Illness and injuries happen. But you can be better financially prepared if they do. JUMP TO
What is disability income insurance?It’s a financial safety net that helps replace a portion of your income if a serious illness or injury prevents you from working. How does disability income insurance work?You make scheduled payments just like you do with other types of insurance. Then if you ever get a serious illness or injury that prevents you from working, you receive a monthly benefit that helps you stay afloat financially. Think of this insurance as protection for your income (disability insurance is sometimes known as “income protection").  How much does disability income insurance cost?It depends on a few factors, such as your income and age. Our calculator makes it easy to see how much coverage you may need and what it costs. Why is disability income insurance important?Your income is your financial foundation. It pays for immediate needs, like groceries and your mortgage or rent, and it helps you save for the future. That’s why protecting it in the event of a disability is so vital. Disabilities are more common than you might think. The word “disability” may make you think of accidents, like back injuries or severe falls. But most disabilities come in the form of common, long-term illnesses, like cancer or Parkinson’s disease—as in the case of this former NFL player who was diagnosed with leukemia. Supplement what you have through work. Already have disability insurance through your employer? That’s a great start. But it typically only covers about 60% of your income—plus when you leave a job, that coverage doesn't come with you. Disability income insurance can help protect more of your income, and it’s 100% yours. Focus on healing. No one wants to think about getting too sick or hurt to work. But if it happens, disability income insurance lets you worry less about your finances, so you can focus on getting better. Learn more about why you need DI insuranceGo one step further with disability income insurance for retirement.Save for the future, even if you’re too sick or hurt to work with DI Retirement Security. Get personalized advice from a financial professional.Whether you still have questions or you’re ready to work with Principal, a financial professional can help you take the next step. Find a financial professional DISABILITY INSURANCE AND LONG TERM CARE INSURANCE Understanding the Importance of Disability IncomeDisability income insurance is one of the most undersold and overlooked markets in the insurance business. In the United States we tend to have a very optimistic outlook. Most of your clients probably give little consideration to what they would do if they became disabled and unable to work for more than a month. The fact is that if we look at the reason many individuals and families fall upon extreme hardship we find that inability to work due to prolonged illness or disability is a common factor. Disability income insurance may seem expensive to your clients, but its importance is significant. If disability insurance can be afforded, it can help protect against a risk that could be devastating to your clients and their families. Disability Insurance ConceptsPolicy Elimination PeriodThe policy elimination period is the amount of time the insured will wait before the company begins paying benefits after occurrence of a disability. Therefore an important factor to consider when choosing the elimination period is how long the insured would be able to continue his or her present standard of living in the event of a total disability. Most policies offer a choice of elimination periods ranging from thirty days to a full year. These periods are typically 60, 90, 180, or 365 days. Obviously the policy elimination period has a great deal to do with the premium the insured will pay. The longer the insured is willing to wait, the less the policy will cost. The shorter the policy elimination period the higher the cost will be. You need to consider the following factors in helping your client choose the policy elimination period: � How much liquidity of assets or savings does the client have? � Does the prospective insured: � Have a short-term disability policy at work? � Have sick days, accumulated holidays, or bonus days at work that may be used? � Have vacation time coming? � Have a spouse earning an income that can be depended upon? � Have sources of unearned income from rentals, investments, dividends, interest and the like? Very carefully make a list of the prospect�s fixed expenses and know exactly how long the above factors can provide an income. With this knowledge you can intelligently assist the prospect in determining the proper policy elimination period. Benefit PeriodAnother factor that affects the cost of a disability income policy is its benefit period. The benefit period is the period of time that benefits will be paid for total disability. Typical benefit periods are one year, two years, five years, age 65, or the insured�s lifetime. Insurance company statistics indicate the average disability lasts 9 to 18 months. However, depending on the occupation and the classification of the occupation, the benefit period is a major consideration. RenewalThere are two types of renewal provisions in disability plans. � Non-cancelable. If premiums are paid on time to a pre-determined date, usually age 65, the company cannot: � Cancel the policy. � Change any provisions. � Add any riders that restrict coverage. � Add any changes to the