Long Term Disability Insurance Definitions
- Accidental Death & Dismemberment (AD&D) Benefit – An optional benefit that provides a fixed lump sum for accidental death or for certain specified actual loss or loss of use of a limb or sight.
- Actively-at-Work Provision – An eligibility provision for group benefit coverage whereby an employee is not eligible for coverage if absent from work because of sickness or injury on the otherwise effective date of his or her coverage.
- Activities of Daily Living (ADLs) – Generally defined to include eating, bathing, dressing, transferring, toileting and maintaining continence.The inability to perform a certain number of ADLs triggers long-term care insurance benefits.
- Actual Age – The age of the applicant the day the application is in completed.
- Adjuster – An individual who handles claims on behalf of an insurance company. An adjuster can be either an employee of the insurance company or an outside representative hired by the company. Adjusters follow the policies, procedures and directions of the company employing them.
- Adverse Selection – The tendency of those who are most likely to have claims to also be those who are the most likely to seek insurance.
- Age Discrimination In Employment Act (ADEA) -A federal law that prohibits age discrimination for most working persons.The act, which applies only to employers with 20 or more employees, prohibits discrimination with respect to employee benefits.
- Age Nearest Birthday – The age of the applicant at the nearest birthday.
- Agent – Insurance company representative licensed by the state, who solicits, negotiates, or affects insurance contract and who provides services to policyholders for the insurer.
- Aggregate Indemnity – The maximum amount that may be collected for any disability or period of disability, under an insurance policy.
- AIB (Automatic Increase Benefit) – An optional benefit that allows a policyholder to increase his or her disability coverage without evidence of insurability.
- Annual Renewable Term (ART) Policy – A policy that is renewable annually and where the premium may be increased on the same basis.Also called ARDI (Annual Renewable Disability Insurance).
- Alternative Plan of Care – A plan of long-term care that is an alternative to what is covered under the policy.
- Alternative Dispute Resolution – (ADR) A method of resolving disputes without going to court. The most common types of ADR include appraisal, mediation and arbitration. Many insurance policies contain provisions requiring that disputes between the insurer and insured be resolved by binding appraisal or binding arbitration. Whether a particular ADR provision is good for the policyholder or not, depends on the details. Some are fair, and quite acceptable, while others are extremely unfair and should be avoided at all costs. More on this subject in the FAQs and under the specific insurance lines.
- Ambiguity – As used in connection with insurance, a provision in a policy that is reasonably subject to more than one interpretation.
- Anniversary Date – The date on which your insurance coverage will expire, which is usually one year from the date that coverage began.
- Application – A form submitted to the insurance company by the agent at the time of sale. It contains answers to questions of importance to the insurance company in its determination as to whether or not it will agree to sell a policy to the proposed insured, and if so, at what price.
- Appraisal – Refers to the value of personal or real property determined by a licensed, professional person. It can also refer to a type of ADR (see above).
- Arbitration – A method of resolving disputes in which a (hopefully) neutral third party listens to the facts and assertions of the parties and, acting in the role of a private judge, makes a decision on the matter. Decisions of arbitrators are usually final, binding and non-appealable.
- Association Group – A group formed from members of a professional or trade association for insurance under one master insurance contract.
- Attending Physician’s Statement – A report from the applicant’s personal physician verifying his or her physical qualifications for the coverage requested or to help establish the medical verification of a disability claim.
- Bad Faith – In the context of insurance, bad faith refers to unfair or unreasonable conduct in the handling of an insurance claim. It can refer to the conduct of either the insurer or the claimant. In most states such conduct is unlawful.
- Benefit – A benefit in terms of insurance refers to a payment a policyholder is entitled to receive under the terms and conditions of an insurance policy.
- Benefit Period (BP) – The length of time that disability benefits are payable under a policy, usually stated in months or years.
- Benefit Schedule – The listing of the insured’s choice of benefit period, elimination period, monthly benefit amount and maximum benefit payable in a disability policy.Also includes any optional benefits.
