PRINT - Chapter 2
Disability Policy Definitions & Provisions

The important points addressed in this lesson are:

A disability income policy's renewability provision determines the policy's guarantees with respect to the insurer's right to cancel coverage or raise premiums

The definition of total disability in a typical disability income policy is couched in terms of the insured's inability to work and makes no mention of income loss

An income replacement contract, which is an alternative to a traditional disability income policy, generally contains no definition of disability; it pays a benefit based solely on income loss resulting from sickness or accident

An elimination period is the period following the onset of disability before benefits are payable and may be as short as zero days or as long as several years

Split elimination periods may be used to enable an underwriter to provide needed coverage without exposing the insurer to undue risk

Policy benefit periods may provide benefits for as short a period as two years or for as long as the insured's entire lifetime

Exclusions and limitations in a disability insurance policy serve to limit the insurer's liability for disability arising from certain conditions or to eliminate that liability entirely

The exclusions and limitations in disability insurance policies are generally limited to pre-existing conditions, acts of war and service in the armed forces


After our discussion of the likelihood of disability and the sources of income available to disabled individuals, it should be clear that the only reasonable choice as a disability income source is a disability income insurance policy.  Let's turn our attention now to the significant definitions and provisions of that policy.

A disability income insurance policy's renewability provision is important because it defines if, and under what conditions, the insurance company can change or cancel the policy or increase its premium.  

There are four different renewability provisions that may be contained in disability income insurance policies:

Noncancellable & Guaranteed Renewable
Guaranteed Renewable
Conditionally Renewable
Optionally Renewable

Disability income insurance coverage that is Noncancellable & Guaranteed Renewable provides the greatest amount of protection to the insured and is, as a result, the most expensive of the four options.  In coverage that is noncancellable and guaranteed renewable, the insurer makes two important guarantees:

It will not increase the premium for the issued coverage during the noncancellable period and
It will not refuse to renew the policy nor will it unilaterally modify any provision of the policy during the guaranteed renewable period.

Disability income insurance policies issued on a noncancellable and guaranteed renewable basis generally provide these two premium and renewability guarantees only until the insured's age 65.  However, during that period, the premium is guaranteed to remain the same even if the insured changes his or her job to a more hazardous occupation.  

The attorney who purchased a noncancellable & guaranteed renewable disability income policy and who, subsequently, became a stock car driver would continue to have the same coverage at the same premium as long as he or she paid the premium when it came due.

Coverage under early noncancellable & guaranteed renewable disability income policies generally terminated completely at the insured's age 65 -- the age at which workers were usually thought to retire.  As many individuals, especially professionals, continue to work well past age 65 this guarantee is changing.  

More recently issued disability income policies enable the insured to continue coverage beyond his or her age 65 on a modified basis, provided the insured certifies annually that he or she is working for at least 30 hours each week.  The coverage that continues beyond age 65 is, however, modified.

The modifications to noncancellable and guaranteed renewable disability income policies for insureds that have attained age 65 usually affect two areas:

Policy premiums
Duration of coverage

The disability income policy premiums, which were based on the insured's age at issue and guaranteed not to increase before age 65, change.  At the insured's age 65 and later, policy premiums are normally increased to reflect the then-current age of the insured.  Sometimes the premium for the same coverage increases significantly.

In addition to the change in premium following the insured's attainment of age 65, the policy's benefit period may also change.  The benefit period -- which may have extended for as long as the insured's lifetime -- is typically reduced to 12 or 24 months for coverage maintained beyond the insured's age 65.  

Coverage extension, allowed principally on policies issued to the higher occupational classes, is in response to the desire by many professionals to continue practicing beyond what had traditionally come to be regarded as the normal retirement age.  Physicians, attorneys and accountants that elect to practice their profession beyond age 65 can now continue their disability income coverage, albeit on a modified basis.

Disability income insurance coverage that offers a noncancellable & guaranteed renewable provision is usually available only on disability income insurance policies issued to applicants in the professional or managerial occupation classes.  While this renewability provision is normally available only to these white collar workers, it is sometimes seen on high quality coverage offered to skilled craftsmen.

Noncancellable and guaranteed renewable coverage offers the greatest amount of protection to the insured and has the highest premium when compared to identical coverage offered under the other three provisions.

As we saw, the noncancellable & guaranteed renewable provision guarantees that both the coverage and the premium will not change.  As we turn our attention to other renewability provisions, we will see that those coverage and premium guarantees weaken.  Having said that, let's now consider the second of our renewability provisions -- the provision known as Guaranteed Renewable.