policy. � Raise the premiums. This type is the most favorable to the insured and therefore the applications that underwriters look at most carefully. � Guaranteed Renewable. Guaranteed renewable policies only provide the first four guaranties listed above for the non-cancelable policy. This means that the company can raise the premium under certain circumstances. An individual insured cannot be singled out for a premium increase. The company must raise the premium for all policies that are either in a particular class or type of policy. Total DisabilityThe policy�s definition of �total disability� determines whether the insured will receive payment when a claim is filed. Total disability is defined by two requirements: � The insured cannot or is unable to work at one or more of the important duties of his or her regular job. � The insured is under the care of a qualified and licensed physician. Claims will be paid only if the insured satisfies both of these requirements. OccupationsOne of the most important considerations in issuing a disability policy is the insured�s occupation. Obviously, because of the inherent risks factors the more hazardous the job, the higher the premium. Therefore, when insurance company underwriters determine the risk classification for a specific occupation, the underwriters take a close look at the following issues: � Does the job require a lot of travel? � What kinds of materials, machines, or tools are used at the job? � What types of products or services are offered? � Is the insured involved directly in the work or is the job managerial? � Is the job seasonal in nature? � Is the occupation prone to layoffs or having hours shortened? Each of these factors helps determine the level of hazards associated with the occupation, and the appropriate occupational classification can be determined for that occupation. Disability policies typically use either a class grouping or an alphabetical grouping for occupations. These classifications are usually set as �AAAA� through �B� with �B� carrying the highest risk of loss to the insurance company. � Class One (or AAAA). Occupations commonly found here are the ones with favorable claims experience such as CPAs, lawyers, dentists, and doctors. � Class Two (or AAA). Occupations in this group are typically managerial, technical, professional, and executive types whose duties are generally restricted to the office. � Class Three (or AA). Occupations here are comprised of supervisors of performing employees but not those that participate in the actual operations. Merchants, salespeople, and store managers are a few examples. � Class Four (or A). Here you will find skilled labor types of occupations such as home construction and small construction. � Class Five (or B). These are the most hazardous of the occupational classifications and the most difficult to insure. Motorcycle police officers, bricklayers, or welders are prime examples. The premium charged for the disability policy will be the highest for the Class Five (or B) grouping. Income RequirementThis area is one that is very strictly underwritten as insurance companies do not want to permit the insured to earn more income while disabled than he or she would earn while working. Obviously, this situation would cultivate false claims and lingering disabilities. Therefore, companies place a limit on the percentage of monthly benefits to monthly-earned income. Typically, companies will issue a monthly benefit equal to between 40% and 70% of the insured�s earned income. For example, if earned income is $3,000 per month, a company will allow a monthly benefit of between $1,200 (40% of $3,000) and $2,100 (70% of $3,000). Underwriters look at �earned income,� which is the income an insured earns for work performed. Companies also look at �unearned income� such as rental income, royalties, investments, or dividends. Since this is income that would normally continue even if the insured were disabled it is generally not considered in the percentage formula and in some cases, it may even reduce the amount the company is willing to issue as a benefit. Definition of �Disabled�Various definitions are used to describe �disabled� as it applies to the payment of benefits under disability insurance policies. The particular definition will be an important factor in the decision regarding to which policy is the best choice for each client. The common definitions for �disabled� are the inability to work in � The insured�s regular occupation; or � Any occupation for which the insured is reasonably suited based on his or her training or experience. �Insured�s regular occupation� � This definition is the best of the choices for the insured, since it will consider the insured disabled and qualified to receive benefits even if the insured could perform work other than exactly the work he or she has been performing. �Any occupation for which the insured is reasonably suited� � This is the less favorable definition for the insured, as this type of policy would only pay benefits when the insured could not work in any occupation for which the insured is reasonably suited based on his or her training or experience. Some policies offer a combination approach to the definition of �disabled.