Chapter Ten LEARNING OBJECTIVES OVERVIEW Disability Income Insurance Types of Policies

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1 Chapter Ten Disability Income LEARNING OBJECTIVES Upon the completion of this chapter, you will be able to: 1. Differentiate between a Loss of Income and Income Replacement Policy 2. Define benefit period and elimination period 3. Explain the difference between own occupation and any occupation 4. List 4 types of disability benefits 5. Compare the characteristics of a group short-term disability plan and long-term disability plan 6. Identify the special uses of disability income 7. Recognize 12 riders associated with disability income insurance OVERVIEW The purpose of this chapter is to acquaint the student with the various types of Disability Income insurance products as to their features, characteristics, and uses. Also included are discussions of various riders that can be used to alter, amend or modify the underlying policy Disability Income Insurance Types of Policies Having a disability that leaves an insured unable to work not only eliminates income, but it also may increase expenses. Because of the extra expense, the financial impact of a disability may be greater than that of premature death. To protect against these losses, an individual may choose to purchase a disability income policy. Disability Income (Loss of Income or Time) Policy Pays an income benefit when the insured is unable to work due to illness or injury (even if injured on vacation). Benefits are paid weekly or monthly and determined as a flat benefit or a percentage of the insured s current earnings (normally 60% - 70%). The full income is not paid in order to reduce malingering. In other words, if the insured received 100% income replacement, he/she would not be very motivated to recover and return to work. Pure Loss of Income (Income Replacement) Policy Under this policy, the insured will receive benefits if loss of income is due to a covered accident or sickness, even if the insured is able to work full-time doing all the same duties as before the loss occurred. With traditional disability income policies, there has to be a loss of time or duties to trigger coverage, but under the Pure Loss of Income policy the insured is eligible based solely on a loss of income. The insurer will consider any other sources of disability income the insured may be entitled to when underwriting the policy. The purpose is to prevent over insurance that could cause a moral hazard or fraudulent claim. Disability benefits are typically paid monthly, but can be paid on a weekly basis. The amount of the benefit payable is found in the policy and is based on income reported at the time of application. TEST TIP: Income replacement policies are all about helping an injured person maintain their standard of living. 137 Life & Health Insurance

2 Life & Health Insurance Characteristics of a Disability Income Policy Benefit Period The time period the insured is eligible to receive payments after the elimination period has been met. The benefit period may be written for a specified number of year (2, 5, or 10 years), to age 65 or for life. Elimination Period (Sickness vs. Injury) The elimination period is considered to be a type of time deductible. It is normally different for a disability due to an illness than for an injury. The benefit payment as well as the specific elimination periods for these disability classifications will be stated in the policy. A policy may state 6 months elimination period for sickness and immediate coverage or as little as 7 days in case of an accident. The elimination period on a disability income policy cannot be altered by either party of the contract during the benefit period. Allows the insured to retain a part of the risk to reduce premiums. To be considered a covered loss, the disability must be for a period of at least 30 days. Therefore, an insured would have to satisfy their elimination period and then at least a 30 day claim period. EXAMPLE: A client has a 60 day elimination period and suffers a disability claim. They must first satisfy the 60 day elimination and then still be disabled for at least 30 days. Their first disability check would not be received until day 91 of disability and it would be for the last 30 days. 1. Which of the following terms best describes the maximum length of time that disability income benefits will be paid to the disabled insured? a. Coverage period b. Benefit period c. Disability period d. Elimination period 2. The elimination period in a disability income insurance policy: a. Defines what causes of loss are eliminated from potential claim payment b. Serves as a time deductible before benefits are payable c. Addresses where accidents and sicknesses must not occur in order for a claim to be payable d. Describes how long the policy must be in force before claims can be considered 3. An insured purchases a disability income policy with a 90 day elimination period. If a disability lasts 100 days, the insured would be entitled to receive benefits for: a. 10 days b. 90 days c. 100 days d. 190 days 10.2 Qualifying for Disability Benefits Workers Compensation is insurance provided by an employer to cover injuries which occur on the job only. There are two types of disability policies (other than Workers Compensation insurance) that can be purchased as an individual plan or part of a group plan: Occupational The policy covers a disability due to injury and sickness which occurs either on or off the job. Nonoccupational The policy covers a disability due to injury and sickness which occurs off the job only. Life & Health Insurance 138

