The Definitions section of any insurance policy explains the meaning of any insurance term used in the policy. As you read the policy, give careful attention to this section. Even though you think you know what a term means, your insurance company may use a slightly different definition. You need to understand what the wording in the policy means. If you have any questions after reading the Definitions section, call the insurance company for clarification. If you still have questions after that explanation, try another company. Bottom line: Be sure you fully understand a policy and what it means before you purchase it.
The following is a Definitions section from a sample policy, with comments to help you understand how these terms are used by insurers:
| DEFINITIONS IN THIS POLICY
(IN ALPHABETICAL ORDER)
AGE POLICY ANNIVERSARY – means the Policy Anniversary on or next following the birthday designated.
EXAMPLE: If the Policy Date is June 5, 2008, and you are 65 years old on April 3, 2008, the Age 65 Policy Anniversary is June 5, 2008.
CHANGE DATE – means each yearly anniversary of the start of a Continuous Disability. If a new Elimination Period is required because of a new Disability, new Change Dates will be set for the new Disability.
CONTINUOUS DISABILITY – means your Disability that continues with no interruption. You will be considered Continuously Disabled even if an Interrupted Elimination Period or Recurring Disability occurs.
CPI-U – means the Consumer Price Index for All Urban Consumers published by the United States Department of Labor. We will use a new index if: 1. The CPU-U is discontinued, delayed or not otherwise available for use; or 2.The composition, base, or method of calculating the CPI-U changes so that we consider it inappropriate for this policy.
Any new index we choose will be one which we think best reflects the change in the cost of living in the Untied States.
CURRENT EARNINGS – means your Earnings for each month while you are disabled.
DISABILITY – means:
- Solely due to Injury or Sickness:
- Either:
- Your ability to work is restricted, resulting in the Loss of Earnings; or
- You are unable to perform the substantial and material duties of your regular occupation in which you were engaged just prior to the Disability; and
- Your Loss of Earnings is 20% or more of your Prior Earnings; and
- You are receiving care from a Doctor which is appropriate for the condition causing your Disability. We will waive this requirement when continued care would be of no benefit to you.
If a Disability is caused by more than one Injury or Sickness, we will pay benefits as if the Disability were caused by only one Injury or Sickness. |
COMMENT:
CONTINUOUS DISABILITY means your Disability must be continuous and uninterrupted in order to qualify for benefits. If it is not, a new Elimination Period must be met before benefits will begin again. However, the policy allows several exceptions. With the first exception, if, over a specified period of time, you are disabled, then not disabled, then disabled again, you may qualify for what is called an Interrupted Elimination Period. In that case, you will not be required to meet a new Elimination Period. A second exception is what the policy calls Recurring Disability. Both exceptions are defined in the policy.
The CPI-U is used to determine cost of living benefit increases for the policy. A rider can add this benefit to the policy.
For this policy, DISABILITY is defined in terms of “your occupation”, not the more restrictive “any occupation.” In other words, all you are required to demonstrate is your inability to perform the substantial and material duties of your regular occupation prior to the disability. You only need to show that you are not able to perform your occupation, not that you are not able to perform any gainful occupation.
| DOCTOR – means a medical practitioner who is legally licensed to practice under state law, and not yourself, the Owner, or the Loss Payee.
EARNINGS – means income you earn for labor or services performed. This includes salary, wages, fees, draw, commissions, and other compensation you receive. If you are self-employed, this is net income after deducting your normal and customary business expenses. These expenses must be reasonable and must not exceed expenses before Disability began. They must be deductible for Federal Income Tax purposes.
Identifiable contributions for you to any tax qualified retirement, annuity, salary reduction, or deferred compensation plan, whether employer sponsored or individually owned, or to any non-qualified deferred compensation plan are considered Earnings if they are:
- Made either by you or on your behalf; and
- Not waived by contract during your Disability.
During any period, Earnings:
- Will include all income for services performed during that period, whether or not received; but
- Will not include income for services performed prior to that period, regardless of when received.
ELIMINATION PERIOD – means the number of days of Disability from the start of a Continuous Disability for which no benefits will be paid. The Data Page shows the Elimination Period for each of the Disability Benefit and Social Security Substitute Benefit sections.