� This approach is the second best choice for the insured, as the insured would not be considered disabled in the same way for the full benefit period. For example if the benefit period were 5 years, the policy may cover 3 of those years under the regular occupation definition and then switch to the reasonably suited definition for the remainder of the benefit period. Some policies also provide partial disability benefits if the insured has lost a portion of his or her income due to disability. Waiver of PremiumA �waiver of premium� provision is included in most disability contracts. It states that if the insured is disabled more than 6 months (some may state 90 days) the premiums are waived until the insured goes back to work and is no longer disabled, or until the benefit period expires. Some policies also refund the premiums paid during the 6 month (or 90 day) period while waiting for the waiver provision to start. ExclusionsThere are three specific exclusions that commonly appear in most disability policies: � Self inflicted injury. � Pregnancy. � War. Grace PeriodThe grace period is defined as the period of time beyond the due date that the insured may pay the premium without the policy lapsing. The grace period is 31 days in most disability policies. During the grace period, the policy stays in force so long as the insured pays the premium that is due before the end of the 31st day. ContestabilityDisability policies contain a period of contestability that is usually two years. It should be noted that some policies exclude periods of disability during the two years. During the period of contestability the insurance company is given time to determine if any misstatements were made so that it can have the option of either rewriting the policy, or canceling it. After two years, there is nothing that can be done if misstatements are discovered. Disability Policy OptionsCustomizing the PolicyFlexibility is one of disability income�s strong suits in that companies offer a number of options to customize the disability policy. The following are common options that are available to customize the policy: � Cost of living. This is an excellent option considering the steady trend of inflation. This option permits the insured to increase the monthly income benefit based upon certain factors. The increase may be tied to the Consumer Price Index or it can be guaranteed up to specific limits, as cost of living provisions contain a cap on the maximum increase. Others have no cap and allow the insured to continue increasing coverage until age 65. � Future increase of monthly benefit. This option allows the insured to increase the monthly benefit without evidence of insurability on specific future dates. Examples of times in which the insured may increase the monthly benefit include: � Every fourth policy year anniversary up to a specific number or amount. � The birth of a child. � Marriage. � Purchasing a new home. Typically, the policy states that when any of the above events take place, the insured may increase the monthly benefit by a specific amount up to a final monthly maximum. � Hospital confinement. This option permits the insured to purchase a specific daily benefit in addition to the regular monthly disability income benefit. This option requires being admitted to the hospital on an in-patient basis, and during that time, the policy pays a specified daily benefit for each day of hospital confinement. � Life extension. This option is available when the basic policy has a benefit period limited to age 65. It extends the benefit period for total disability to the lifetime of the insured in one or more of the following ways: � Lifetime benefits are paid if total disability begins before a specific age; usually age 50, 55, or 60. � Lifetime benefits are paid if total disability begins before a specific age, but at a reduced percentage of the policy�s monthly income benefits. For example, if an insured is 60 years of age and becomes totally disabled, the full monthly benefit will be paid until 65, then at age 65, the lifetime extension is reduced to 50%. � Lifetime benefits are paid if an accident causes total disability before age 65. This covers accidents but does not include illness, in which case benefits would cease at age 65 with no lifetime extension. � Lifetime benefits are paid if total disability occurs before age 65 and there are absolutely no other restrictions as to accident or sickness, age of onset of disability prior to age 65, or reduction in benefit. Obviously, this is the best of the four choices and also the most expensive. � Social Security rider. Here a benefit is paid if Social Security does not pay benefits. This can be a valuable rider for the additional premium because Social Security disability income can be difficult to obtain. Basically this rider stipulates that the insured will receive an additional monthly benefit above and beyond the basic monthly benefit if Social Security benefits are denied. If however, Social Security does approve benefits, then the insurance company will not pay this additional monthly benefit. Another way in which this option may work is that the basic monthly benefit will be reduced by any amount Social Security pays the insured. � Cash back option. Many people feel that this option is expensive and impractical. One of the major complaints is that money under this option does not earn any interest. An insurance company charges an additional premium, which can be very substantial for the cash back option. The two most common cash back options are: � At age 65 the company will return to the insured all premiums paid less any benefits received. In the event benefits received exceed the premiums paid to age 65, there is no return of premium. Some companies will permit the