3 Definitions of a Disability Disability Income Chapter Ten Total Disability Disability policies will pay benefits according to one of two definitions of total disability. Own Occupation Some policies require the insured s inability to perform the main duties of his/her own occupation. The own occupation definition often applies for the first 2 years of a disability, then changes to any occupation. This definition is the least restrictive and is easier to qualify for benefits. It is typically reserved for more skilled occupations and may result in a higher premium. Any Occupation Some policies are stricter and require the insured to be unable to perform the duties of any occupation for which he/she is reasonably suited by education, training, and experience. This definition is more restrictive and harder to qualify for benefits. In order to qualify for disability benefits, it may be required that the insured be under the care of a physician, regardless of the definition used in the policy. REMEMBER: ANY has MANY MORE restrictions. Other Disability Benefits Partial Disability Disability resulting in an inability to perform 1 or more of the regular duties of an occupation. The benefit usually pays up to 50% of a total disability benefit for 3 to 6 months. Residual Disability Provides benefits for loss of income after the insured returns to work usually following a total disability. Benefits are based on the reduction of earnings as a result of the disability. Recurrent Disability When a second disability is suffered due to the same cause within a certain period of time (usually 6 months), the elimination period will not apply and the disability will be considered continuous. EXAMPLE: Mark has a disability plan with a 30 day waiting period and a 6 month recurrent disability period that pays $5,000 per month in benefit. Here is his scenario: He becomes disabled for 4 months. Returns to work a month later and reinjures the previous injury. He is out of work 2 more months. The Claim Pays a total of $25,000: Pays 0 for the 1st 30 days Waiting Period. Pays $5,000 per month the next 3 months. Injury reoccurs within the 6 month recurrent period. It pays the next 2 months for the 2nd injury No Waiting Period. Presumptive Disability Loss is presumed to be total and permanent due to the loss of sight, hearing, speech, or the loss of 2 limbs. The loss of one limb, eye, hand, or foot, would also be a presumptive disability, but not likely to be considered total disability. The insurer does not require the insured to submit to periodic examinations to prove continued disability. Some older disability income policies require that during a period of disability that the insured be under the care of a physician. This requirement was usually waived in the case of presumptive disability. Permanent Disability Total disability that reduces or eliminates the insured s ability to work for the rest of his/her life. Temporary Disability When an insured continues to work at a reduced efficiency or is unable to work at all for a period of time, but is expected to fully recover, such as broken limbs, surgery, etc. 139 Life & Health Insurance

4 Life & Health Insurance Rehabilitation Paid while totally disabled and receiving benefits, if the insured elects to participate in some form of vocational rehabilitation approved by the insurer. Total disability benefits will be continued as long as the insured is actively participating in the training program and remains totally disabled. Transplant Donor Benefit When an insured is totally disabled because of the transplant of an organ to another individual, the company will deem the insured to be disabled as a result of sickness. Waiver Of Premium Provision Disability Income policies require that Waiver of Premium automatically be included in the policy. Benefits do not start on the first day. The disability must run for 3 to 6 months before benefits begin. Most companies will retroact the benefits during the 3 to 6 month period that the premiums are not initially waived. 4. All disability policies cover disabilities, which are those occurring outside work. a. Occupational b. Contributory c. Noncontributory d. Nonoccupational 5. The two primary definitions of disability are any occupation and own occupation. Which of these statements best describes the difference between the two definitions? a. An any occupation policy is more restrictive because it is easier to qualify for benefits b. An own occupation policy is less restrictive because it is easier to qualify for benefits c. An own occupation policy is more restrictive because it is harder to qualify for benefits d. An any occupation policy is less restrictive because it is harder to qualify for benefits 6. From the insured s perspective, which of the following types of disability coverage would be the most restrictive as to qualifying for benefit payments? a. Any occupation b. Own occupation c. Social Security d. Workers Compensation 7. A disability that is presumed to result from the same or a related cause of prior disability is a. a. Recurrent disability b. Delayed disability c. Presumptive disability d. Residual disability 8. All of the following are scenarios in which an insured would automatically qualify for total disability benefits whether or not they could actually continue working, EXCEPT: a. A small business owner contracts a throat disease that causes the inability to speak b. A dancer slips and falls and sprains an ankle c. A truck driver is involved in an accident and loses both legs d. A drummer in a band loses hearing Life & Health Insurance 140

