February 15, 2018

Disability Insurance Terms Glossary

Accident An event that is unforeseen, unexpected and unintended.

Accident Bodily Injury Physical injury sustained as the result of an accident.

Accident Disability Either a total or partial disability resulting from an accidental injury.

Accidental Death & Dismemberment (AD&D) Benefit An optional benefit that provides a fixed lump sum for accidental death or for certain specified actual loss or loss of use of a limb or sight.

Actively-at-Work Provision An eligibility provision for group benefit coverage whereby an employee is not eligible for coverage if absent from work because of sickness or injury on the otherwise effective date of his or her coverage.

Activities of Daily Living (ADL’s) Generally defined to include eating, bathing, dressing, transferring, toileting and maintaining continence. The inability to perform a certain number of ADL’s triggers long-term care insurance benefits.

Actual Age The age of the applicant the day the application is in completed.

Adverse Selection The tendency of those who are most likely to have claims to also be those who are the most likely to seek insurance.

Age Nearest Birthday The age of the applicant at the nearest birthday.

Agent Insurance company representative licensed by the state, who solicits, negotiates, or affects insurance contract and who provides services to policyholders for the insurer.

Aggregate Indemnity The maximum amount that may be collected for any disability or period of disability, under an insurance policy.

AIB (Automatic Increase Benefit) An optional benefit that allows a policyholder to increase his or her disability coverage without evidence of insurability.

Americans with Disabilities Act (ADA) A federal law designed to make it possible for disabled persons to join the mainstream of everyday life. The act makes it unlawful to discriminate on the basis of disability against a qualified individual with respect to any term, condition, or privilege of employment.

Annual Renewable Term (ART) Policy A policy that is renewable annually and where the premium may be increased on the same basis. Also called ARDI (Annual Renewable Disability Insurance).

Association Group A group formed from members of a professional or trade association for insurance under one master insurance contract.

Attending Physician’s Statement A report from the applicant’s personal physician verifying his or her physical qualifications for the coverage requested or to help establish the medical verification of a disability claim.

Benefit Period (BP) The length of time that disability benefits are payable under a policy, usually stated in months or years.

Benefit Schedule The listing of the insured’s choice of benefit period, elimination period, monthly benefit amount and maximum benefit payable in a disability policy. Also includes any optional benefits.

Binding Receipt A receipt given for the premium payment made with an application for insurance. If the policy is approved, the payment “binds” the company to make the policy effective from the date of receipt.

Broker A person licensed by the state who places business with several insurance companies. The broker represents the consumer rather than the insurance company.

Business Buyout A policy designed to provide funds to effect a buyout of a disabled owners share of the business, usually dictated by the provisions in a specific buyout agreement.

Business Overhead Expense Insurance (BOE) A policy or additional benefit designed to reimburse the insured for paid business expenses when he or she is disabled. (See Overhead Expense Insurance)

Buy and Sell Agreement A legal agreement between business owners that describes the circumstances under which the buyout of a disabled owners share will occur.

Cancelable Policy An individual disability policy in which the insurer retains the rights to increase the premium or cancel the policy, usually only at renewal time.

Capital Sum A lump-sum amount that is paid in addition to the monthly disability benefit for presumptive loss.

Claim Examiner The individual who evaluates a claim to determine if it should be paid.

Claim Reserve A specific reserve established at the time a claim occurs (or soon thereafter) that anticipates the amount of future claim payments.

Concurrent Disability Policy provision that that usually provides that benefits will not be paid for both injury and sickness during any period of disability.Also, any period of disability that results from one or more causes is usually considered a single period of disability.

Conversion Privilege The right given to an insured under a group insurance contract to change coverage, without evidence of medical insurability, to an individual policy upon termination of the group coverage or his/her employment.

Cost of Living Adjustment (COLA) An optional benefit that increases benefit payments from a disability policy during the time of claim to help offset the effects of inflation. The increase begins after one or two years of disability.

Covered Expenses Business expenses that are specifically included in a business overhead expense (BOE) policy or rider.

Cross Purchase Plan A disability buy-sell agreement where each owner agrees to purchase a designated portion of a disabled co-owner’s share when the disability triggers the agreement.

Definition of Disability That portion of the disability contract that defines the circumstances under which the insured is considered to be disabled and benefits are payable.

DIRS (Disability Insurance Record System) A central database of records of disability claims maintained by the Medical Information Bureau (MIB) for member companies.

Disability-Based Policy A long-term care insurance policy with a per diem basis of payment that provides benefits even if no care is being received as long as the insured satisfies the policy’s benefit trigger.

Disability Income Insurance Insurance that provides for periodic payments of benefits when a disabled insured is unable to work.

Disability Benefits The amount of weekly or monthly disability payments that are paid in the event of disability.

