Disability Insurance Glossary

The following are terms that can be found in most long term disability (LTD) and short term disability (STD) policies. While many of these terms apply only to group insurance, some are also applicable to individual disability insurance policies. The terms were provided by Hartford Life.

Be sure to read the basics of short term disability insurance and the basics of long term disability insurance.

Active, Full-time Employee. An individual must work for the employer on a regular basis in the usual course of the employer's business to be considered an active, full-time employee and eligible for coverage. Usually, a minimum number of hours of regular work is specified.

Actual cash value. An amount equivalent to the replacement cost of a stolen or damaged property at the time of the loss, less depreciation. For vehicles, this amount would be determined by a local area private party sales and dealer quotations. Kelly Blue Book would only be used as a guide and not the final word.

Admitted company. An insurance company authorized to do business in California.

Agent. A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.

Automobile insurance. Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.

Benefit Percentage. The benefit payable is usually determined as a percentage of the insured's pre-disability income up to an overall maximum benefit amount.

Binder. A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.

Broker. A licensed person or organization paid by you to look for insurance on your behalf.

Conversion Privilege. If included, this option allows employees who are terminating employment to continue some or all of their LTD coverage at their own expense without submitting evidence of insurability.

Cancellation. The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

Claim. Notice to an insurer that under the terms of a policy, a loss maybe covered.

Claimant. The first or third party. That is any person who asserts right of recovery.

Decline. The company refuses to accept the request for insurance coverage.

Deductible. The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium.

Depreciation. A decrease in value due to age, wear and tear, etc.

Definition of Total Disability. Probably the most important provision in a disability contract is the definition of disability that will be used to determine an employee's eligibility for benefits.

Own Occupation (Own Occ). Under this definition, an insured will be considered disabled only if he or she is unable to perform the duties of his or her occupation.

Any Occupation (Any Occ). Under this definition, an insured will be considered disabled only if he/she is unable to work in any occupation for which he/she is qualified by education, training, or experience. This is closely related to the definition that the Social Security Administration uses in determining disability.

Definition of Partial/Residual Disability. This further definition of disability applies when an insured is able to return to work part-time or even full-time (with a loss of earnings). If the employee is working in this limited capacity and is earning less than a certain level of income, he or she will still be eligible for limited benefits under the plan. Not all disability insurance carriers use this terminology to describe a "part-time" work situation, but most provide some type of benefit to encourage return to work.

Elimination Period. This is the period of time between the date the disability commences and the beginning of the benefit payment period. It is the period during which an employee must be disabled before payment of benefits begins. It is sometimes referred to as the Qualifying Period.

Evidence of Insurability. Group disability coverage is generally sold as "guaranteed issue" which means that evidence of insurability is not required. However, under certain circumstances (e.g., late enrollment or a high benefit maximum), an employee must provide medical or financial information as proof to the insurance company that he or she is insurable.

Exclusions. There are specific provisions included in group disability plans which exclude coverage in certain situations. Typically, a plan will not pay benefits for disabilities arising from war, participation in a riot, commission of a felony, or self-inflicted injury.

Endorsement. Amendment to the policy used to add or delete coverage. Also referred to as a "rider."

Expiration date. The date on which the policy ends.

Face amount. The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.

Fire insurance. Coverage for loss of or damage to a building and/or contents due to fire.

Family Care Expenses. A disabled employee who has family care responsibilities may need extra help when trying to return to work. This type of benefit provides an incentive to the employee who is taking part in a rehabilitation program by allowing credit or partial reimbursement for certain expenses incurred for family care. This is generally an optional benefit under most long term disability policies.

Grace period. A period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.

Guaranteed insurability. An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Health insurance. A policy that will pay specifies sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

Homeowner insurance. An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.

Incontestable clause. A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.

Insured. The policyholder - the person(s) protected in case of a loss or claim.

Insurer. The insurance company.

Indexing. Indexing is designed to provide some protection against inflation. After the first year of disability, a disabled employee's pre-disability earnings are usually increased (or indexed) by a certain percentage on an annual basis.

Limitations. There may be specific provisions included in group disability plans that limit coverage in certain situations. Often only limited benefits are payable for specific conditions or under specific circumstances (e.g., mental illness and pre-existing conditions). See also Mental Illness Limitations and Pre-Existing Limitations below.