5 Disability Income Chapter Ten 10.3 Unique Aspects of Individual Disability Underwriting In underwriting disability income, the insured s occupation is the single most important rating factor because a worker in America is more likely to suffer a disability than die prior to age 65. Insurance companies writing disability income generally have an occupational classification system based on considerations, such as job duties, claims history of the occupation and stability of the industry. The change of occupation provision in a disability income policy could result in a change of benefits depending on the new occupation, or the insurer could change the amount of premium to fit the occupational rating for the current level of benefit. The more hazardous the occupation, the less benefit and/or the higher the premium. Consideration is also given to any hazardous hobbies, such as bull riding, skydiving, and bungee jumping, which would affect the rating or exclusion provision. In addition to occupation, other factors influence both underwriting and rates, including age and gender, and a person s prior health history. When a person is approved by underwriting, the final rate is determined by the amount of benefit purchased and the duration of the benefit period and adjusted based on the elimination period. Individual plans can provide for greater indemnity amounts, longer benefit periods, and are typically issued with noncancellable or guaranteed renewable provisions enhance the professional market. Benefits limitations will also be determined during underwriting. While the benefit may be based on a percentage of income, the policy may state this as a flat dollar amount based on income at the time of underwriting, depending on the policy. Once all underwriting information has been reviewed, the underwriter must determine if the risk is insurable or not. If uninsurable, the risk may be declined. If insurable, the risk may be standard or substandard. If substandard, the insurer may want to reduce the risk. This may be accomplished by use of one or a combination of the following: Charge an extra premium Increase the elimination period, shorten the benefit period, reduce the amount of benefit, or some combination thereof Utilize a Full Exclusion Rider when a condition appears certain to result in recurrent disabilities 9. One of the most important underwriting factors in disability income insurance is. a. Number of quarters paid into Social Security b. Marital status c. Occupation d. Pre-tax (Gross) Income 10. Which of the following are ways that the insurer can issue disability income coverage for a substandard risk? a. Rated up in age, graded benefit, temporary lien b. Reduced benefit, higher premiums, rider excluding coverage c. COLA waiver, future purchase waiver, waiver of premium d. Higher premium, higher benefit, shorter elimination period 141 Life & Health Insurance

6 Life & Health Insurance 11. An insured took out a disability income policy while working in a low hazardous occupation. When filing a claim for disability income benefits, after a job related accidental injury, the insurance company discovered the insured changed jobs 2 years prior to the loss. The new job would have been classified as more hazardous. The insurance company will most likely: a. Reduce the benefit payment dollar for dollar to account for the premium underpayment b. Pay no benefit since the insured failed to inform the insurance company on a timely basis of the change in occupation c. Reduce the benefit to an amount the actual premium paid would have purchased under the proper job classification d. Pay the benefit as contracted for since the policy is over two years old 10.4 Group Disability Income Underwriting Group Disability Plans When writing disability income insurance on a group basis, there is no medical underwriting. The field underwriter s job is to guard against adverse selection and overinsurance. Group insurance is always less costly and has more liberal provisions. Group disability income insurance is usually offered only on a nonoccupational basis, which will not cover work-related disabilities. Work-related injuries are usually covered under Workers Compensation Insurance. Most insurers require that a minimum number of employees participate in a group plan. This enables the insurer to issue the plan without evidence of insurability. The Age Discrimination in Employment Act (ADEA) affects both the short- and long-term group disability benefits for the people employed after age 65. This, in turn, will have some effect on premium determination by the insurer when underwriting a particular group. Short-Term Disability (STD) Short-Term Disability Income plans are characterized by maximum benefits