Disability Case Management A comprehensive set of procedures and functions to ensure that a disabled policyholder is able to return to work as soon as reasonably possible.

Disability Income Policy A health insurance policy that provides weekly or monthly benefits in the event of disability from an accident or sickness.

Dismemberment A policy option that provides benefits if the insured loses a limb or the use of a limb.

Earned Income Income that an individual receives from working. It excludes investment, rental and retirement income.

Earned Premium The portion of a premium for which the insurer has already provided protection.

Effective Date The date when insurance coverage begins.

Eligibility Period The time following the eligibility date during which a member of a group may apply for insurance without evidence of insurability.

Elimination Period Days at the beginning of a period of disability when benefits are not yet payable.

Employment Benefit Programs A variety of benefits that an employer may provide for employees, such as medical, disability and retirement benefits.

Entire Contract Clause A provision in a group insurance contract stating that the insurance policy, the policyowner’s application that is attached to the policy, and any individual applications of any insured person constitute the entire insurance contact.

Entity Plan The type of buy-out plan in which the business itself, a separate entity is paid the disability benefits under a disability buy sell agreement.

Evidence of Insurability Statement or proof of physical condition and/or other factual information affecting a person’s eligibility for insurance.

Exclusion Endorsement (Rider or Waiver) A specific endorsement that excludes payment of benefits for a specified medical condition or a high-risk situation.

Exclusions Usually refers to standard contract language that excludes payment of benefits for specified situations such as act or accident of war, self-inflicted injury or period of incarceration.

Experience Rating The practice by which the actual experience of a particular group is a factor in determining the premium the policyowner is charged.

Field Underwriting Procedures and requirements that the salesperson and field office are expected to perform before submitting an application to the home office.

Financial Documentation Specific financial information that the home office may request or require in order to determine the amount of monthly indemnity the proposed insured qualifies for.

Financial Underwriting That portion of the underwriting evaluation process that determines an applicant’s financial qualifications for disability insurance.

Functional Capacity Evaluation An examination by a medical or clinical professional to determine the extent or degree of a specific disability.

Future Income Option An optional benefit that allows a policyholder to purchase additional amounts of monthly indemnity in the future if his or her income warrants the additional amounts.

Grace Period Specified time (usually 31 days) following the premium due date during which insurance remains in force and an insured may pay the premiums without penalty.

Group Policy Contract of disability insurance made with an employer or other entity (policyholder) that covers a group of persons as a single unit. Can be either short-term or long-term coverage.

Guarantee Issue A disability proposal or plan where the insurer guarantees to approve a basic individual contract for all employees in a defined group on a standard basis. In group insurance, coverage is issued without an employee’s having to provide evidence of insurability.

Guaranteed Insurability Option (see Future Insurance Option)

Guaranteed Renewable Contract Disability contract under which an insured has the right, up to a certain age, to continue the policy by the timely payment of premiums. Under guaranteed renewable policies, the insurance company reserves the right to change premium rates by policy class.

Home Office The location where an insurance company conducts its administrative operations, in contrast to field offices, which are primarily for sales.

Income Replacement Plans A term synonymous with disability income and one that protects an insured against a loss of income due to disability.

Incontestable Clause A standard individual policy clause whereby the insurer may not contest the validity of an insurance contract after it has been in force for two (sometimes three) years.

Indemnity The amount of weekly or monthly disability benefits.

Independent Medical Examination (IME) A medical examination performed by a physician selected by the insurance carrier during an ongoing disability claim.

Indexing A provision, which increases the insured’s pre-disability earnings level every year after the first year of disability. It can also be a disability product provision or option that annually increases the disability monthly benefit each year over a five-year period, prior to a period of disability.Sometimes referred to as Automatic Annual Benefit Increase.

Individual Insurance A policy that provides protection to a policyholder. Sometimes referred to as personal insurance, as distinct from group insurance.

Inspection Report A specific third-party investigation that may be requested during the underwriting or claim process to verify income, occupation or personal activities.

Insurable Income That part of an individual’s gross income that is insurable for disability income purposes (Goss income – business expenses).

Insuring Clause The clause in the disability insurance contract that broadly outlines the contract’s terms.

Integrated Disability Management A single program to manage all of an employer’s disability claims, regardless of whether they are covered under shot-term plans, long-term plans or workers’ compensation.

Issue Limits A schedule that lists the maximum indemnity that an insurer will insure at various income levels and occupation classes.

Key Person Policy A policy specifically designed to provide benefits to a business for the loss of a key employee from disability.

Legal Reserve The minimum reserve, as calculated under the state insurance code, which a company must keep to meet future claims and obligations.

Lifetime Disability Benefit Policy provision making benefits payable for the insured’s lifetime as long as the insured is totally disabled.

Long-Term Disability Income Insurance (LTD) A group disability policy that provides disability benefits, usually for more than one year and up to retirement age.