The fundamental difference between Noncancellable & Guaranteed Renewable coverage and coverage that is just Guaranteed Renewable lies in the insurer's right to change premiums for the coverage.  However, the insurance company's right to change premiums is a limited right.  

Under the Guaranteed Renewable provision, the insurer can't just increase your premium because of your claims history.  Instead, however, the insurer can increase the premium for all of the policyowners in your class.  The Guaranteed Renewable provision normally contains language stating that the insurer:

retains the right to increase premiums on a class basis.

We will discuss the issue of insured classes later when we examine some of the underwriting considerations.  As you might expect, since the protection afforded by guaranteed renewable coverage is somewhat less than that afforded by coverage which is noncancellable & guaranteed renewable, guaranteed renewable coverage normally has a lower premium than otherwise identical noncancellable coverage.  

Moving down from the provision conferring the greatest protection, we come to the third type of renewability provision, known as Conditionally Renewable. The Conditionally Renewable provision gives the insured a conditional right to renew the policy, but the insurer retains the right to refuse to renew the policies of those insureds in a specific class, and rate increases are also possible.   

A typical conditionally renewable provision contains language as follows:

The insured may not change his or her occupation to one considered more hazardous.

Since the insurer retains considerable power to cut its claims losses by refusing to renew coverage under a conditionally renewable provision, policies issued with this type of renewability provision generally have significantly lower premiums than either noncancellable or guaranteed renewable coverage.  The lower premium comes with an equally significant reduction in guarantees.  However, as long as the insured meets the conditions of renewability and remits the required premium on a timely basis, the insurer guarantees not to cancel the policy.

A conditionally renewable provision is generally offered to insureds in high-risk occupations and is frequently found in group or association type coverage.

The fourth and final type of renewability provision offers the least security for the insured and has little application in modern disability income insurance.  It is known as optionally renewable coverage.  Under an optionally renewable provision, premiums may be increased and benefits modified on a class basis.  In addition, the insurance company may cancel an individual policy -- but, only on a policy anniversary or on a premium due date.

While conditionally renewable and optionally renewable provisions may be found on some association -- type disability income policies, they are seldom found in other disability income delivery systems.  Fortunately, most individually underwritten disability income insurance policies are issued on a noncancellable & guaranteed renewable or just guaranteed renewable basis.  

Definitions of Disability

While a disability income insurance policy's renewability provision dictates how long an insured may keep his or her policy and at what premium, it is the policy's definition of disability that determines whether or not benefits are payable in any specific instance.  

We are going to change our focus now to a consideration of the various definitions of disability that are used in disability income insurance policies.  As we look at each of these definitions, it is important to note that the loss of income is only important if the definition of disability requires income loss.   Although that statement may sound like legal gibberish; it isn't.  Except in rare cases, the various definitions of total disability in many disability income insurance policies do not require a loss of income for benefits to be payable.  

We will begin our consideration of the definitions of disability with a look at total disability.  There are three different definitions of total disability.  These three definitions are known as:

Own Occupation
Limited Own Occupation
Any Occupation

The definition of disability that provides the greatest protection for the insured -- and is the one under which it is easiest to obtain a total disability benefit -- is the own occupation definition.  Under this definition, the insured is considered disabled when he or she is:

unable to perform the duties of his or her own occupation

Under a pure own occupation definition of total disability, the insured is considered totally disabled if, as a result of accident or sickness, he or she can't perform the substantial and material duties of his or her regular occupation -- even if employed doing something else!

An example of the pure own occupation definition of disability can clarify it.  Let's assume that the insured is a surgeon.  As a surgeon, his occupation consists of the surgical treatment of disease.  Let's further assume that his income is $25,000 per month, and that he purchases a $10,000 per month disability income policy with a lifetime benefit period.

Shortly after the policy is issued and in force, the surgeon develops a tremor in his hands.  Since the hand tremor is likely to cause prospective patients to seek a different surgeon, it makes his continued practice of surgery impossible.  Because the surgeon satisfies the pure own occupation definition of disability in his policy, he begins to receive a $10,000 monthly disability income benefit.

Since the surgeon's practice has ceased because of his hand tremor, he decides to find other employment in the medical field.  As a result, he applies for and is accepted into a residency program in anesthesiology.  