for periods of rather short duration, such as 13, 26, or 52 weeks. Often, benefit periods are coordinated with the employer s sick pay plan. Short term disability plans will not pay benefits for disabilities lasting longer than 2 years. These plans are written on a nonoccupational basis only. NOTE: Any Disability Plan with less than a 2 year benefit period is always considered to be a Short- Term DI Plan. The elimination period may be as short as zero days for accident and 7 days for sickness but is rarely more than 15 or 30 days. Benefits are typically paid weekly and range from 50% to 100% of the individual s income. Long-Term Disability (LTD) This coverage is often characterized by benefit periods of 2 years, 5 years, to age 65, or lifetime. The elimination period will most commonly be either 30, 60, 90 or 180 days. It may be possible to obtain a LTD policy with a two-year elimination period, to be used in conjunction with a short term disability policy that pays benefits for 2 years. Benefit amounts are usually limited to typically 2/3 of the participant s income. Benefits stated in a policy are the maximum benefit amounts and maximum period of time covered. Normally, the waiver of premium for disability applies after a prolonged period specified in the policy. These plans can be written on an occupational or nonoccupational basis. Life & Health Insurance 142

7 10.5 Disability Income Special Uses Disability Income Chapter Ten Business Overhead Expense Provides the funds to cover the overhead expenses of a business when the owner becomes disabled. The benefits include expenses such as office rent, utilities, and employee labor. The owner cannot collect loss of income under this policy, however. Key Employee Insurance Pays a benefit to the business when a key employee becomes disabled by helping pay for a replacement, training a new employee, or loss of revenue due to the disabled employee s lack of work. The employer has the option of using the money to offset the cost of training or replacing the employee or use the money as a salary continuation vehicle for the key employee during the disability. Buy-Sell Agreement Pays a lump sum, enabling a partnership or business to buy out the totally disabled party s interest in the business. Policy proceeds are normally received tax-free. Disability Reducing Term Helps a small business that has long-term commitments requiring monthly or other regular payments meet their obligations. The amount of coverage remains the same monthly, but the benefit period reduces. 12. A Business Overhead Expense policy, as a form of disability insurance, provides payments for all of the following, except. a. Employee wages b. Owner s income c. Taxes, utilities, rent d. Raw materials used to manufacture goods sold 10.6 Disability Income Policy Riders Optional Benefits Cost Of Living Rider Automatically increases monthly benefits after the onset of a disability, as the Consumer Price Index (CPI) increases. Some insurance companies use a simple interest method while others use a more generous method of compounding interest. Some disability contracts may have a cap on the increased amount, and others may be written without a cap. Typically, this increase occurs after the insured has received benefits for a 12-month period. Following this 12-month period, an adjustment in benefits is made on each anniversary while the disability continues. The best Cost of Living Adjustment (COLA) for the client is no cap with a compounded adjustment. Guaranteed Purchase Option (Guaranteed Insurability, Future Increase) Rider Guarantees that on specified dates, ages, or occurrences, such as marriage, birth of a child, etc., the insured may purchase additional monthly benefits, if income justifies it, without proof of insurability. Rates are based on attained age. Some insurers refer to this as a Future Increase Option (FIO). Impairment Rider Eliminates coverage for preexisting conditions, such as back injuries. Attaching this rider excludes coverage for a condition that would otherwise be covered. The use of this rider may make insurance obtainable for an uninsurable person. Return of Premium Rider At specified policy years (typically after 10 years) the insurer will provide a refund of 80% of premiums paid in to that point less any dollar amounts paid out in claims. This optional rider has a premium requirement which can be an additional 40-60% of the base policy s premium. Cash Value (Surrender) Rider This form of a return of premium begins building values equal to a percentage of premiums paid for a disability policy. The values start building around the third year and build to 100% at age 65, which can be returned to the insured at that time, less any claims. 143 Life & Health Insurance

