Waiver of Elimination Period
Depending on the policy, the elimination period may be waived if an insured becomes disabled within five years after the end of a period of disability of longer than six months and for which benefits were paid.
Waiver of Premium
A benefit that alleviates the insured from making premium payments after being disabled during the lesser of the elimination period or 90 days. The policy may also refund premiums paid during the first 90 days and eliminate premiums due during the 90 days after recovery.
Benefits mandated by law to compensate employees for losses incurred due to a work-related illness or injury.
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