- Binder – A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.
- Binding Receipt – A receipt given for the premium payment made with an application for insurance.If the policy is approved, the payment ‘binds’ the company to make the policy effective from the date of receipt.
- Blue Collar – Workers who are primarily engaged in manual work.
- Broker – A broker is a licensed person hired by the policyholder to look for insurance on the policyholder¹s behalf. A broker represents the policyholder.
- Business Buyout – A policy designed to provide funds to effect a buyout of a disabled owners share of the business, usually dictated by the provisions in a specific buyout agreement.
- Business Overhead Expense Insurance (BOE) – A policy or additional benefit designed to reimburse the insured for paid business expenses when he or she is disabled.(See Overhead Expense Insurance)
- Buy and Sell Agreement – A legal agreement between business owners that describes the circumstances under which the buyout of a disabled owners share will occur.
- Cafeteria Plan – A benefit program in which employees can design their own benefit packages by purchasing benefits with a prescribed amount of employer dollars from a number of available options.
- Cancelable Policy – An individual disability policy in which the insurer retains the rights to increase the premium or cancel the policy, usually only at renewal time.
- Cancellation – Cancellation is the termination of insurance coverage during the policy period. A policyholder can cancel the insurance policy at any time. Generally, an insurance company can cancel the policy only if the policyholder has made a material misrepresentation to the company (such as on the application for insurance) or has failed to pay the premiums.
- Capital Sum – A lump-sum amount that is paid in addition to the monthly disability benefit for presumptive loss.
- Cash Sickness Benefits – Specific state-sponsored plans that provide income replacement benefits in the event of disability from sickness (available in California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico).
- Carve-Out – The practice of excluding certain classes or employees from a benefit plan and providing benefits to them under an alternative arrangement.
- Claim Examiner – The individual who evaluates a claim to determine if it should be paid.
- Claim Reserve – A specific reserve established at the time a claim occurs (or soon thereafter) that anticipates the amount of future claim payments.
- Code Upgrade – A provision in a Homeowners Policy that increases stated dwelling protection coverage limits to account for building or fire code requirements that may not have been in effect at the time the house was originally built. The upgrade coverage is supposed to pay for the increased cost to rebuild or replace based on such codes.
- COLA (Cost of Living Adjustment) – A provision that increases coverage under certain types of policies in order to have the policy benefits keep pace with inflation. The terms of COLAs can differ from one to another substantially, depending on the wording of the policy.
- Competitive Bidding – The process of preparing specifications for a benefit plan and inviting several providers of coverage or third-party administrators to present a document detailing the cost of desired benefits and services.
- Concurrent Disability – Policy provision that that usually provides that benefits will not be paid for both injury and sickness during any period of disability.Also, any period of disability that results from one or more causes is usually considered a single period of disability.
- Co Morbidity – A condition in which the insured is disabled for more than one impairment. Such as arthritis and clinical depression. Co Morbidity is an important concept because there may be different rules that apply to different types of disabilities under a given policy.
For example some policies provide for a two year limit for nervous and mental disorders.However if the claimants disability is not solely due to a mental or nervous disorder that coverage limitation would not apply.
- Conditionally Renewable Contract – Policies, which are renewable as long as the insured continues to meet certain qualifications outlined in the policy.
- Cooperation Clause – The Cooperation Clause in an insurance contract that requires the policyholder cooperate with the insurance company in its investigation and processing of a claim. Violating or breaching the duty to cooperate can result in relieving an insurer of its obligations under a policy.
- Conversion Privilege – The right given to an insured under a group insurance contract to change coverage, without evidence of medical insurability, to an individual policy upon termination of the group coverage or his/her employment.
- Covered Expenses – Business expenses that are specifically included in a business overhead expense (BOE) policy or rider.
- Coverage or Insuring Clause – The clause in an insurance policy that sets forth the circumstances under which a policyholder is entitled to benefits under the policy.
