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Disability Insurance Policy Language 101

Posted by The DIS Sales Team on Mon, Jul 29, 2019 @ 09:07 AM

disability-insurance-policyTrying to understand a disability insurance policy can be like trying to learn a foreign language. There are so many industry terms, and if you don’t know them, you could misinterpret key aspects of coverage. To help clear up any confusion, review the policy language glossary below.

  • Benefit Amount: This is the monthly benefit paid by the policy. A typical benefit amount is 60 percent of gross pay up to a monthly limit of $15,000, but higher benefit amounts are possible.
  • Benefit Period: This is the length of time that benefits will continue from the date they begin. Typical benefit periods are two years, five years or until age 67.
  • Catastrophic Rider: This rider provides an additional benefit if the insured is receiving total disability benefits and is unable to perform two or more activities of daily living, has severe cognitive impairment or is presumptively totally disabled.
  • Disability Definition: This is how disability is defined in the policy. The most desirable definition is Own-Occupation and the second most desirable is Modified Own-Occupation. Other policies may use an Any Occupation definition. However, just because Own-Occupation is the most desirable doesn’t mean it’s the most appropriate for every prospect. The Own-Occ definition is the most expensive and may not be needed by some occupations. Learn more on how to avoid the Own-Occ Oversell.
  • Elimination Period: This is the period of disability that must elapse before benefits start. It is also called the waiting period.
  • Non-Cancelable and Guaranteed Renewable: This is the most desirable renewal provision. It means that after the policy is placed in-force, there will be no changes to the premium or benefits through age 65. Other renewal provisions are Guaranteed Renewable, Conditionally Renewable and Optionally Renewable and/or Cancelable. The renewal provision can also impact policy pricing. Learn more about Non-Can Nonsense.
  • Own-Occupation Definition: This definition refers to the client’s occupation when he or she becomes disabled. The policy will pay disability benefits even if the clients returns to work in another occupation.
  • Residual Benefits: This rider pays a percentage of monthly earning if the insured suffers a loss of income of 20 percent or more. This is important because insureds are often able to work part time. Read this article to see why residual benefits policy language matters in individual disability insurance policies, and read this article to see why it matters in business overhead expense policies.
  • Return of Premium: This rider returns some of the premium at the end of the policy if conditions are met. To see how clauses vary from carrier to carrier, read Why Disability Insurance Policy Language Matters: Return of Premium.
  • Waiver of Premium: This feature is available on many individual disability insurance policies, and it waives any premium due after 90 days of disability. These clauses can be more complicated than they first seem. To see why, read Why Disability Insurance Policy Language Matters: Waiver of Premium.

If you’ve gotten this far, you’ve learned a lot of important disability insurance policy terms. There’s still more to learn, though. Make sure you know everything you need to outsell your competition. Download the DIS Crash Course.

Topics: disability insurance policy, disability insurance sales