insured to drop the cash back option, and reduce the premium accordingly, should the insured ever reach the point that benefits paid exceed the premiums. However, most companies continue charging the additional premiums for the cash back option even when benefits paid exceed premiums paid. � The company will review the policy every ten years (rather than waiting to age 65) and return 80% of all premiums paid, less any benefits received. As mentioned above these options are very expensive and not frequently added to policies. Policies for BusinessBusiness Overhead PolicyWhen the insured owns a business, one of the major problems which could hurt the business would be the unavailability of the owner to run the business. Many businesses are uniquely dependent upon the owner�s knowledge, skilled profession, or contacts with customers or suppliers. Obviously, the owner�s absence could pose significant problems in these areas. This is especially true when the owner is the key employee or major factor in the success of the business. A business overhead policy functions as a type of �business disability� policy which can help the business meet necessary expenses until the owner is able to return to work. The purpose of the policy is to cover essential expenses which must be paid to operate the business: � Elimination periods. Common elimination periods for business overhead policies are: � 30 days. � 60 days. � 90 days. The most commonly purchased policy contains the 30 day elimination period, particularly for businesses in which the owners do not have sufficient funds to cover business expenses for a long period of time. � Benefit period. Common benefit periods for business overhead policies are: � 12 months. � 15 months. � 18 months. � 24 months. Benefit periods generally do not exceed 24 months because if the business owner does not return from a total disability after 24 months, the owner is less likely to return at all. � Monthly benefit. Considerations affecting the amount of the monthly benefit to be paid under the business overhead policy include: � The type of business. � Owner�s occupation. � Insured�s portion of the work. � Employee�s portion of the work. � Amount of loss of income. � The company�s current expenses. � Covered expenses. There are many expenses in running a business and not all can be covered with a business overhead expense policy. The following are some of the more common of the covered expenses: � Rent. � Utilities such as water, heat, and electricity. � Telephone. � Telephone answering service. � Employee�s salaries. � Employee fringe benefits. � Payroll taxes. � Professional or association dues. � Accounting fees. � Premiums for business insurance. � Postage. � Stationary and supplies. � Furniture and equipment depreciation. � Janitorial service and maintenance. � Laundry. � Expenses not covered. It is very important that the policy owner understands what is not covered so that there are no misunderstandings or disputes at the time of a claim. Common exclusions are: � Purchases of equipment or furniture. � Salaries, draws, commissions, fees, or any other monies due the owner. (The owner covers these expenses with a personal disability income plan.) � Payments made towards debts. Disability Insurance for a Key EmployeeOften an employee of a company is a key ingredient to its success. Should he or she become sick or hurt, the financial consequences to the company could be severe. A disability insurance plan for this key employee may provide significant protection against this possibility. The company purchases the disability policy and the company becomes its beneficiary. Should the key employee become disabled, the company is then reimbursed for the expected income loss to the company caused by the employee�s absence. As a general rule, the benefit period runs for 6, 12, or 18 months. Tax Effects of Disability InsuranceDisability insurance policies may offer certain tax benefits to the insured. Here we examine tax treatment for some of the policies which we have discussed. � Personal disability income plans. Premiums paid for personal disability income plans are not tax deductible. The good news for the insured is that regardless of how much the insured business owner receives while totally disabled under a personal disability plan; all income is received 100% tax-free. A business owner for example, could insure him or herself under a �tax-favored sick-pay plan� and have it construed to be personally purchased. Here again the benefits are completely tax free because the business owner is not considered an employee and the premiums are not tax deductible. � Sick-pay plan for key employees. The premiums are tax deductible for the business owner as a necessary business expense for disability purchased on key employees. � Taxes on overhead expense policies. Since the business owns the policy and the premiums are deducted as a business expense, the income from the policy is taxable when paid to a disabled owner. Disability UnderwritingMany companies place a lot of responsibility on the good judgment of the agent in the field when it comes to insuring a disability risk. As an agent in the field, you have the upper hand in that you are not merely dealing with the information contained on the application, but are in fact, seeing and talking to the potential insured. For this reason the agent is sometimes referred to as the field underwriter. Underwriters use the following details to determine the risk factors in writing a disability