Throughout the residency program, the former surgeon receives both his resident's income and his monthly disability income benefit of $10,000.  At the conclusion of the residency program the insured, still afflicted with the hand tremor, joins an anesthesiology group practice, and, within a few years, his income is greater than it was as a surgeon.  Since his disability income insurance policy insures his ability to practice surgery, he continues to receive his $10,000 per month disability income benefit.

There is little question but that our surgeon-insured constitutes an unusual case.  This unusual set of claims circumstances, however, is presented for two reasons:

To show the extraordinary protection afforded by the own occupation definition of disability  
To demonstrate the irrelevance of the insured's earned income to that definition

This pure own occupation definition of disability is often limited to insureds in those occupation classes that are generally deemed to involve very low disability risk by the industry.

A variation of the pure own occupation definition of disability that avoids the claims result we saw in the case of the surgeon turned anesthesiologist is known as a modified own occupation definition. The modified own occupation definition of total disability states that the insured will be considered totally disabled if he or she is:

unable to perform his or her own occupation and not engaged in any other occupation.

In our example, if the surgeon's disability income policy contained this modified definition, his benefit would probably have been reduced when he entered the residency program and ceased when he joined the anesthesiology group.  

This modified own occupation definition of disability presents the insured with a choice at the time of disability -- to enter a different occupation and risk the loss of the total disability benefit or remain disabled and unemployed.  Generally, for the insured's benefit to cease, the insured must have entered an occupation that is considered reasonable in light of his or her education, training or experience with due regard to prior income.  Therefore, in the case of our surgeon, his decision to become a clerk would probably not affect his disability income.  His choice to become an anesthesiologist, however, would certainly cause his disability income to cease.

The benefit of this modified own occupation definition to the insured lies in somewhat lower premiums.  

A pure own occupation definition of disability clearly gives the insured the greatest chance of maintaining a successful disability claim.  It is a definition that is generally restricted to professional occupation classes.  The second type of total disability definition is one that provides some of the benefits of an own occupation definition while giving insurers a certain amount of claims relief.  

Under a limited own occupation definition of total disability, the definition of what constitutes total disability changes with the duration of the disability from a pure own occupation definition of disability to an any occupation definition.  As the disability continues, its definition becomes more restrictive.

The language of a typical limited own occupation definition of total disability is normally couched in the following terms:

The insured is disabled if unable to perform the duties of his or her own occupation for the first 24 months of disability; following such 24-month period, the insured will be considered totally disabled if unable to perform any occupation for which he or she is fitted by education, training or experience.

This limited own occupation definition of total disability is unquestionably inferior to the pure own occupation definitions.  As such, it usually appears on policies designed for sale to applicants in the higher risk occupation classes.

If the surgeon/anesthesiologist in our earlier example had a limited own occupation definition of total disability on his policy, his benefits would have ceased at the end of the 24-month own occupation period since he was in an anesthesiology residency program at that time.  

However, what would have been the result if the disabled surgeon elected to remain unemployed rather than entering an anesthesiology residency program?  In order for his benefits to continue beyond the 24-month own occupation period, it would have to be certified that he was unable to engage in any occupation for which he was fitted by education, training or experience.  Since his tremor might not keep him from being a teacher in a medical school, his continuation in a claim status might easily be in jeopardy.

As we can see, the limited own occupation definition of total disability became much less favorable to the insured once the 24-month period had expired and the insured was required to meet a more restrictive test a disability -- the any occupation test.  This brings us to our final definition of total disability.

The total disability definition providing the least protection for the insured is the any occupation definition.  Under the any occupation definition of total disability, the insured must be unable to engage in any occupation in order to be considered totally disabled.  In the case of our surgeon, a strict construction of the any occupation definition of disability would have caused his benefits to cease even if he were to take a part-time job sweeping streets.

The language of an early any occupation definition of total disability was usually couched as follows:

The insured is disabled when, as a result of sickness or accident, he or she is unable to engage in any occupation for remuneration or profit .

Under this any occupation definition, a disabled insured would continue to be considered disabled only if he or she did not engage in any occupation and was unable to engage in any occupation for remuneration or profit.  In this strict construction, a disabled professional who was considered capable of re-entering the job market in the most menial of positions would lose his benefits.

Over time, the courts have added important qualifying language to this definition that avoids some of its harsher consequences.  As a result of this judicial tinkering, the any occupation definition of total disability has changed to the following:

The insured is disabled when, as a result of sickness or accident, he or she is unable to engage in any occupation for remuneration or profit for which he or she is fitted by education, training or experience.

