The following is sample wording of a typical individual disability income insurance policy, with comments that explain the provisions. This typical policy is just an example and does not include all possible policy provisions.
DISABILITY INCOME POLICY. NON-CANCELABLE AND GUARANTEED RENEWABLE TO AGE 65 AT GUARANTEED PREMIUM RATES. CONDITIONALLY RENEWABLE FROM AGE 65 FOR LIFE, SUBJECT TO CHANGE IN PREMIUM RATES. SOCIAL SECURITY SUBSTITUTE BENEFIT, IF INCLUDED, CONTINUABLE AT GUARANTEED PREMIUM RATES TO AGE 65 OR PRIOR RETIREMENT. NON-PARTICIPATING.
This policy will stay in force until your Age 65 Policy Anniversary as long as premiums are paid when due. If certain conditions are met, this policy may be renewed on your Age 65 Policy Anniversary and each year after that for life. See the Renewal After Age 65 section. While this policy is in force, we cannot:
- Cancel it; or
- Change the premium rate (before the Age 65 Policy Anniversary).
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COMMENT
If your policy is “guaranteed renewable,” you have the right to continue your policy in force by timely premium payment. The insurance company cannot change your benefits, but it can increase your premium on a policy anniversary if it makes a similar increase for your entire class of policyholders. If your policy is “non-cancelable,” the insurance company cannot increase your premium for any reason. Since this policy is non-cancelable until age 65, the premium cannot be increased.
Beginning at age 65, it is “conditionally renewable.” This means that the insurance company can refuse to renew the policy for specific reasons enumerated in the policy, in this case, in the Renewal After Age 65 section. Even if the conditions are met, the insurance company can refuse to renew your policy after age 65 if you are unwilling to accept their premium increase. This time the premium increase does not have to be a class increase.
A “non-participating” policy means that you cannot earn dividends from the company under the policy. If you held a participating policy, you would be eligible for periodic dividends from the company’s surplus earnings. The dividend referred to here is not a stock dividend. It is actually a return of premium from the insurance company’s surplus earnings. Mutual insurance companies build into their premium a little cushion against contingencies. If all goes well, they return part of that premium to the policy owner. That is called a dividend. Stock insurance companies are like any other public corporation. They pay a dividend to stockholders of the company, who may or may not be policy owners of the company. There is no return of premium to policy owners if things go well.
| We will refund any Social Security Substitute Benefit premiums paid for a time when your retirement benefits are paid under the Social Security Act. We will pay this policy’s benefits subject to all policy provisions. The policy is issued in consideration of the application and payment of premiums. Signed for All American Life Insurance Company of Anywhere, New York on the policy date. |
COMMENT
The policy provides the option of what it calls a Social Security Substitute Benefit. If you have elected this option, you would receive a benefit during a time when you were eligible for Social Security benefits but not yet receiving them. If you are awarded Social Security benefits retroactively, the above provision states that any premiums paid for the Social Security Substitute Benefit for that period of time will be refunded.
This provision also states that the insurance company will pay benefits subject to all policy provisions. This is an important statement if you are about to purchase a policy. You should READ THE ENTIRE POLICY. If there is anything you do not understand, call the insurance company and ask for an explanation. The policy is a legal contract and your contract will be with the insurance company, not the agent. The agent gets a commission for selling the policy. The agent does not write the policy, so get your answers from the insurance company. If your question is about how the policy works, call the Underwriting Department. If your question is about how claims are paid, call the Claims Department. Talk to a manager if you do not get a clear answer.
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Disability Insurance Center
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