Loss of Income Insurance A term synonymous with disability income insurance where a loss of income is required before benefits are paid.

Loss Ratio The ratio of claims divided by premium; may refer to either a cash or incurred loss ratio.

Medical Examination A physical examination performed by a physician, usually an MD or DO.

Medical History The specific account of an individual’s medical history, either given on the insurance application or in a medical examination.

Medical Information Bureau (MIB) An organization that maintains a database of significant medical information obtained from insurance companies during the underwriting process.

Medical Underwriting The process of underwriting evaluation of an applicant’s medical condition and history for insurance purposes.

Morbidity The frequency and length of time that a group or class of individuals are disabled or may be expected to be disabled.

Mortality The probability of when individuals in a group or class may be expected to die.

National Association of Insurance Commissioners (NAIC) An association of the Insurance Commissioners of the 50 states.

Net Earned Income Gross earned income minus unearned income minus business expenses.

Net Worth A person’s total financial assets minus his or her total financial liabilities.

Non Cancelable Policy (non-can) An individual disability policy that can be maintained through the timely payments of premiums until the insured is typically, age 65. The insurer may not unilaterally change any provision of the in-force policy, including premium rates.

Noncontributory Plan An employee benefit plan under which the employer pays the entire cost of coverage.

Non-Disabling Injury An injury that may require medical care, but does not result in the loss of working time or income.

Non-Medical limits The amount above which a disability insurer requires a paramedical or full medical examination.

Notice of Claim The form required by the insurance company and specified in the policy provisions that notifies the insurer of a potential claim.

Occupation Class The premium rating classification for a specific occupation.

Optional Benefit An extra benefit that may be applied for on a disability policy that provides for additional benefit payments under specified circumstances.

Optional Renewable Policy A disability policy that grants the insurer the right to terminate a policy on any anniversary, or in some cases, on a premium date.

Outline of Coverage A description of policy benefits, limits and restrictions required to be provided to applicants in most states.

Overhead Expense Insurance Insurance for business owners (and professionals) to help offset continuing business expenses when the owner is disabled.

Overinsurance A circumstance where the total amount of disability insurance available to an individual from all sources exceeds the insurer’s issue limits.

Own Occupation A definition of disability in a disability income policy that guarantees payment of benefits if an individual is unable to perform the duties of his or her occupation, even if the individual is able to work at another occupation.

Paramedical An insurance medical examination, usually performed by a nurse or technician, that typically includes medical history, blood pressure, urinalysis and perhaps a blood profile, but not a physical examination.

Partial Disability A disability that prevents a person from performing one or more functions of his or her regular occupation or job.

Participation Limit The total amount of disability coverage that can be written by all carriers on a given earned income.

Pension Completion Riders Optional benefit provision that will assure the continuation of contributions to the insured’s pension plan during a period of disability.

Permanent Disability A total disability where the individual is not expected to return to work.

Physical Impairment A physical condition or abnormality that may result in a substandard underwriting decision.

Portability The ability to continue employer-provided or employer-sponsored benefits after termination of employment.

Predisability Earnings The pattern and amount of earned income that a disabled policyholder received prior to his or her disability.

Preexisting Condition Any physical and/or mental condition or conditions that exist prior to the effective date of disability insurance coverage or a condition that manifested itself before the policy was issued.

Presumptive Disability A specified serious physical or medical impairment or condition where the insurer treats the impairment as a total disability and does not require periodic claim forms (i.e., loss of sight or loss of use of hands).

Principal Sum Amount payable in a lump sum in the event of accidental death or accident dismemberment.

Qualification Period (QP) The number of days of total disability that is required before residual disability payments may be made.

Qualified Condition Rider An exclusion rider that reduces the benefit period for a specific medical or physical condition and may also lengthen the elimination period.

Recurrent Disability A physical or medical condition that reoccurs and causes disability.

Recurrent Disability Clause A policy provision that defines what a recurrent disability is and how it will be treated i.e., a disability that recurs within six months following cessation of benefits from the original disability will be considered a continuation of the original disability.

Recurring Claim Provision A provision in disability insurance policies that specifies a length of time during which the recurrence of a condition is considered to be a continuation of a previous period of disability.

Regular Occupation The occupation being performed at the time of claim. Similar to Own Occupation.

Rehabilitation The process whereby an individual who has been disabled is able to return to gainful employment.

Rehabilitation Provision A provision in a group disability income policy that permits an employee to enter a trial work period during which benefits are reduced by some percentage of the earnings from rehabilitation employment. Individual disability policies have a similar provision that usually pays for training the disabled insured for a new occupation, in addition to regular disability benefits.

Reinsurance The process whereby an insurance company insures all or a portion of a specific insurance policy with another insurance company.