Insurers have generally changed their policy language to reflect these court-mandated changes in their definition of disability.

The any occupation definition of total disability is ordinarily reserved for policies designed for sale to those insureds in the highest risk occupations.  Although an insurer could certainly design a disability income policy for sale to professional or managerial occupation class applicants with this definition of total disability, it would be unlikely to do so.  While it could afford to sell it at a lower premium, the currently competitive nature of the marketplace would probably result in their being unable to sell it at all.

We noted at the outset of our discussion of disability definitions that the loss of income is important only if the definition of disability requires it. And, except in rare cases, the various definitions of total disability do not require a loss of income for benefits to be payable.  Let's look at the exception-income replacement.

During the decades of the 1960s and 1970s, many smaller insurance companies whose flagship products were life insurance products looked for a way to diversify their product line and augment their bottom line.  Offering a disability income insurance product was seen as a way to do that, and a significant number of small to medium size life companies entered the disability income business.  

It wasn't long before they began feeling the enormous financial swings caused by incurred claims in this product line due to the relatively small book of existing disability income business.  The additional competitive enhancements made to the product line -- a lifetime own occupation definition of disability, for example -- made the financial problem worse.  The time seemed to be right for a solution.  

Income Replacement

The product that was offered as a solution to the roller-coaster financial swings experienced by the small book of disability income business of many new sellers of the product was an income replacement policy.  Interestingly, this is a product that doesn't even have a definition of disability!

This product -- by providing a benefit only if the insured suffers an income loss -- resolves the concern voice by some insurers about the possible abuse of the own occupation product.  The abuse these companies were concerned about was the one discussed in our earlier example of the physician turned anesthesiologist.  If you recall, the insured suffered no continuing income loss but, nonetheless, continued to receive disability income benefits.  

The typical income replacement policy pays a monthly income benefit that is equal to the percentage of income lost by the insured as a result of sickness or accident multiplied by the maximum monthly income benefit.  

For example, an applicant with a monthly income of $10,000 might qualify for a $6,000 per month income replacement benefit.  If, as a result of sickness or accident, the insured's income reduced in a particular month to $7,000, he or she would have sustained a 30% income loss.  The $6,000 maximum monthly benefit would be multiplied by 30%, and the benefit paid for that month would be the result -- $1,800.

Monthly Income Replacement Policy Benefit Calculation -- Example

Prior Income:
Maximum Monthly Policy Benefit:
Reduced Income Due to Accident or Sickness:

1.  Determine monthly income loss:

     $10,000 - $7,000 = $3,000

2.  Calculate lost income percentage:

     $ 3,000    = 30%

3.  Calculate monthly benefit:

       X 30%

Each month, the benefit that is payable under the income replacement policy is recalculated based upon the insured's income in the previous month.   The required minimum income loss that must be sustained by the insured in order to qualify for a benefit is 20%.  

Of course, if the insured suffered a complete income loss in a particular month, a benefit equal to 100% of the maximum monthly benefit would be payable.  In some income replacement policies the insured's sustaining an income loss greater than 80% is considered total, and the maximum monthly benefit is paid.

This income replacement benefit calculation, as we will see, looks strikingly similar to the calculation of the residual disability benefit that is available under many disability income policies.  The primary difference between the residual benefit in a disability income policy and an income replacement policy is that the insured need suffer no loss of time or duties to receive a benefit in an income replacement design.  All that is required is that the insured suffer an income loss as a result of an accident or sickness.  

Income replacement policies continue to be available.  They offer a generally less expensive alternative to the individual's need to provide against the devastating effects of income loss.

Non-Total Disability

For the most part, we have been discussing a particular kind of disability -- total disability.  It should be clear, however, that not every disability is total.  In fact, most disabilities are not total disabilities at all.  Instead, they involve a partial disability during which the individual may be able to do some of his usual duties but not all of them or may not be able to perform them for the same length of time.

There are two approaches that insurers take in their policies for dealing with non-total disability, and these approaches may be incorporated in their basic policy or provided by rider.  They are:

· Partial disability
· Residual disability

Partial disability benefits are usually found in policies offered to insureds in the higher risk occupations; conversely, residual disability benefits are typically provided in policies issued to insureds in the managerial and professional occupations.  Not unexpectedly, residual disability benefits generally provide more complete coverage.