policy: � Date of birth. � Occupational rating. � Address. � Gender. � Earned income. � Net worth. � Expenses. � Unearned income. � Benefits applied for. � Current coverage. � Medical history. � Family history. � Present physical condition. � Hobbies. � Moral character. Correlating the DataUnderwriters gather all of the evidence concerning an individual and try to determine whether to issue that individual a disability income plan. Disability underwriting and life underwriting have many different concerns. There are many conditions a potential insured can have that are not life threatening but are certainly possible disability income claims. For example, a bad knee or back or shoulder injury, while not life threatening, certainly can become the subject of a future disability claim. Medical UnderwritingMedical underwriting for the disability policy is accomplished in two ways: First, in the field with the agent and, second, with questions on the application. The following areas are studied very carefully during the medical underwriting process: � Parts of the body that have been affected. � Symptoms. � Date of onset. � Severity of symptoms. � Frequency of symptoms or illness. � Duration of symptoms or illness. � Cause of symptoms or illness. � Time off work. � Diagnostics. � Kind of treatments taken. � Names of all medical practitioners consulted. Importance of Medical ExaminationsThe companies print and publish what are referred to as �non-medical limits� for examinations. In other words, there are certain thresholds at which a medical exam is required. The following factors are taken into consideration and the company determines whether or not to require a physical exam or other test. � Occupational classification. � Age of applicant. � Amount of benefit applied for. � Benefit period applied for. If the applicant has a non-hazardous occupational class, is over age 60, and requests a long benefit period, he or she will probably exceed the non-medical limit. Conversely, the applicant could have a hazardous occupation with a short benefit period and not be required to take an exam. Underwriting Substandard PoliciesNot every applicant can be given a standard policy. There are many factors that cause an applicant to be considered substandard. Some reasons an applicant may be considered substandard are: � Current status of health. � Age. � Occupational rating. � Pre-existing conditions. � Sports or hobbies. Rather than completely deny coverage, some companies are willing to make adjustments and issue a substandard policy. This can be done in a number of ways: � Shorten the benefit period. � Lengthen the elimination period. � Issue a rider that excludes or limits coverage in certain areas. � Charge an extra premium above the standard premium. � Issue an exclusion rider for a specific condition. Disability ClaimsAny time that an insurance company sells disability income insurance, it recognizes that part of the premium dollars taken in are going to be paid out in claims. Most companies make every effort to pay claims fairly and promptly. However, they also know that it is the company�s obligation to be certain that unjust claims are not paid. Obviously, the claim form is very important. As an agent, your role is to bring the form to the insured and assist them in completing it. Caution is given here in that you should only assist the insured and you should never complete the form yourself. The claim form will give the company the information necessary to process the claim. The quicker the claim process begins, the quicker the claim can be paid for your client. Payment of ClaimsSome confusion may exist as to when one can apply for claim benefits if the disability income policy contains a 30 day waiting period. The insured is eligible for benefits on the 31st day. However the agent must realize that his client may not see the first check for over 60 days. Companies pay claims only as earned. In other words, they will not accept estimates that a client may be off work for six months and therefore send a check for six months in the future. As a rule, if an insured is in fact not going to return to work for a period of six or eight months, according to the physician�s estimates, the insured must submit an up to date claim form every 30 days. One of the primary requirements of the insurance company for continuation of disability benefits is that the insured be currently under the care of a qualified licensed physician. The company also reserves the right to request periodic physical examinations of the insured to ascertain whether or not the condition that has caused total disability still applies. In most cases, the company pays for the physical examination and in almost all cases, the company, not the insured, picks the doctor to perform that examination. Long Term Care InsuranceThe Producer�s RoleMost clients would rather not think about the possibility of themselves being subject to an injury or illness that would impact them for an extended period of time. This reluctance to think about these possibilities makes it that much more important for you, the insurance producer, to discuss these uncomfortable topics with clients so they can begin to appreciate the protection that can be available through disability and/or long term care insurance. HistoryLong term care is not a new concept or idea. Long term care insurance (LTC) first appeared on the scene in the early 1980�s, but was very primitive in nature and had numerous stipulations, requirements, and exclusions