Relation to Earnings Clause A disability policy clause that can adjust the benefits payable based upon the ratio of total benefits for which the claimant is eligible in relation to his or her income at time of disability.

Renewability The policy provision that relates to continuing the policy at the renewal date.

Replacement Ratio The ratio of disability benefits to income.

Residual Disability A provision that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work full-time. A benefit is payable when the insured is unable to perform one or more of his or her occupational duties or is unable to perform all the duties for as much time as a result of an accident or sickness and/or suffers a loss of income (usually 20% of more of prior earned income).

Return of Premium An optional benefit on an individual disability policy that returns all or a portion of the premium depending upon claim experience.

Return to Work Benefit A benefit (sometimes optional) that provides additional or temporary benefits as an incentive for an individual to return to work following a disability claim.

Risk Classification The underwriting process that determines how to consider an applicant from an occupation, avocation, income and health perspective.

Salary Continuation Plan (Section 105 Plan) Disability insurance that includes certain federal regulatory requirements in order to qualify for favorable tax treatment.

Schedule Page The specific part of the insurance contract that details the policy’s benefits, extra benefits and premium.

Short-Term Disability Insurance Group disability Insurance that provides benefits for loss from accident or injury generally no longer than one year in length.

Sickness Illness or disease, which first manifests itself after the policy has been issued.

Simplified Issue Group insurance coverage that is issued with satisfactory responses to questions on an abbreviated application form.

Social Security Disability Insurance (SSDI) That portion of the Social Security program that provides disability income benefits.

Social Security Rider An optional benefit or clause that will pay additional benefits when a disabled person is not eligible for individual disability benefits under the Social Security program.

Social Security Offset Provision A Provision in group long-term disability policies that allows the insurance benefits to be reduced by the paid or anticipated Social Security benefits payable to the disabled insured.

Split Dollar Plan A plan that splits premium payment between employer and employee so that part of the disability insurance monthly benefit is taxable and part is nontaxable.

State (Compulsory) Disability Plan A plan of short-term income replacement required by some states to cover eligible persons employed within that state. (See Cash Sickness Benefit)

Step-Rate Plan A plan under which young insured’s (usually professionals) pay a lower premium during the first years of policy ownership and their careers but allows them to get the full protection they need.

Stock-Redemption Plan A method of funding a disability buy-out plan.

Substandard Insurance Insurance issued with an extra premium or special restriction to persons who do not qualify for insurance at standard rates or issue.

Supplementary Health Statement An additional statement asking specific health or medical questions that is completed and signed by the applicant

Supplemental Monthly Benefit An additional monthly benefit payable under certain specified circumstances (i.e., an additional benefit payable if the insured is confined in a hospital).

Survivor Benefit The benefit payable to a named survivor (usually the spouse) upon the death of the disabled insured.

Third-Party Administrator (TPA) A person or organization hired to provide certain administrative services to employee benefit plans.

Time Limit on Certain Defenses A specific clause in the disability policy that limits the insurer’s right after a period of time to deny claim payments based on previous medical history. Similar to Incontestable Clause.

Total Disability A disability resulting from an accident or sickness that prevents an individual from working. The exact definition varies among policies.

Transplant Surgery Benefit A benefit payable if the insured undergoes a transplant of a part of his/her body to another person and as a result, suffers a disability.

Trial Application An application that is completed on a preliminary basis to determine if the applicant is insurable.

Underwriter (1) A company employee who decides whether or not the company should assume a particular risk, (2) a company that receives the premiums and accepts responsibility for the fulfillment of the policy contract, or (3) the agent who sell a policy.

Underwriting The process by which an insurer determines whether or not, and on what basis, it will accept an application for insurance.

Unearned Premium That portion of a premium already received by the insurer for which protection has not yet been provided.

Uniform Provision Law A set of laws approved by the various states that standardize certain insurance policy language pertaining to the contractual benefits, premium payments and claim procedures.

Wage Continuation Plan (See Salary Continuation)

Waiting Period The time that a person must wait from the date of acceptance into an eligible class (or from application) to the date the insurance becomes effective. The words “Elimination Periods” are sometimes used to describe a waiting period. However, they have different meanings.

Waiver (Exclusion Endorsement) An agreement attached to the disability policy and accepted by the insured, to eliminate a specified preexisting physical or mental condition or specified hazard.

Waiver of Premium Provision that, under certain conditions, insurance will be kept in full force without further payment of premiums. It is usually a 90-Day provision in disability policies.

War Exclusion A policy provision that excludes payment of benefits for disability resulting from an act or accident of war.

White-Collar Occupations A term that usually refers to nonmanual occupations, especially office and clerical jobs.

Workers Compensation A governmental plan that provides disability benefits when the covered person is totally disabled from an on-the-job accident or sickness.

Source: International Disability Insurance Society