Partial disability benefits require that the insured be unable to perform one or more of the duties of his or her regular occupation as a result of accident or sickness, but there is no requirement that the insured suffer any income loss.  

The benefit payable under a partial disability benefit is usually a fixed percentage of the total disability benefit for the duration of the partial disability up to a maximum period.  The maximum benefit period is usually 6 months, and the maximum benefit is typically 50% of the policy's total disability benefit.  

The partial disability benefit structure is a simple one.  It offers insureds a fixed benefit for a fixed, but very limited, period.  As we will see, the approach taken in the case of residual disability benefits is quite a lot more complex as well as being far more responsive to the insured's needs.

If partial disability benefits are simple in design, residual disability benefits are considerably more complicated and look very much like the income replacement concept we discussed just a moment ago. Residual disability benefits pay a monthly disability income that is generally equal to the insured's lost income percentage multiplied by the policy's benefit for total disability.  

As we know, products generally evolve over time; they usually are introduced providing simple, relatively straightforward benefits.  As consumer interest builds and other suppliers enter the market, additional bells and whistles are added that both complicate and expand the coverage.  Similarly, the residual disability income provision has become increasingly liberal in response to competitive pressures.

At the time of introduction, three important criteria had to be met in order for the insured to receive a residual disability benefit:

The insured had to be unable to perform one or more of the important duties of his or her regular occupation or be unable to perform those duties for the same amount of time, that is, the insured had to have a loss of time or duties.

The insured had to suffer an income loss of at least 20%.  

The residual disability had to have been preceded by a period of total disability for which a benefit was payable.

As long as the insured continued to suffer a loss of time or duties and a 20% income loss following a period of total disability, a residual disability benefit was payable.  And, that benefit could be payable for the entire benefit period.  

The competitive pressures alluded to resulted in an improvement of the residual disability benefit by the addition of several major enhancements.  

The minimum monthly residual disability income benefit for the first six months was increased to 50% of the monthly benefit for total disability, even though the insured only suffered a 20% income loss.

The insured would receive the total disability monthly benefit in any month in which he or she suffered an income loss of more than 75%.

The monthly residual disability benefit became sensitive to the consumer price index (CPI); this resulted in the insured's receiving an increased monthly residual disability benefit over time even though suffering no increased income loss.

The loss of time or duties requirement was eliminated, and the benefit became contingent only upon a 20% or greater income loss.

Key Provisions Of Residual Disability Benefits

1.  Basic Residual Benefit Formula

A)  Year 1

(Prior Income - Current Income)   X  Total Disability Benefit  =   Benefit  
          Prior Income

     B)  Year 2 & Later

((1+CPI) X Prior Income) -Current Income X Total Disability Benefit = Benefit
          Prior Income

2.  Benefit Trigger

Income loss of at least 20% as a result of accident or sickness.  Some policies require a loss of time or duties either throughout the benefit period or only during the elimination period.

3.  Minimum Benefit 1st 6 months

Minimum benefit for first six months is usually 50% of the total disability benefit, even though the insured experienced only a 20% income loss.  

4.  Less Than Total Income Loss Considered Total

A loss of income greater than 75% is often considered the same as total disability.

5.  Prior Total Disability Not Usually Required

Although some earlier policy forms required that the insured experience a period of total disability before residual disability benefits were payable, this requirement has been eliminated from most policies being offered.

Recurrent Disability

Recurrence is an unfortunate characteristic of many serious disabilities.  Fortunately, disability income insurance policies contain a recurrent disability provision to deal with that problem.  

The typical recurrent disability provision provides that a subsequent disability occurring within a specified period -- usually 6 months -- following a prior disability from the same or a related cause is considered a recurrence and a continuation of the earlier disability.  Remember, both criteria must be met.  For the disability to be recurrent the subsequent period of disability must:

1.  begin again within 6 months following a prior period of disability and
2.  be from the same or a related cause.

Disabilities that are deemed to be recurrent disabilities:

Do not require that the insured meet a new elimination period  
Continue the earlier benefit period.

In the vast majority of cases, the recurrent provision works to the benefit of the disabled insured.  Since the elimination period doesn't apply to these recurrent periods of disability, benefits begin to accrue immediately.  However, since the earlier benefit period is resumed, the recurrent disability provision may provide a shorter benefit for this subsequent disability.  Let's consider an example.

