Basic DI Concepts
Automatic Increase Benefit
How much the client will receive if sick or hurt and unable to work? For individual policies, up to about $100k of income, approximately 60% is the amount most carriers will replace at the time the policy is issued. At higher incomes, the benefit amount goes down proportionately. The current limit without tapping into high limit or excess coverage for professionals and executives is $30k of monthly benefit.
The benefit period is the amount of time that a policy will pay benefits. Benefit period available, are 1, 2, 5, and 10 years, to age 65, 67 and 70. The average claim is about 5 years in length, so if a client cannot afford a benefit period to age 65 or longer they should consider a shorter benefit period.
Business Overhead Expense
A policy that reimburses a small business owner during a disability for fixed business expenses that are incurred.The benefit period is usually 12, 18 or 24 months, and is designed to keep the business open while the owner recovers or until the owner is no longer responsible for the business expenses. The owner’s salary is not covered, but many other fixed expenses are, including; rent, utilities, employee’s salaries, professional licenses, property taxes and interest payments. Benefits of up to $50,000 per month are available with traditional carriers.
Catastrophic Disability Rider (CAT)
Cost of Living Rider (COLA)
Disability Buy Out
Disability insurance replaces lost income in the event of injury or illness that prevents a person from being able to earn a living. If a person’s financial lifestyle would be adversely affected by a disability, he or she needs disability insurance. The descriptions here focus on individual policies.
Future Purchase Options
Graded and Step Rate Premiums
Some carriers offer a policy that starts out with a low premium, but increases annually or one time, usually at the end of five years. These policies are usually offered to applicant’s right out of school or just starting a business, when income is low, and expenses are high.
Guaranteed Renewable (GR)
Inspection Report OE Telephone Interview
Key Person Policy
A product designed to reimburse the business for a financial loss during the key person’s disability until recovery or a suitable replacement can be found. Usually a lump sum or combination with a monthly payment is available.
The insurance company can never raise rates on these polices. When included, it is more expensive because the rate is guaranteed from the time the policy is purchased until age 65, and it cannot be changed if client pays the premium on time.
The occupation class is the way a rate is determined based on an applicant job duties.(along with health issues, age and gender). Typically, the more manual labor involved, the lower the occupation class. The best way to determine the appropriate classification is to know what the applicants daily work related duties are. Insurance duties, not job titles.
Presumptive Total Disability
A policy provision that waives the total disability eligibility requirement in the event that a loss is suffered due to loss of sight, hearing, speech or use of two limbs.
Retirement Protection Insurance
Provides benefits to fund a 401k or qualified retirement plan. Coverage can be in addition to individual DI and is not affected by disability issue and participation limits.
Return of Premium
This optional benefit provides a refund of a specified percentage of policy premium at specified dates less any claims that have been paid during the specified time period.
Social Security Offset Rider
An optional benefit that coordinates the policy benefits with any benefits received through Social Security disability (and, often, other public programs) to avoid being over insured.
Substitute Salary Expense
An optional benefit available under the Business Overhead Expense policy, it reimburses the insured for expenses incurred in paying a replacement for the disabled owner during the insured’s disability.