Key Terms When Discussing Disability Insurance
When you’re considering or discussing disability insurance, you’ll run into specific terms that may not be completely familiar to you. We often have to explain these terms to clients when considering disability insurance coverages and realize that, like most specific professions, insurance has jargon all its own.
The key terms you’ll likely have the most interest in understanding in order to fully understand your policy and coverages are:
The Benefit Level and Period – Most policies pay a benefit level (percentage of income) for a specific period (maximum of X number of months or years). The benefit level will have a compensation based on a benefit calculation formula (click here for more details) and will pay that amount for a specific period of time (usually up to 3 or 5 years).
The Elimination Period – This is also known as a “grace” or “waiting” period wherein the benefactor (you) must wait before receiving benefits. This is typically 60-120 days from the point the disability occurs. This is so that there is no double coverage from sick leave, workman’s compensation, or other payouts and to determine the approximate length of the disability.
Definition of Disability – We have covered this more in-depth in an earlier article, but this is the definition used to decide whether you are disabled or not. It will be tied either to your ability to make an income or your ability to work at your current occupation. Professionals will want to make sure they are defined by occupation.
Extent of Disability – Some policies pay only for full disability and we recommend that legal and medical professionals consider a policy that covers partial disability as well. The extent of disability will determine the benefit payout. So if you are disabled, but still able to function in your career, but only at partial time or without being able to do some job aspects, partial disability pays the difference.
Residual Benefits – Similar to the extent of disability consideration, this pays based on the amount of lost income. This is more often used to define terms for payment of practice recovery after a disability, where a physician or lawyer returning to practice after a couple of years of not working must build up clientele and income.
Guaranteed Renewable – Similar to life insurance policies, disability insurance cannot be cancelled by the insurance company so long as premiums are being paid. A guaranteed renewable policy cannot be canceled for any reason other than non-payment of premiums and premiums cannot be raised except for a whole class of covered persons, but not based on your individual circumstances changing.
Non-cancelable – Much like a guaranteed renewable policy, this policy also includes the caveat that its premiums cannot raise for any reason while the policy is in force.
Inflation Protection – This is also known as a cost-of-living rider and raises the benefit payout every year by a fixed percentage to account for cost of living increases and inflation. Typically, this is 2-4 percent.
Hopefully this list of key terms helps you when considering your policies.