that made it undesirable. Insurance companies were reluctant to enter this market simply because there was not previous claims experience that they could follow. Actuarial science could not be applied because there were no records of who went into long term care facilities, their ages, what caused their need or how long they remained in care. Needless to say, this posed major obstacles in the pricing of the long term care policies. Over the years long term care insurance has become more popular. This is true because the need is increasing, more people are becoming aware of the need, and the policies have improved. Baby boomers and their children are seeing their parents and grandparents live longer and require the kind of financial assistance provided by LTC. LTC policies can cover the cost of certain types of care at home as well as care provided in a professional facility. Long term care policies have also become more standardized. The National Association of Insurance Commissioners (NAIC) has helped move LTC from a fringe product to the mainstream. The NAIC has created model polices that have been adopted by many states. While some states have adopted the model in its entirety, others have made use of its principles or used portions of its language. Once a number of states began to insist on the use of these policies, a standard developed that most insurance companies have applied to all of their LTC policies. What Is Long Term CareLTC insurance provides coverage for the care that becomes necessary when an individual cannot perform the �activities of daily living� (ADLs) for themselves. The ADLs include: � Bathing and personal hygiene. � Continence. � Dressing. � Eating. � Toileting. � Transferring or mobility. Benefits Provided By LTCTo provide assistance with the ADLs, the four most common long-term care benefits required and provided by LTC are: � Skilled nursing care. Skilled nursing care is the most expensive type of care. It requires a prescription from a qualified licensed physician. The care must be continuous on a 24 hour a day basis and the insured individual is to be cared for by a Registered Nurse. � Intermediate care. Although a doctor�s prescription is not necessary for this level of care, it does require medical care under the supervision of medical personnel it must be administered by a Registered Nurse, Licensed Practical Nurse, or a Physical Therapist. � Custodial care. Custodial care assists the patient in meeting ADLs shown above. This type of care can be provided by someone without a medical or professional nursing degree. � Home health care. Under this care, the patient is not confined to a nursing home and is usually able to care for him or herself. Usually a non-medical type person assists in shopping, meal preparation, and some physical therapy. Optional BenefitsThe more common optional benefits are: � Hospice. Hospice provides the terminally ill with comfort in their last days and does not prolong treatment or employ life saving devices. Often a hospital bed is set up in the patient�s home to keep them in familiar surroundings with family members during their last days. Depending on the severity of pain or medical needs, home visits are made by Registered Nurses as well as Social Workers. � Adult day care. Adult day care is usually given at a center that caters to those that are mentally or physically impaired. A typical day at the center provides social activity, medical care, meals, and transportation to and from home. � Inflation protection. Long term care is not immune to inflation. Inflation protection is an important option available with most LTC policies. Inflation protection provides for automatic increases in the daily benefit provided by the policy. Most times this policy provision offers a 5 percent increase in the daily benefit each year. One of the differences to be aware of is that while some inflation clauses apply through the entire life of the policy, others limit this benefit to the first ten or twenty years of coverage. � Waiver of premium. While optional, most companies include waiver of premium as a standard provision. Typically, once the insured has been receiving benefits for more than 90 days, the policy premiums will be paid by the company. How Long Will Benefits Be Paid?Insurance companies offer long term care benefit periods from one year to the remainder of the insured�s life. Benefits can also be scheduled to begin at different intervals of time after the care becomes necessary. The decision regarding an insured�s choice of benefit period can be complex. The cost of LTC must be balanced against the risk after taking a number of factors into consideration. The age and current financial condition of the insured will of course be major considerations. Other insurance that will cover the expense of long term care can considerably change the needs of your prospect. If the prospect has disability coverage that lasts for five years and provides similar care to LTC coverage you would want your client to avoid duplication. The availability of Medicaid should also be a consideration. There may also be income tax considerations since portions of some LTC premiums may be tax deductible. Pre-Existing Conditions and Other ExclusionsMost policies make provisions for pre-existing conditions. Most pre-existing conditions are measured by excluding any condition for which the insured was treated or given medical advice. It is common for pre-existing conditions to include the period of six months prior