Learning about disability insurance can be a daunting task, especially if one doesn’t know the meaning of the specialized words, of which there are many. In this disability insurance glossary, we have defined many of these terms used throughout this website and, perhaps in your policy. If, at any time you come across an insurance term in ProtectYourIncome.com you don’t understand, come back to this glossary and look up the definition. By knowing the definitions of these terms, your study of the subject should be much easier.
An unforeseen and unintended event.
Accidental Death Benefit:
Benefit payable if death results from an accident.
A period of consecutive months that begins on the first day of disability and during which the elimination period must be satisfied.
Annualization of Waived Premium:
If the policy anniversary falls during the period that premiums are being waived, an entire year’s premium will be waived regardless of the premium payment mode used by the insured.
A form on which the company requests information from the prospective insured (applicant) upon which the home office underwriters decide whether or not to issue the policy. It then becomes part of the contract when the policy is issued.
Group insurance issued to an association rather than to the employees of a business or members of a union.
Automatic Increase Rider:
An optional benefit which provides automatic increases each year, despite changes in health, income or occupation.
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 that will be provided when the insured suffers complete loss of a hand or foot, severed through or above the wrist or ankle, or loss of the entire sight in one eye, and survives it for 30 days.
A receipt given for premium payment accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of prepayment or the date on which the last of the underwriting requirements, such as medical examination, has been fulfilled.
Consumer Price Index:
The Consumer Price Index for All Urban Consumers as published by the Federal Department of Labor. That index shows 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 which provides for increases in the disability benefit during periods of disability.
An arrangement between two or more business owners that in the event of an owner’s death or disability, the remaining owner or owners will purchase the business interest of the deceased or disabled owner.
In an overhead expense policy, the monthly benefit times the number of months the insured has been disabled after the elimination period.
An insured’s expenses in each month while residually disabled.
All income which an insured received on a cash basis in each month while residually disabled.
An individual’s physical or mental inability to perform the major duties of his or her occupation because of sickness or injury.
A form of health insurance which provides periodic payments when the insured is unable to work as a result of sickness or injury.
Gross salary, wages, commissions, fees, etc., derived from active employment. This does not include investment income, rents, or amounts received from annuities or insurance policies.
The consecutive number of days for which no benefits are payable at the start of a claim. An insured must be disabled all of those days.
An arrangement between the business entity and the business owners that in the event of an owner’s death or disability, the business entity will purchase the business interest of the diseased or disabled owner.
Certain conditions and causes which are not covered by the policy. These are listed in the policy.
The regular business expenses which an insured may deduct from gross earned income for federal tax purposes.
Future Increase Option:
An optional benefit which allows the insured to purchase additional coverage up to a stated age, regardless of health, as long as his or her income warrants the increase.
A policy covering the employees of a business or members of a union.
A type of insurance which cannot be cancelled or altered by the insurance company as long as the insured continues to pay premiums on time. However, the premium may be increased for classes of insureds.
Gross earned income, less business expenses, but before any other deductions. Income includes salaries, wages, fees, commissions, bonuses, business profits or other payments for personal services. It does not include unearned income from savings, investments, or real property.
A provision which increases the insured’s pre-disability earnings every year according to a given formula, so residual disability benefits will not lose purchasing power because of inflation.
Accidental bodily injury that occurs while a policy is in force.
A series of payments at regular intervals over a period of time.
An owner or a highly skilled employee whose efforts are directly responsible for some measure of profitability to the firm.
A premium which remains the same up through the end of the policy period (typically the insured’s age 65).
Lifetime Disability Benefit:
A benefit that is payable for the lifetime of the insured if continuously and totally disabled before a specified age (i.e., 45 or 55).
Loss of Income:
The difference between an insured’s prior income and current income. In better policies, if the loss of income is more than 75% of prior income, the loss is deemed to be 100% for purposes of the Residual Disability Rider.
The individual or entity named to receive all benefits.
A single payment of benefits, with no further payments due.
The amount the insurer will pay for each month of total disability.