Life insurance. A policy that will pay a specified sum to beneficiaries upon the death of the insured.

Limit. Maximum amount a policy will pay either overall or under a particular coverage.

Loan value. The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.

Material misrepresentation. The policyholder / applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.

Misquote. An incorrect estimate of the insurance premium.

"Mandatory" Rehabilitation. Based on the premise that most people want to work in order to lead active, productive lives, a "mandatory" rehabilitation provision encourages disabled employees to participate in rehabilitation efforts whenever appropriate. Such a provision allows for termination of benefits if the employee refuses to cooperate or participate with a rehabilitation plan.

Maximum Benefit Period (Benefit Duration). This is the maximum length of time for which benefits are payable under the plan as long as the employee remains continuously disabled.

Maximum Monthly Benefit. This is the highest dollar amount a disabled employee can receive on a monthly basis under the LTD plan.

Mental Illness and Substance Abuse Limitations. When a disability is caused by a psychological/behavioral/emotional disorder, or by alcoholism or the non-medical use of narcotics, sedatives, and so on, benefits are usually limited to a period of 12 or 24 months unless the employee is confined to a hospital.

Minimum Monthly Benefit. There is usually a minimum amount paid as a monthly benefit after reductions for Other Income Benefits.

Other Income Benefits (Benefit Integration). While disabled, an insured may be eligible for benefits from other sources. Benefits payable under the LTD plan may be offset (reduced) by other sources of disability income such as Social Security, workers compensation, or disability benefits received from other employer-sponsored plans.

Pre-Disability Earnings. This is the amount of an employee's wages or salary that was in effect and covered by the plan on the day before the disability began.

Pre-Existing Condition Limitations. When an insured has a physical or mental condition that existed prior to the effective date of his or her insurance coverage, it is considered a pre-existing condition. Most plans exclude or reduce disability benefits for any illness or injury for which an employee received medical treatment or consultation within a specified time period before becoming covered under the plan.

Peril. The cause of a possible loss. For example, fire, theft, or hail.

Policy. The written contract of insurance.

Policy limit. The maximum amount a policy will pay, either overall or under a particular coverage.

Premium. The amount of money an insurance company charges for insurance coverage.

Premium financing. A a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.

Pro-rata cancellation. When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is cancelled after 40 days of coverage at the company's election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.

Quote. An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

Replacement cost. The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.

Replacement value. The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.

Reinstatement. The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.

Rider. Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.

Recurrent Disability. The recurrent disability provision is designed to protect an employee who tries to return to work but becomes disabled again from the same or a related cause. If this happens within a certain period of time, the employee will be considered disabled from the original disability, and will not be subject to a new elimination period. This encourages an employee to return to work without fear of losing benefits.

Rehabilitation. Rehabilitation means the restoration of or improvement in an employee's health and functionality. It usually involves a program of clinical and vocational services with the goal of returning a disabled employee to an active, productive life, and a meaningful occupation if possible.

Return to Work Provision. To encourage employees to return to work as soon as they become physically able, an additional incentive is usually provided for a certain period of time, and is called a return to work provision. Under this provision, the employee can receive up to 100 percent of pre-disability earnings based on a combination of disability benefits and return-to-work earnings.

Survivor Benefit. The survivor benefit is a lump sum payment that will provide benefits to the insured's eligible survivors in the event the insured dies while receiving disability payments. This is an optional benefit in most policies.

Short-rate cancellation. When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.

Solicitor. A licensed employee of a fire and casualty agent or broker who may act for the agent or broker in some circumstances.

Surcharge. An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

Surrender. To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.

Underwriting. The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

Waiting Period. In order to become eligible for coverage under the policy, an individual must satisfy a certain number of continuous days of service as an active, full-time employee. This is known as the waiting period. (In addition, a waiting period can also be the time period between when a disability occurs and when payments from the disability insurance policy begin.)

Waiver of Premium. When an individual becomes disabled and eligible for benefits, no further disability premium payments are required as long as benefits are being paid out.

Workplace Modification or Accommodation. This benefit is designed to provide assistance to an employer when a disabled employee requires modification of the workplace or special adaptive equipment in order to return to work. The employer will usually be reimbursed up to a set amount for the cost of such modifications.

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