8 Life & Health Insurance Lifetime Benefit Rider Extends the benefits for life if total disability begins before a specified age. If disability begins when the insured is older than the age specified, the rider is not in effect. Annual Renewable Term Some companies will allow an insured to add a life insurance rider to a disability income policy in the form of annual renewable term. This provides additional death benefits if the insured dies due to a disability. Rehabilitation Benefits Paid while the insured is totally disabled and receiving benefits, if the insured elects to participate in some form of vocational rehabilitation approved by the insurer. Total disability benefits will be continued as long as the insured is actively participating in the training program and remains totally disabled. Non-Disabling Injury Rider Does not pay disability income, but pays the medical expenses that are related to an injury that does not result in total disability (such as Emergency Room, x-rays, durable medical equipment, etc.). It is a limited form of medical expense coverage added to a disability income policy. Hospital Confinement Rider Waives the elimination period if insured is hospitalized during the period of elimination and only pays when being treated as an inpatient. Social Insurance Supplement (SIS) Rider Pays in addition to regular disability policies until Workers Compensation or Social Security payments begin. If either benefit stops, the SIS will pay benefits. The SIS, which was developed by private insurers to reduce over insurance by matching Social Security as closely as possible, is normally written for a specified period of time. Additional Monthly Benefit (AMB) Rider Many insurance companies offer a short-term additional benefit in the form of a rider. The rider normally covers the first 6 to 12 months of a disability period. Some insurers refer to the rider as a Social Security Rider as it pays benefits while the insured is awaiting Social Security Benefits. The rider is not related to Social Security and, therefore, an AMB Rider is used to define the benefit. The short-term benefit could supplement either a government or private benefit plan. Unlike the SIS, this rider (AMB) does not consider the amount of a Social Security Benefit. It is strictly in addition to all other disability benefits. 13. An insured owns a disability income policy that has a waiver of premium rider in the event he/she suffers a total disability. 5 years after the issuance of the policy, the insured suffers a disability and is unable to work for 18 months before returning to work. The rider has a 3 month waiting period. Which of the following best describes the benefits of the waiver of premium rider? a. Since the disability was not permanent, no benefits are received from the rider b. The first 3 months premium waived c. Premiums will be waived retroactively to the beginning of the disability d. All premiums will be waived during the period of disability except for the first 3 months 14. All of the following statements about the future increase option rider are true, EXCEPT: a. It enables an insured to purchase additional disability insurance protection regardless of insurability at specified future dates b. Additional coverage obtained will be based on the insured s attained age premium rates c. To guard against overinsurance the insurer will limit that amount of additional coverage that can be applied for on each option date d. The additional coverage is available at each option date regardless of the insured s current earned income Life & Health Insurance 144

9 Disability Income Chapter Ten 10.7 State Workers Compensation Benefits Workers Compensation coverage applies to bodily injury and or occupational diseases that arise from and in the course of employment. There are 4 statutory claims for benefits under most states Workers Compensation laws: MDDR Medical Disability Death/Survivor Rehabilitation Medical Benefits Unlimited as to time, dollar amounts payable may be limited by law. Disability Income Benefits are limited (usually 66 2/3) and are subject to an elimination period before benefits begin. Income Benefits (Disability Benefit) Total Disability The benefit amount is subject to maximum and minimum weekly limits. Partial Disability Benefits restore a percentage of lost wages. Scheduled Injury There is a schedule of benefits for specific permanent partial injuries, such as a specific amount for loss of an eye or a specific amount for loss of a hand. Benefits do not include extra income and each state sets the eligibility requirements for Workers Compensation benefits. Because Workers Compensation is a state-mandated benefit for employees, an individual occupational disability income policy usually includes a coordination of benefits provision that reduces the insurance company s monthly claims liability by the amount of Workers Compensation income (and/or Social Security Disability Income) benefit paid to the insured. This means individual and group disability benefits will be reduced by the amount of Workers Compensation benefits. Workers Compensation is always the primary payor when applicable. NOTE: Second Injury Fund Limits employer s liability for previously disabled employees. Promotes employers to hire people with prior disabilities. All W/C Insurers in the state are assessed a certain percentage of incoming premiums and must contribute them to the states second injury fund. TEST TIP: The Second Injury Fund is not used to relieve the state of any burden for Workers Compensation benefits Social Security The Old Age, Survivors, and Disability Insurance OASDI Qualification for Social Security disability benefits is contingent upon the employee having the proper insured status, either fully insured (40 credits) or currently insured (a sliding scale based on age, beginning with 6 credits in the past 13 quarters for persons age 21 to 24), and satisfying the waiting period. Definition of Disability To collect Social Security disability benefits, an employee must be unable to engage in any substantial gainful activity due to a medically determined physical or mental condition that has lasted or is expected to last at least 12 months or result in an early death. Waiting Period (5 full months) In general, benefits start with the 6th full calendar month of disability and are not retroactive to the date of disablement. In no event are benefits retroactive prior to the date of application for disability determination. Accordingly, a person should apply for 145 Life & Health Insurance