Suppose that an insured owns a disability income insurance policy with a relatively short benefit period -- a 2 year benefit period, for example.  Further suppose that the insured's initial period of disability lasted for 18 months.  If the insured had continued to be disabled, he or she would have received benefits only for the remaining 6 months in that benefit period.  

If a subsequent period of disability is deemed to be recurrent under the recurrent disability provision, the insured would be limited only to the remaining 6 months of benefits.  Of course, if the disability were not considered recurrent, that is if it were considered a new disability, the disabled insured would be able to collect benefits for up to an additional 2 years -- rather than only for the remaining 6 months.

Pre-existing Conditions

Let's move on from our definitions of disability to the principal cause of denied claims -- pre-existing conditions.  In most disability income insurance policies, a pre-existing condition is defined as a sickness or physical condition for which:

medical advice or treatment was recommended by or received from a physician, or
symptoms existed which would cause a prudent person to seek diagnosis or treatment

in the two-year period preceding the effective date of the policy.  

Disability income insurance policies generally do not pay benefits for disabilities resulting from pre-existing conditions during the first two years that the policy is in force unless two conditions are met:

The pre-existing condition was disclosed in the application for the policy and
The insurance company did not specifically exclude the pre-existing condition.

Of course, after the policy has been in force for 2 years, undisclosed, pre-existing conditions are covered just like any other condition.

Elimination Period

There is no question that, over the years since its introduction, many of the features and benefits of disability income coverage have changed.  One of those features that has undergone change is the elimination period.  Before we examine those changes, however, let's offer a working definition of an elimination period.

The elimination period is that period of time beginning with the onset of disability and ending when benefits for that disability begin to accrue.  Notice that the word used is "accrue."  Although benefits begin to accrue immediately following an elimination period, they are not paid to the policyowner until about 30 days after they begin to accrue.  So, benefits under a disability income policy with a 30-day elimination period would usually be paid about 60 days after the onset of the insured's disability.

We noted that elimination periods had changed.  Not too long ago, the typical disability income insurance policy had elimination periods of 0 days for accident and 7 days for sickness.  This has changed dramatically.  

Today's disability income insurance policies usually offer a minimum elimination period of 30 days.  In fact, however, insurers prefer elimination periods of 60 or 90 days in order to avoid all but the most serious claim situations.  The common elimination periods are 30 days, 60 days, 90 days, 180 days and 365 days.

Why have elimination periods at all?  Like the answer to so many questions, the answer to that question is related to costs.  

The function of elimination periods when used generally in a disability income policy is to avoid administratively costly but relatively insignificant claims.  Not unexpectedly, the benefit that is derived by insurance companies is lowered administrative costs.  What that means to insureds is lower premiums.

Elimination periods are also handy for use in attempting to resolve knotty underwriting issues.  A disability income policy may be structured in a way that provides the needed coverage to the insured while protecting the insurer from increased risks resulting from semi-chronic conditions through the use of special elimination periods.  

Consider, for example, the proposed insured with a history of lower back problems who applies for a disability income insurance policy with a 30-day elimination period.  Even though the underwriter may be satisfied with the applicant's general medical history, the short elimination period doesn't adequately protect the company from exposure to a likely claim arising from lower back problems.  The solution to that underwriting problem may be to offer a split elimination period.  

A split elimination period will give the proposed insured the coverage he or she needs for most disabilities, but it will adequately protect the company against the likelihood of frequent claims for disabilities involving the lower back.  For example, the insurer could offer an elimination period of 180 days for lower back problems but only 30 days for everything else.

Elimination periods on disability insurance policies designed to replace income are usually 30 days to 180 days.  Much longer elimination periods, however, are found in a specialty disability policy called a disability buyout policy, a product that we will discuss at some length later in this course.  These policies are used to fund the buyout of a disabled partner or stockholder and typically have an elimination period of 1 1/2 to 2 years.

Benefit Period

When the elimination period ends, the benefit period begins.  The maximum benefit period is determined at the time the policy is applied for and issued; it may be for as short as one or two years of for as long as the insured's entire lifetime.  

The benefit period is usually defined as that maximum period of time, beginning at the conclusion of the elimination period for which disability income benefits are payable during the continuation of the insured's disability.

The common benefit periods available on disability income insurance policies are:

2 years
5 years
to age 65

Just the way that elimination periods on any policy may be split, disability income insurance policies may also be purchased with split benefit periods.  