- Coverage Opinion – The opinion of an insurance lawyer, given to an insurance company, concerning the meaning of the policy. A coverage opinion is sought when the company is considering whether or not to deny a claim.
- Conditions – Conditions detailing what the policyholder must do in the event of a loss. For example, the policyholder must give prompt notice of a loss and file a sworn proof of loss if asked to do so.
- Cross Purchase Plan – A disability buy-sell agreement where each owner agrees to purchase a designated portion of a disabled co-owner’s share when the disability triggers the agreement.
- Declarations – The declaration portion of the policy contains the amount of the insurance provided, the deductibles (what portion of a loss you pay), and the limits (the maximum amount the insurance company will pay).
- Declaratory Relief – A lawsuit filed by an insurance company against its policyholder that seeks a court decision about coverage.
- Deductible – The amount of a loss that the policyholder must pay before the insurance company is obligated to pay.
- Definition of Disability – That portion of the disability contract that defines the circumstances under which the insured is considered to be disabled and benefits are payable.
- Definitions Section – An important part of an insurance policy that explains key words and phrases used in the policy. Both sides are bound by these definitions, as long as they are clear and unambiguous.
- Delinquency – The failure to make a premium payment on time.
- Depreciation – A decrease or loss in value to property because of use, disuse, physical wear and tear, age or other causes.
- DIRS (Disability Insurance Record System) – A central database of records of disability claims maintained by the Medical Information Bureau (MIB) for member companies.
- Disability-Based Policy – A long-term care insurance policy with a per diem basis of payment that provides benefits even if no care is being received as long as the insured satisfies the policy’s benefit trigger.
- Disability Benefits – The amount of weekly or monthly disability payments that are paid in the event of disability.
- Disability Income Insurance – Insurance that provides for periodic payments of benefits when a disabled insured is unable to work.
- Duty of Good Faith – The obligation of an insurer to deal with all aspects of the claims handling process fairly and reasonably.
- Earned Income – Income that an individual receives from working.It excludes investment, rental and retirement income.
- Earned Premium – The portion of a premium for which the insurer has already provided protection.
- Effective Date – The date the insurance policy goes into effect. Generally, a policy goes into effect when it is delivered to the policyholder. However, the insurance company may agree to cover the policyholder while the policy is being processed.
- Eligibility Period – The time following the eligibility date during which a member of a group may apply for insurance without evidence of insurability.
- Elimination Period – Days at the beginning of a period of disability when benefits are not yet payable.
- Employment Benefit Programs – A variety of benefits that an employer may provide for employees, such as medical, disability and retirement benefits.
- Endorsements – Extra, usually optional, provisions added to the policy in order to increase or reduce the coverage.
- Entire Contract Clause – A provision in a group insurance contract stating that the insurance policy, the policyowner’s application that is attached to the policy, and any individual applications of any insured person constitute the entire insurance contact.
- Entity Plan – The type of buy-out plan in which the business itself, a separate entity is paid the disability benefits under a disability buy sell/agreement.• ERISA (The Employment Retirement Income Security Act) – A federal law that applies to certain types of insurance, such as medical or disability insurance, purchased in the workplace. If a policy is governed by ERISA the policyholder loses all rights provided under state consumer protection laws and regulations. In addition, if there is a dispute or disagreement between the insurer and the policyholder, the policyholder loses his or her right to a jury trial.
- Expiration Date – The date the insurance policy ends.
- Experience Rating – The practice by which the actual experience of a particular group is a factor in determining the premium the policyowner is charged.
- Evidence of Insurability – Statement or proof of physical condition and/or other factual information affecting a person’s eligibility for insurance.
- Exclusion Endorsement (Rider or Waiver) – A specific endorsement that excludes payment of benefits for a specified medical condition or a high-risk situation.
- Examination Under Oath (EUO) – An examination by an insurance company lawyer, with a court reporter present and transcribing the proceedings. An EUO usually takes place when a claim is being disputed by the insurance company.