10 Life & Health Insurance SSDI benefits as soon as possible following their disabling event. To be considered a full month of disability, the individual must be disabled prior to the first day of a month and remain disabled through the last day of a month (a person first disabled after midnight on the first day of a month will not begin a full month of disability until the first day of the following month). Disability Income Benefits Based on the employee s average indexed monthly earnings on which Social Security taxes have been paid. This is referred to as the Primary Insurance Amount (PIA). Benefits cease when the employee reaches age 65, dies, or is no longer disabled. The benefit received at age 65 is the retirement benefit. An employee must be currently insured to receive a Social Security disability benefit. The benefit is computed using the Primary Insurance Amount (PIA). When an employee age 31 or older has been credited with at least 20 of the 40 quarters required under Social Security, the employee is considered fully insured. This requirement reduces for employees under age In addition to language similar to the any occupation definition of total disability, Social Security s definition of disability also includes which of the following statements? a. Unable to perform any substantial gainful activity b. Unable to perform more than 50% of one s customary duties c. Unable to sit, stand, or lie down for extended periods of time d. Unable to qualify for benefits under any personal or state-sponsored disability insurance plan 10.9 Coordination of Benefits When it comes to receiving disability income benefits, both Workers Compensation and Social Security Disability Income benefits have an effect on other benefits to which a person may be entitled. Because Workers Compensation benefits are mandated by state (or federal) law, they are primary to any other insurance benefits. Workers Compensation Workers Compensation and SSDI benefits are primary to either individual or group disability income benefits. The individual or group benefit will usually be reduced dollar-for-dollar by the amount of Workers Compensation or SSDI benefits paid, so that the total disability income benefit payable from all sources combined will not exceed the amount that would be payable by the individual or group disability policy on its own. Adding a Social Insurance Supplement rider to an individual policy allows the full policy benefit to be paid in addition to any Workers Compensation or SSDI benefits. Social Security Disability Income Limitation SSDI benefits are secondary to Workers Compensation and any other public insurance benefits. If the total of SSDI, Workers Compensation, and other public disability benefits (state or federal temporary disability income payments, or state or federal disability retirement income benefits) exceeds 80% of the worker s pre-disability earnings, the SSDI benefit will be reduced dollar-for-dollar until the 80% limitation is reached. Life & Health Insurance 146

11 Disability Income Chapter Ten Chapter Ten Lightning Facts 1. Disability income insurance may fill the forgotten need of income in the event of an illness or injury Disability income insurance is also known as loss of time benefits. Once qualified as disabled, a policy will provide a weekly or monthly benefit based on a percentage of pre-tax income (up to a stated maximum) or a flat benefit amount as contracted Disability policies do not replace 100% of lost income in order to prevent malingering and to prevent over insurance A benefit period is the time limit the policy will pay a benefit per claim, specified as a number of years, to age 65, or lifetime An elimination period is stated in the contract and is the length of time, beginning with the first day of disability, which must elapse before benefits are paid Non-occupational illnesses and injuries are those suffered outside of or unrelated to the workplace Occupational policies cover disabilities due to illnesses and injuries either on or off the job Total disability is usually defined as either own occupation or any occupation, or a combination of the two. Many long-term disability policies use the own occupation definition as the initial qualification, but later change to any occupation An own occupation definition results in disability when the insured simply cannot perform the essential duties of the work he/she was performing at the time of disability, even if capable of working in another capacity. It is a less restrictive definition and is easier to qualify for benefits To be disabled under the any occupation definition requires that the insured cannot perform the duties of any