Split benefit periods are simply benefit periods in the same policy that are different for disabilities arising out of a sickness than for disabilities arising out of an accident.  It is not unusual to see disability income policies providing a 2-year or 5-year benefit period for disabilities due to sickness and a lifetime benefit period for disabilities due to an accident.   

Since there is some evidence that individuals disabled due to an accident often survive longer than those disabled from sickness, there may be justification for arranging benefits in this way.

Disability income insurance policies under which disability benefits are payable for lifetime usually have special limitations that apply to disabilities resulting from sickness.  By virtue of these limitations, lifetime benefits for sickness are payable only if the disability due to sickness commences prior to age 50 or 55 (age 45 in certain policies).  Disabilities due to sickness that begin after that limiting age on these lifetime benefit policies have their benefit period reduced to age 65.  

Benefit periods for specialty disability products such as Disability Overhead Expense and Disability Buyout policies have benefit periods designed to enable those policies to meet the objectives for which they were designed.  Overhead Expense policies may have benefit periods of 18 or 24 months while Disability Buyout policies may have lump-sum payouts or periodic payouts over 24 months.  

Exclusions & Limitations

It is important to know what a policy won't cover just as it is important to know what it will cover.  We noted that the principal limitation found in disability income policies relates to pre-existing conditions.  Let's now consider the typical exclusions found in disability income policies -- those conditions under which no benefit would be payable.

The two common exclusions found in most disability income policies are:

Disabilities arising out of war or act of war
Disabilities caused by sickness or injury while the insured is on active duty in the Armed Forces.

Earlier vintage disability income policies often excluded disabilities arising out of self-inflicted injuries or suffered while acting as an aircraft crewmember.  These situations are not usually excluded in policies that are more recent.

Waiver of Premium

Waiver of premium in a disability insurance policy serves precisely the same function as it does in a life insurance policy: after a period of disability, the premium is waived.  There are differences, however.

In most disability income insurance policies, the waiver of premium benefit requires that the insured be disabled for a period of at least 90 days.  (You may recall that the provision in a life insurance policy usually requires a 6-month period of disability.)  In a waiver of premium provision the insured's disability for a 90-day period will cause the insurance company to waive all future premiums during the continuation of disability and refund those premiums paid during the 90-day period.  Another difference in the waiver of premium benefit in a disability policy is that the disability may be either total disability or residual disability.

The waiver of premium benefit just described is the basic waiver of premium benefit.  The waiver of premium benefit, however, has been enhanced.  One of the most liberal variations of the basic waiver of premium benefit provides for a waiting period for waiver of premium that is the lesser of the elimination period and 90 days.  The result of this enhancement for an insured with a 30-day elimination period is that premiums are waived after 30 days of disability.

Non-Disabling Injuries

Disability income insurance policies may contain a Non-Disabling Injuries Benefit.  Under the provisions of a non-disabling injuries benefit, an insurer will typically pay for the medical treatment prescribed by a physician required within 90 days of and as a result of an accident.  Generally the benefit is limited to not more than 50% of the monthly benefit for total disability.  

It is important to understand that this benefit is not in addition to monthly disability benefits; instead, it is in lieu of disability benefits under the policy.

Rehabilitation Benefits

Insurers have a vested interest in their disabled insured's returning to work.  As a result, almost all disability income insurance policies provide some type of rehabilitation benefit.  There are two parts to the typical rehabilitation benefit:

The first part of the benefit guarantees that participation in a rehabilitation program will not be considered a recovery from total disability that would reduce or eliminate benefits.

The second part of the benefit pays some or all of the costs of the rehabilitation program that are not covered by other means.

Although insurers want their disabled insureds to return to work, their doing so may or may not affect the disability income benefits. The insurer's sponsorship of a rehabilitation program might not result in a reduction or the cessation of the company's liability for continued monthly income claims payments.  

Consider the case of a disabled insured who is covered under an own occupation definition of disability.  If the insured returns to work in a different capacity monthly income benefits may still be payable because the insured may be unable to engage in his or her own occupation.


Disability insurance policy renewability provisions govern the insurer's ability to cancel coverage or increase its premium.  The most insured protection is provided by coverage that is noncancellable and guaranteed renewable.  Disability definitions may vary greatly from insurer to insurer and may consider the insured totally disabled when unable to do his or her own job or may require that the insured be unable to perform the duties of any job.

The principal disability insurance exclusions and limitations refer to pre-existing conditions, acts of war and the insured's service in the armed forces.  These provisions may limit the insurer's liability for the insured's disability or may eliminate it altogether.