EXTENDED DISABILITY – means we will continue to consider you Disabled even if your Loss of Earnings is less than 20% of your Prior Earnings if:
- You have been receiving benefits for the same Continuous Disability under this policy for at least 90 days;
- You meet all the other requirements for Disability; and
- The total of the benefits payable under this policy would be at least $300 per month.
FAMILY BENEFITS – means amounts payable to or for your spouse or dependents, if any, for your retirement or disability under Social Security.
INDEX FACTOR – means, as of any Change Date, a factor which is based upon the change in the CPI-U from the start for a Continuous Disability to the Change Date. It is figured by dividing the CPI-U for the calendar month three months before the Change Date by the CPI-U for the calendar month three months before the date the Continuous Disability began. The Index Factor will not be less than 5% compounded annually.
INJURY – means accidental bodily injury which occurs while this policy is in force. |
COMMENT:
As defined, a doctor excludes you, the insured, and also the policy owner and the loss payee, if they are not the insured. Basically, the insurance company does not want anyone who would benefit from a medical certification of disability to be the person who certifies disability.
The policy provides details about how EARNINGS are defined because the calculation of earnings before and after disability is incurred determines the amount of benefits.
The ELIMINATION PERIOD is the number of days of continuous disability you must experience before your benefit begins. You can choose the length of the Elimination Period when you buy your policy. The longer the Elimination Period, the less expensive the policy will be because the insurance company has less risk of exposure. Exceptions to the continuous disability requirement also are discussed in the sections on Interrupted Elimination Period and Recurring Disability.
Under certain circumstances, the EXTENDED DISABILITY benefit allows for the continuation of your benefit even if your Loss of Earnings is less than 20%.
It might be self evident, but in order to collect benefits for disability resulting from INJURY, the injury must occur whiles the policy is in force. Benefits are not payable for injury incurred prior to the effective date of the policy.
| LOSS PAYEE – means the person named as the Loss Payee in the application. The term includes any lawful successors to the Loss Payee. Benefits will be paid to the Loss Payee except as provided in the Special Death Benefit. If no Loss Payee is named in the application, then the Owner is the Loss Payee. |
COMMENT:
Usually, the applicant insures himself, is the owner of the policy, and is the Loss Payee. Under certain circumstances, though, policy benefits may be paid to someone else. For example, the policy may have been purchased to protect a company in the event one of its key employees becomes disabled. In that case, the Loss Payee may be the company.
Even though this is not a life insurance policy, it does provide a Special Death Benefit, which is paid if insured dies as a result of injury. In this case, if the insured is the Loss Payee, and the death benefit is paid to the surviving spouse, if any, or to the deceased’s estate.
| MAXIMUM BENEFIT PERIOD – means the longest time for which benefits will be paid because of a Continuous Disability. The Maximum Benefit Period for this policy is shown on the Data Page. If the Maximum Benefit Period is more than 2 years, it will not extend beyond the Age 65 Policy Anniversary, but it will not be less than 2 years. |
COMMENT:
Under most circumstances, if the Maximum Benefit Period in the policy is more than two years, the benefit will not extend beyond the policy anniversary immediately following your 65th birthday. So, if your actual policy benefit period is 10 years and you become disabled and eligible for benefits on your 58th birthday, your benefit period will extend only to the policy anniversary immediately following your 65th birthday, not for the full 10 years. The one exception to this Age 65 Policy Anniversary cut off date is that your benefit period cannot be less than two years. If you become disabled and eligible for benefits on your 64th birthday, your benefit period will extend for 2 years, to your 66th birthday.
MONTHLY DATE – means the day of any month which is the same as the day of the Policy Date.
Example: If the Policy Date is June 5, 2008, the first Monthly Date is June 5, 2008. The second Monthly Date is July 5, 2008. The thirteenth Monthly Date is June 5, 2009. |
COMMENT:
Needless to say, the company will not have any Policy Dates on the 29th, 30th or 31st of the month because not every month has those dates.
| OWNER – means the person named as the Owner in the application. The Owner may exercise every right and enjoy every privilege provided by this policy, except that benefits will be paid as stated in the Payment of Claims provision. If you are not the Owner and the Owner dies before you, you become the Owner unless the Owner has provided for a successor Owner. |
COMMENT:
In most instances, the insured will be the Owner, for usually you are insuring yourself. The application indicates that the insured is the Owner unless the application shows someone or something (usually a business) else as the Owner. With exceptions outlined in the Payment of Claims provision of the policy, benefits are paid to the Loss Payee named in the application. Here again, the insured is usually, but not always, the Loss Payee.