occupation for which they have education, training, or prior experience. It is more restrictive (harder to qualify for benefits) because there is a greater possibility of being able to find work for which the insured is suited. Any occupation policies are less costly than own occupation policies A residual disability benefit may be payable when a previously totally disabled person is capable of returning to work, but is limited in their ability to work A recurrent disability is one which was treated and resolved, but returns within a stated period of time, such as 6 months. When a recurrent disability exists, a new elimination period is not imposed, and the benefit is reinstated as a continuation of the previous disability period Presumptive disabilities are those which will not require future certification. The insurer agrees that the disability is permanent and the insured cannot be restored to whole. Such disabilities include paralysis, loss of limbs, eyesight, speech, and hearing. Some policies may include a lump sum benefit for presumptive disabilities Many disability policies include rehabilitation benefits that provide additional cash for vocational retraining in order to return a person to work, but in another occupation which the insured may be able to perform with the limitations imposed by his/her disability A person s occupational classification and, to a lesser extent, his/her avocations (activities outside work) are the most important factors in underwriting disability income insurance. Secondary factors are age and income. When a person works in more than one occupational classification, the one which is most hazardous, regardless of the amount of time involved, will determine the insured s underwriting classification The duration of the benefit and the amount of the benefit determine the final rate once an application is approved A change of occupation provision entitles the insurer to reduce benefit payable if the insured changes occupation to one with greater risk of disability without notifying the insurer. If the insured changes occupation to one with a lower risk, a premium refund may be available Life & Health Insurance

12 Life & Health Insurance 18. Substandard rated risks may be accepted with one or more of the following changes: an increase in premium, a reduction in benefit (amount or duration, or both), an increase in the elimination period, or issuance of the policy with an exclusionary ( impairment ) rider that avoids claims for specified disabilities (usually related to vocational or avocational activities, but could include named health conditions) Group long-term disability benefits usually begin when the short-term disability benefits end (the duration of the elimination period is the same duration as the maximum short-term disability benefit period). Long-term disability benefits may last for any length of time, such as to age 65, or for the lifetime of the insured, as long as the disability remains continuous Business Overhead Expense insurance is designed to pay all expenses of operating the insured s business other than the insured s income. If the insured is disabled, Key Person insurance is designed to fund the employer s need to temporarily replace a disabled worker, and policies for use with Buy- Sell agreements which include an acceleration provision allowing the payment of a stated maximum benefit as a lump sum rather than monthly income COLA riders increase the monthly benefit in relation to changes in the Consumer Price Index (CPI) Guaranteed/Future Purchase Option riders permit increases in monthly benefits without proof of insurability at certain intervals or when certain life changes occur (qualifying income may still need to be proved) A Waiver of Premium rider avoids the requirement to pay premiums while disabled A Lifetime Benefit rider would provide for payments for the lifetime of the insured if total permanent disability occurs prior to a stated age (such as 50) A return of premium (or cash surrender value) provision or rider requires that the insured keep the policy in force for a specified number of years and will provide a refund of a % of premiums paid. At the end of that time, the amount of any claims paid is subtracted from the premiums paid, with the net balance paid to the insured/policyowner. If there were no claims, the premium is returned in full. Policies terminated early may have greatly reduced cash value A Non-disabling Injury Rider pays cash benefits for the use of an emergency room, x-rays, and certain other medical expenses when an injury does not result in a total disability A Hospital Confinement rider adds a daily cash benefit for each day an insured is admitted to the hospital as an inpatient, or waives the elimination period in the event of hospitalization due to illness or injury A Social Insurance Supplement pays an income benefit while a person is waiting for Social Security Disability or Workers Compensation, or state disability income benefits to begin. It also provides benefits if social security benefits are declined An Additional Monthly Benefit rider is similar to the SIS rider, but the benefits will not be reduced by any other benefits received by the insured. The AMB rider usually has a short duration, such as 6, 9, or 12 months from the date of disability Life & Health Insurance 148