Life & Health Chapter 16 | Health Chapter 7: Disability Income Insurance Concepts

Living death insurance

Nickname for disability insurance—financial impact often worse than death

Risk transfer

Shifting a catastrophic loss to insurer in exchange for a premium

Alternative funding

Sources during disability: savings, loans, partner’s income, asset liquidation

Accidental Bodily Injury

Unintended consequence of an insured’s voluntary act

Accidental Means

Both cause and result of an event must be unforeseen

Accidental Results

Only the result must be unforeseen (less restrictive)

Additional Monthly Benefit (AMB)

Rider to top up employer benefits or SSDI and cover startup costs

Additional Purchase Option (APO)

Guaranteed insurability rider

Any Substantial Gainful Work

Inability to earn above SGA due to impairment for ≥12 months or result in death

Any Occupation

Inability to perform any job suited to one’s education, training or experience

Any Occupation for Which the Insured is Reasonably Suited

“Any occupation” term with leniency in some states; elsewhere “any occupation” is stricter.

Benefit Period

Maximum length benefits are payable; longer period raises premium; may be shortened for substandard risks.

Business Overhead Expense (BOE) Insurance

Reimburses a disabled business owner’s fixed expenses and payroll costs.

Capital Sum

Accidental death & dismemberment benefit paid upon insured’s dismemberment.

Cash Surrender Value Rider

Returns all premiums at age 65 if no claims have been filed.

Change of Occupation Provision

Adjusts benefit or premium when insured moves to higher/lower hazard occupation.

Concurrent Disability

Multiple causes or definitions of same disability; only one benefit claim allowed.

Confined Disability

Benefit variation when insured must remain indoors (home or hospital).

Coordination of Benefits

Determines claim‐paying order; primary insurer pays first, contingent covers the remainder.

Cost of Living Adjustment (COLA) Rider

Automatically increases benefits (CPI‐linked) after one year to offset inflation.

Credit Disability Insurance

Pays creditor monthly loan payments if borrower becomes disabled.

Decreasing Term Disability Policy

Benefit term and potential payout decline over policy period (e.g., credit policies).

Delayed Disability Provision

Allows a grace period post-accident for disability onset while preserving claim eligibility.

Disability Buyout Plan

Buy-sell agreement funded by disability policies to buy out a disabled owner’s share.

Disability Buyout Policy

Policy designed to fund a disability buyout plan

Disability Income Rider

Converts 1% of life policy face amount into a monthly disability benefit

Elective Indemnity Option

Optional lump-sum payment for specified injuries

Elimination Period

Waiting period before benefits begin; longer period lowers premium

FICA Taxes

Payroll taxes paid by employee and employer to fund Social Security

Flat Amount Approach

Fixed monthly benefit regardless of earnings changes

Fully Insured

SS status after paying FICA taxes for ≥40 quarters

Future Increase Option

Right to increase coverage later without proof of insurability

Guaranteed Insurability Option

See guaranteed insurability rider

Guaranteed Insurability Rider

Right to buy more disability coverage at set times without health proof

Guaranteed Purchase Option (GPO)

See guaranteed insurability rider

Guaranteed Renewable

Insurer must renew to termination age; premiums may adjust by class

Hospital Confinement Rider

Pays extra daily benefit while insured is hospitalized

Impairment Waiver

Excludes specified impairments permanently in exchange for standard premium

Income Replacement Contract

Defines disability solely by income loss

Key Employee Insurance Policy

Indemnifies employer for loss of key employee’s services

Lifetime Extension Rider

Extends benefit period past age 65

Long-Term Disability Insurance Policy

Pays monthly benefits for two years or more

Loss of Earnings Test

Pays only if insured’s post-disability earnings fall below pre-disability level

Material Duties

Essential tasks and functions of the insured’s job

Medical Reimbursement Benefit

Pays medical expenses for non-disabling accidental injuries

Natural Group

Group formed for a purpose other than to buy insurance

Non-Cancelable

Renewable to termination age; insurer cannot change terms or premiums

Non-Cancelable and Guaranteed Renewable

Same as Non-Cancelable

Non-Disabling Injuries

Accident injuries not disabling; policy pays actual medical costs

Non-Occupational Coverage

Covers disabilities unrelated to work

Occupational Coverage

Covers both work-related and non-occupational disabilities 24/7

Own Occupation

Total disability = unable to perform insured’s specific job

Partial Disability

Inability to perform some duties or full-time work, causing income loss

Percentage of Earnings Approach

Benefit = fixed percentage of insured’s earnings; adjusts with income

Permanent Disability

Workers’ Comp term for chronic or dismemberment conditions; paid lump sum or weekly