A policy which cannot be cancelled or altered by the insurance company as long as the insured continues to pay premiums on time, and whose premium will not increase up through the end of the policy period (typically the insured’s age 65).
An insured’s regular occupation or profession at the time of becoming disabled.
An additional benefit offered by the insurance company to certain occupational classes which may be included in a policy at the applicant’s request, for an additional premium.
Receiving a larger income through benefits while disabled than income earned while working.
As named in the policy schedule page, the owner’s rights include, but are not limited to, the right to renew the policy and to request any change in benefits.
Own Occupation (Own Occ):
A definition of disability which states that as long as the insured is unable to perform the duties of his or her regular occupation (or occupations, if more than one) at the time of disability, the insured will be considered eligible to receive the full benefit under the policy.
An insured’s physical inability to perform some, but not all, of the duties of his or her regular occupation due to sickness or injury.
The total amount of coverage which will be allowed by a company from all carriers.
A legally qualified physician other than the insured, who is not a loss payee or owner under the policy.
All material which constitutes the contract of insurance.
The effective period of the policy, usually the period for which premiums are paid.
The earnings level of the insured prior to the onset of disability.
An injury, illness, or physical condition which existed prior to the issue of the disability policy.
The presumption that the insured is totally disabled, even if still at work, if sickness or injury results in the total and complete loss of sight in both eyes, hearing in both ears, power of speech, or use of any two limbs. The elimination period is waived from the date of the loss and total disability benefits are payable while such loss continues until the end of the benefit period.
An insured’s average monthly expenses for the same tax year on which his or her prior income is based for purposes of the residual disability rider.
The insured’s average monthly income for the tax year with the highest earnings in the three years just prior to the date on which he or she became disabled.
Qualified Sick Pay Plan:
A formal (written and communicated) plan to continue the salary of certain employees in the event they become disabled. Also know as Salary Continuation Plan.
Recovery Disability Rider:
A rider which provides reduced benefits when an insured returns to work following a compensable period of total disability.
Recurrent Periods of Disability:
In some policies, recurrent periods of disability from the same cause or causes will be considered one continuous period of disability unless each period is separated by a recovery of six months or more.
A benefit paid to help meet some of the costs an insured may incur by enrolling in a rehabilitation program for the purpose of returning to his or her occupation.
In better policies, a disability that causes an insured’s income to fall more than 20% below its pre-disability level. Some companies include a loss of time requirement or the inability to perform some duties of the insured’s regular occupation.
A sickness or disease, including a pregnancy, which is first diagnosed and treated while the policy is in force.
Social Insurance Substitute Rider:
A rider which pays a benefit if the insured is disabled under the policy and not receiving social insurance benefits.
State Disability Benefit Insurance Laws:
Laws enacted in California, Hawaii, New Jersey, New York and Rhode Island which provide the payment of benefits for the non-job-related sickness or injury.
Stock Redemption Arrangement:
An “entity” type arrangement under a buy-sell agreement in a corporation. See “Entity Arrangement.”
The physical or mental inability to perform the major duties of one’s occupation because of sickness or injury.
Transplant Donor Benefit:
In some policies, the provision that the insured will be considered disabled as a result of sickness if he or she is totally disabled because of the transplant of a body part to another person.
The date on which the buyout obligation becomes contractually effective under the terms of the buy-sell agreement.
In health and disability insurance, used to designate that official or person in the home office who, collating all the facts about the risk, accepts the risk and assigns the rate, or declines the risk – the home office underwriter.
The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process includes rejection of risks.
Waiting Period: See “Elimination Period.”
Waiver of Elimination Period:
In some policies, the elimination period will be waived if an insured becomes disabled within five years after the end of a period of disability which lasted longer than six months and for which benefits were paid.
Waiver of Premium:
In some policies, a provision which relieves the insured of having to make premium payments after he or she has been disabled for 90 days, or the elimination period, if shorter. In addition, premiums paid during those 90 days are refunded and premiums due during the 90 days after recovery are waived.
Benefits paid to a worker to compensate for losses caused by a work-related injury or illness.