to, and in some instances six months following the effective date of the policy. An agent must be aware and make prospects aware of the exclusions that long-term care policies contain. The time of a claim is not the time when the insured wants to first learn of these coverage exclusions. In the early long term care policies, companies would exclude Alzheimer�s disease by saying that �the policy excludes diseases of an organic nature,� which was a way of excluding Alzheimer�s disease without mentioning the disease by name. This has since been rectified because Alzheimer�s disease and other organic diseases are now covered in most policies. There are some of the other common exclusions: � Care given in a veteran�s hospital. � Losses that workers� compensation provides for. � Mental psychoneurotic, or personality disorders that are not the result of organic or physical disease. � War. � Self inflicted injuries that are intentional. Long Term Care Provisions in Other PoliciesSome insurance companies now make it possible to purchase a life insurance policy or a disability income policy and add long term care as a rider. The rider is very much like the standard long-term care policy in that it affords the insured the same elimination periods, benefits periods and levels of care. A living benefit long term care rider permits terminally ill patients to use life insurance proceeds in advance to cover expenses connected with their illness. In some instances this option will make 70% to 80% of the death benefit available to the insured to cover the cost of nursing home care. Another option in this category is agreeing to and receiving a discounted amount of the death benefit that the patients are entitled to because they are terminally ill. Underwriting Long Term CareSources of InformationThe underwriting process employs four important sources of information. � The application. The application provides the company with the primary basis upon which they will make the decision to issue a contract. Questions need to be answered in full with honesty and integrity. � The agent. Years ago, you were permitted to take applications by mail or phone so long as they were signed by the applicant. Today, however, companies want to know that the agent actually sees the applicant and assists in the field underwriting. You will be able to make observations unavailable to the home office underwriter. � Verification reports. The verification reports provide investigative information to verify statements made by the applicant. These reports also sometimes produce additional information or problems that may not have been listed on the application. Today it has also become common for insurers to check the applicant�s credit report. Many insurers believe an applicant�s credit history can let them know a great deal about the applicant. In fact the major credit bureaus have developed credit scoring models specifically for insurance purposes. � Medical records and history. Often companies employ the Medical Information Bureau and obtain information from attending physician�s reports when verifying medical records and history. Obviously, this information is extremely important in the underwriting process. Substandard UnderwritingNot all applications are approved as submitted or issued standard. Often, the applicant is required to pay more than the standard premium in order for the company to absorb certain extraordinary hazards or risks. Factors that directly affect whether the policy will be issued standard or substandard are: � Pre-existing conditions. � Age. � Occupation (if applicable). � Moral issues affecting the customer�s record. Policy ProvisionsThe National Association of Insurance Commissioners developed model standardized provisions to be used by states adopting their Uniform Policy. These provisions are divided among two categories. One group of �required provisions� that must appear in all policies, and another group of �optional provisions� that may be used at the discretion of insurance companies to better customize their policies. One rule that is strictly enforced is that no substitute language may be used in any provision unless the substitute language is in favor of the insured. Required Policy Provisions� Entire contract. A policy including all attached papers constitutes the entire contract. Riders, endorsements, and changes must be approved in writing and executed by an officer of the company. The agent does not have permission to change or waive any policy provision. � Time limit on certain defenses. This provision is more commonly referred to as the �period of incontestability.� The period of contestability is usually two years in length. Should an application contain any fraudulent statements, the policy�s period of contestability will be extended to the life of the contract. The only exception is a �guaranteed renewable policy.� Under a guaranteed renewable policy, once the period of contestability has expired the policy cannot be contested. This is true even if fraudulent statements were made on the application. � Reinstatement. A policy that has lapsed may be reinstated under certain conditions, provided that the proper procedure is followed. Some companies require an application for reinstatement, which may or may not be approved. � Claim forms. Companies are required to supply the insured with a claim form within 15 days after receiving a claim. If the company does not meet this requirement, the insured may submit proof of loss on any form. � Grace period. The grace period is the time the company gives the insured to make a delayed payment without penalty and with the policy remaining in force. Should payment not be made by the end of the grace period, the policy will lapse and terminate. A grace period of 31 days is fairly common. � Notice of claims. When a loss occurs the insured is required to notify the company within 20 days, or as soon thereafter as is reasonably possible that a claim will be made. � Time payment of claims. This provision stipulates that �the company must pay the claim immediately.