Disability insurance boot camp: deciphered, demystified, decoded, Pt. 2

By Steve Savant

Ash Brokerage Corporation


Co-authored by Daniel C. Steenerson, CLU, ChFC, RHU President, CEO Disability Insurance Services

Editor's note: This is the second part in a two-part series on disability insurance.


There are seven types of “what if” provisions. Almost all non-cancelable and guaranteed renewable policies issued today will automatically include these provisions.

1. The presumptive clause

What if there’s permanent loss? This provision says that the policy will waive the elimination period and begin paying benefits from the first day of presumptive total disability.

The insured is presumed to be totally disabled if he/she suffers the permanent loss of (a) the sight of both eyes; (b) the use of both hands; both feet or one hand and one foot; (c) speech; or (d) hearing in both ears.

2. The recurrent disability clause

What if there’s a recurrence? This clause defines how the carrier will respond to recurrent bouts with the same disabling illness or injury. For example, if Joe Montego claims disability for cancer, gets treatment and then returns to work, and then seven months later suffers a disabling cancer relapse, how will the waiting period and benefit period be handled?

Many policies state that if the same disability recurs within six months following cessation of benefits, the recurrence will be treated as a continuation, and the elimination period and benefit period do not start over. Some policies allow for a waiver of the elimination period in the event that any disability occurs within one year of the first. Make sure that both you and your client fully understand how your policy handles this issue.

3. The concurrent disability clause

What if there are multiple causes of disability? This provision says that benefits will be paid for one disabling condition at a time. Even if there are multiple causes of disability, the policy will treat the culmination of causes as one disabling claim.

4. Waiver of premium clause

What if the insured can’t afford to pay the premium while disabled? This clause waives any premium due after 90 days of disability. Some companies refund the premium paid within the first 90 days.

So, when Joe Montego is disabled by cancer on Jan. 1, he should continue to pay his premium that is due by the first of each month. Once Montego’s disability exceeds 90 days, the insurance carrier will refund any premium paid during the EP.

However, if Montego’s premium was paid on an annual, semi-annual or quarterly schedule and was not due during the first 90 days, he would not be eligible for a refund. He also would not have to pay his premium if it came due after the first 90 days, assuming that he remained disabled.

5. Rehabilitation benefit

What if the insured needs occupational or physical rehabilitation? Many policies now contain a very valuable rehab benefit that helps workers return to suitable occupations as soon as possible. This may include retraining, counseling and physical rehabilitation.

The benefit is paid in addition to monthly disability benefits. Remember, strokes are a leading cause of disablement. Tell your client that if he/she suffers a stroke that causes loss of use of a hand and foot, he/she will be presumed totally disabled; the EP will be waived and benefits will commence.

Look for policies that allow the rehabilitation benefit to commence during a period of residual or partial claim. This is the latest development in the rehab provision. Why should your client be denied a paid rehab program if he/she were able to work?

6. Transplant/cosmetic surgery benefit:

What if the insured suffers disability resulting from complications with an organ transplant or cosmetic surgery? This clause pays regular sickness benefits in the event of organ transplant or cosmetic surgery related disabilities.

7. Survivor benefit

What if an insured dies while collecting disability benefits? This provision pays the benefit to a named survivor in the event of the insured’s death. Survivor benefits are typically payable for a period of three months after the insured’s death — only if the insured received total disability benefits under the policy.

How can I dress my policies for success?

Think of benefit riders as designer wardrobes for your policies. These are the clothes that will really set your offering apart from that of your competition and allow you to tailor your offering to the unique needs of each client. Never go to an appointment without some carefully chosen riders in your back pocket.

Here are nine of my favorites.

1. Own-occupation definition

Same as the own-occupation disabling definition discussed earlier, this rider pays benefits even if the insured is gainfully employed in another occupation. This rider is often only available for middle management through executive classes as well as traditional professionals.

2. Residual benefits

This rider is essential because in many cases, insureds can work part time, but not full time. The residual benefits rider pays a percentage of monthly earnings if the insured suffers a loss of income of 20 percent or more. This eliminates the “all or nothing” benefit structure and can help facilitate a friendlier, more gradual return-to-work experience.

For example, if Shirley Smith was making $50,000 annually, was disabled and then returned to work part time earning $25,000, she would have a 50 percent loss of earnings and would continue to receive a 50 percent disability benefit.

3. Future purchase option/future increase option

This option (otherwise known as guaranteed insurability) allows insureds through age 51 to purchase additional coverage — regardless of health — without the need for a medical exam or blood tests. Make sure to periodically review your disability insurance clients’ coverage levels. Their incomes will most likely increase over time, so use the future purchase option to keep their coverage levels adequate.

4. Supplemental social insurance benefit

If an insured does not qualify for Social Security benefits, this rider increases the monthly disability benefit by up to $2,000.

5. Cost of living adjustment

This option applies to those who are disabled for more than one year. It automatically increases the amount of coverage each year to keep up with inflation. Some policies increase by a fixed amount each year while others are indexed to inflation. COLA is of particular importance to young clients with longer life expectancies.

For example, a COLA is much more important to Ryan Stevens who was permanently disabled at age 26 than it is to Mel Walker who was disabled at age 56.

6. Automatic increase rider

This rider increases the monthly benefit for the first five years to keep pace with inflation. The AIR will only increase the benefit while not on claim where the COLA rider requires the client to be on claim in order for the benefits to increase.

7. Return of premium

In some states, carriers offer a return of premium option, with which an insured with favorable claims experience becomes eligible for a refund of part of the premium paid. Some companies refund money periodically throughout the policy period, while others refund at age 65.

8. Catastrophic

This rider pays an additional benefit if the insured is receiving total disability benefits and is unable to perform at least two activities of daily living; has a severe cognitive impairments; or is presumptively totally disabled.

9. Non-disabling injuries

If the client suffers injuries requiring medical treatment prescribed by a physician or dentist, the carrier will pay the expense of such treatment up to one half of the monthly benefit amount (or stated benefit amount). No EP is required.

What do I need to know about exclusions and limitations?

In a nutshell, you need to know that exclusions and limitations exist for disability insurance and you need to inform your clients of them. Exclusions and limitations vary by policy. The most common exclusions and limitations are mental and nervous, alcohol and drug claims; claims caused by crime; and claims caused by war. Typically, policies do not exclude MNAD claims, but they do limit the benefit period to two years.