PIA – means the primary insurance amount payable to you for retirement or disability under Social Security. It does not include benefits payable because of your spouse or dependents, if any.
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COMMENT:
This amount is used to determine the Social Security Substitute Benefit. Note that, although this amount does not include spouse or dependent Social Security benefits, it does include both disability benefits and retirement benefits received from Social Security.
POLICY YEARS AND ANNIVERSARIES – are computed from the Policy Date.
EXAMPLE: If the Policy Date is June 5, 2007, the first Policy Year ends on June 4, 2008, and the first Policy Anniversary falls on June 5, 2008.
PRIOR EARNINGS – means your highest monthly average Earnings for any consecutive 12 months in the last 24 months before a Continuous Disability began. However, we will use any consecutive 24 months out of the last 60 months if that amount is higher. On each Change Date we will adjust the Prior Earnings to a new level by multiplying the Prior Earnings, as of the start date of the Continuous Disability, times the Index Factor. If a new Elimination Period is required because of a new Disability, your Prior Earnings will again be determined for the new Disability without regard to any previous indexing. |
COMMENT:
Prior Earnings are used to determine the amount of your benefit when you become disabled. To determine Prior Earnings, you are allowed to use the monthly average of any consecutive 12 month period in the 24 months immediately preceding disability. If your income fluctuated during that 24-month period, you can use the 12-month period with the highest average monthly income so that you obtain the highest possible monthly benefit. If your income declined over the 5-year, or 60 month, period prior to disability, you can use the highest 24-month average out of the last 5 years, if that figure is higher. For example, if your best 12-month average monthly income in the prior 24 months is $4,200, but your best 24-month average monthly income in the prior 60 months is $4,900, you can use the $4,900 as your Prior Earnings.
On each Change Date, which is the anniversary of the date of start of your Disability, your Prior Earnings are adjusted – always upward--by applying the Index Factor to the existing Prior Earnings amount. The minimum increase is 5%. If the Consumer Price Index has increased by more than 5% in the prior year, then the Prior Earnings will be increased by that higher percentage.
| RECURRING DISABILITY – means a Disability which:
- starts within 6 months after the end of prior period of Disability for which we paid benefits; and
- is due to the same or a related cause.
A Recurring Disability is a continuation of the prior Disability. No new Elimination Period is required. We will pay benefits during the Recurring Disability for any of the Maximum Benefit Period remaining after that prior period of Disability. |
COMMENT:
This concept of Recurring Disability allows a Disability that returns after a brief period of good health to be regarded as the same disability. In this case, you are not required to incur another Elimination Period before collecting benefits. For this benefit to apply, the new disability must be shown to be due to the same or a related cause and must recur within 6 months of the end of the prior period if disability.
SICKNESS – means a sickness or disease which first manifests itself while this policy is in force. If the Elimination Period for your Disability Benefit is less than 90 days, then normal pregnancy and normal childbirth are not Sicknesses and are not covered. If it is equal to or greater than 90 days, then they are covered.
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COMMENT:
Generally a sickness requires a medical professional to diagnose the ailment with reasonable certainty from given symptoms and conditions. The insured does not need to be disabled from the condition. If a condition has been quietly present without any noticeable symptoms, it usually is not regarded as having manifested itself.
Pregnancy is normally not regarded as an accident or a sickness and is, therefore, not included under disability benefits because, with a normal pregnancy, you will not be disabled for more than 89 days. On the other hand, if you are disabled for 90 days or more, you should be entitled to coverage because the disability is undoubtedly due to a cause other than your voluntary decision to become pregnant.
SOCIAL SECURITY – means retirement or disability benefits payable under the Social Security Act of the Untied States, as amended. This includes the PIA and Family Benefits.
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