� Usually payment of claim is made within 60 days. � Proof of loss. When a claim is made the insured is given 90 days in which to submit proof of loss. Should the insured be unable to meet this 90 day deadline, the claim will not be affected if it was not reasonably possible for the insured to meet the deadline. � Claim payment. Payment is paid to the insured or the insured�s hospital, physician, or other designated service provider. For loss of life, benefits are paid to the designated beneficiary. If no beneficiary has been named, payment will be made to the insured�s estate. � Autopsy or physical exam. The company can request, at its own expense, physical exams. So long as law does not forbid it, the company also has a right to request an autopsy on the body of the insured. � Change of beneficiary. The insured has a right to change the beneficiary at any time unless an irrevocable beneficiary has been designated. � Legal Action. Should the insured have a dispute with the company in regards to a claim, the insured must wait at least 60 days and no longer than 5 years to take legal action. Optional Policy Provisions� Misstatement of age. If an applicant misstates his or her age at the time he or she is applying for coverage, any benefit due to the applicant will be adjusted to reflect what would have been purchased had the correct age been stated in the first place. � Unpaid premiums. Should a claim become due and payable while a premium remains unpaid, the premium due will be subtracted from the claim amount due and the difference will be sent to the insured or the insured�s beneficiary. � Insurance with other insurer. In order to avoid over insurance, if the company finds that there was other existing coverage for the same risk, the excess premiums will be refunded to the policy owner. � Cancellation. The company has the right to cancel the policy with 20 days written notice to the insured and the insured may cancel the policy following the expiration of the policy�s original term. � Change of occupation. After a policy has been issued, if the insured changes to a more hazardous occupation that would require an increase in premium and the insurance company is not notified and a loss occurs, the benefit paid will be reduced. Should the opposite occur, and a loss occurs, a refund will be made to the insured for the excess premium. � Other insurance in this insurer. To avoid over insurance and to limit a company�s risk, coverage written on one person is restricted to a maximum amount no matter how many separate policies the insured has. Premiums that have been applied to the excess coverage will be refunded to the insured or to the beneficiary. � Conformity with state statutes. Should any part of a policy conflict with state statutes in the state where the insured resides, the policy shall automatically amend itself to conform to statutory requirements. � Illegal occupation. Policy benefits are not payable if the insured has a loss while committing a felony or being connected with a felony or participation in any illegal occupation. � Intoxicants and narcotics. Should the insured be intoxicated or under the influence of narcotics, unless such drugs were administered on the advice of a physician, the company is not liable for any losses. ConclusionAs we mentioned earlier, disability and long term care insurance may seem expensive when purchased; however, if you ever get the opportunity to speak to someone who has had the unfortunate experience of needing these benefits you will never again neglect to talk to your clients about this coverage. What factors impact the cost of disability insurance?The cost of a disability policy – especially an individual policy – can vary greatly based on benefit length and amount, age, gender, occupation, and riders, but expect to pay between 1 to 3 percent of your annual salary. That means a person making $100,000 can expect to pay between $83 - $250 per month.
What are the four main sources of disability income?Disability insurance or income replacement insurance as it is sometimes called can help you do just that.. Group Short-Term Disability Insurance and Group Long-Term Disability Insurance. ... . Social Security. ... . Workers' Compensation. ... . Savings. ... . Borrowing. ... . Other Income. ... . Individual Disability Income Insurance.. Which of the following is not a provision in a disability income policy?Which of the following is NOT a provision in a disability income policy? "Deductible and coinsurance provision". Disability income policies do not contain deductible and coinsurance provisions.
What are the three main sources of disability income?What are three main sources of disability income? Worker compensation, social security, private income insurance.
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Which of the following is not a factor that determines the cost of a disability income policy?
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