Presumptive Disability

Benefits payable on specified severe losses (e.g., double dismemberment, loss of sight)

Primary Insurance Amount (PIA)

Social Security’s basic monthly benefit based on earnings and taxes

Principal Sum

AD&D benefit paid on accidental death; equals policy’s face amount

Probationary Period

Initial days of coverage that exclude sickness claims; only accidents covered

Pro-Rata

Partial refund of unearned premium based on time remaining

Recurrent Disability Provision

Recurrence within a set period counts as the same claim—no new elimination period; uses original benefit period

Rehabilitation Benefit

Pays approved vocational training costs so insured can return to work

Relation of Earnings to Insurance

Total benefits across policies capped at actual income loss; each insurer pays pro-rata share

Residual Disability

Proportional benefit when insured works reduced hours and income drops ≥20%

Return of Premium Rider

Refunds premiums (dollar-for-dollar, no interest) if no claims are filed during policy or term

Short-Term Disability Insurance

Weekly benefits with a benefit period ≤2 years (often ≤26 weeks in group plans)

Social Security Disability Income (SSDI)

Benefit for fully insured individuals, equal to 100% of their Primary Insurance Amount

Social Security Rider

Pays a monthly benefit when Social Security disability is delayed, denied, or less than rider amount

Substantial Duties

The essential tasks and functions required by the insured’s job

Temporary Disability

Workers’ Comp term for potentially temporary conditions, subject to re-evaluation at period end

Waiver for Impairments

Permanently excludes specified impairments in exchange for a standard premium

Waiver of Premium

Waives policy premiums during a qualifying disability after the waiting period

Workers’ Compensation

Liability insurance providing benefits for work-related injuries and illnesses

Any Occupation

Inability to perform any job suited to one’s education, training, or experience

Own Occupation

Inability to perform the duties of the insured’s specific profession

Presumptive Disability

Automatic benefit for specified severe losses (e.g., loss of two limbs, sight, hearing, or speech)

Residual Amount

Percentage of pre-disability earnings lost, used to calculate residual disability benefits

Benefit Probationary Period

Initial days after policy inception when only accidental losses are covered and sickness is excluded

Elimination Period

Waiting period before benefits begin; the policy’s “deductible”

Benefit Period

Maximum length of time benefits will be paid

Delayed Disability Provision

Allows disability occurring within a set time post-accident to be treated as an immediate claim

Recurrent Disability Provision

Recurrences within a defined interval count as the same disability—no new waiting period

Social Security Rider

Pays a monthly benefit if SSDI is delayed, denied, or less than rider amount

Cost-of-Living Adjustment Rider

Automatically increases benefits (tied to CPI) after one year to offset inflation

Guaranteed Renewable

Insurer must renew to the termination age; premiums may adjust by class but policy terms stay fixed

Essential Life Activities (ADA)

Major tasks—self-care, manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, working

Medical Definition

Disability defined by specific physical injury or condition, not income loss

Physician Care Requirement

Insured must be under a doctor’s care to qualify for benefits

Total Disability

Unable to work or earn income due to accident/illness; no gainful employment

Gainful Employment

Work for wages or profit; cannot engage in it while receiving benefits

Inability to Perform Duties

Cannot perform material and substantial (key) tasks of one’s job

Material Duties

The actual tasks and activities required by the insured’s job

Substantial Duties

The essential, key functions necessary to do the job safely and effectively

Any Occupation

Unable to perform own job or any job suited to education, training, or experience

Own Occupation

Unable to perform the material and substantial duties of one’s specific profession

Loss of Earnings

The income reduction due to disability, used as a basis for income-loss definitions

Wages

Earnings based on hours worked

Salary

Fixed periodic compensation

Commissions

Income tied to sales performance

Fees or Compensation for Services

Payments received for professional services