- Exclusions – Usually refers to standard contract language that excludes payment of benefits for specified situations such as act or accident of war, self-inflicted injury or period of incarceration.
- Field Underwriting – Procedures and requirements that the salesperson and field office are expected to perform before submitting an application to the home office.
- Financial Underwriting – That portion of the underwriting evaluation process that determines an applicant’s financial qualifications for disability insurance.
- First Party Claim – Insurance claims requesting payment from your own insurance company.
- Flat-Benefit Schedule – A benefit schedule under which the same amount of coverage is provided for all employees regardless of salary or position.
- Flexible Spending Account (FSA) – A provision in a cafeteria plan that allows an employee to fund certain benefits on a before-tax basis by electing to take a salary reduction, which can then be used to fund the cost of any qualified benefits included in the plan.
- Functional Capacity Evaluation – An examination by a medical or clinical professional to determine the extent or degree of a specific disability.
- Future Income Option – An optional benefit that allows a policyholder to purchase additional amounts of monthly indemnity in the future if his or her income warrants the additional amounts.
- Grace Period – Specified time (usually 31 days) following the premium due date during which insurance remains in force and an insured may pay the premiums without penalty.
- Group Policy – Contract of disability insurance made with an employer or other entity (policyholder) that covers a group of persons as a single unit.Can be either short-term or long-term coverage.
- Guarantee Issue – A disability proposal or plan where the insurer guarantees to approve a basic individual contract for all employees in a defined group on a standard basis.In group insurance, coverage is issued without an employee’s having to provide evidence of insurability.
- Guaranteed Renewable Contract – Disability contract under which an insured has the right, up to a certain age, to continue the policy by the timely payment of premiums.Under guaranteed renewable policies, the insurance company reserves the right to change premium rates by policy class.
- Income Replacement Plans – A term synonymous with disability income and one that protects an insured against a loss of income due to disability.
- Incontestability Clause – A policy provision in which the company is prohibited from contesting the validity of certain types of insurance coverage after a policy has been in force for a certain period of time, usually two or three years.
- Indemnity – The amount of weekly or monthly disability benefits.
- Indexing – A provision, which increases the insured’s pre-disability earnings level every year after the first year of disability.It can also be a disability product provision or option that annually increases the disability monthly benefit each year over a five-year period, prior to a period of disability.Sometimes referred to as Automatic Annual Benefit Increase.
- Individual Insurance – A policy that provides protection to a policyholder.Sometimes referred to as personal insurance, as distinct from group insurance.
- Insureds or Additional Insureds – The people who are covered under a policy, such as residents of the household or minor children away at school. It is often possible to add specific individuals as insureds who would not otherwise be covered under a policy.
- Integrated Disability Management – A single program to manage all of an employer’s disability claims, regardless of whether they are covered under shot-term plans, long-term plans or workers? compensation.
- Investigator – A person hired by the insurance company to investigate the facts surrounding a claim. Investigators may take surveillance videos, tape record conversations, contact witnesses and otherwise examine facts surrounding a claim or claimant.
- Issue Limits – A schedule that lists the maximum indemnity that an insurer will insure at various income levels and occupation classes.
- Key Person Policy – A policy specifically designed to provide benefits to a business for the loss of a key employee from disability.
- Lapse – A lapse occurs when the policyholder fails to pay premiums. If the premium payment is late, the insurance company may decide to reinstate the policyholder, but the insurance company does not have to pay for claims that arose during the lapse period.
- Legal Reserve – The minimum reserve, as calculated understate insurance codes, which a company must keep to meet future claims and obligations.
- Lifetime Disability Benefit – Policy provision making benefits payable for the insured’s lifetime as long as the insured is totally disabled.
- Limits or Limitations – The maximum amount the insurance company must pay on a particular type of loss.
- Long-Term Disability Income Insurance (LTD) – A group disability policy that provides disability benefits, usually for more than one year and up to retirement age.
- Loss of Income Insurance – A term synonymous with disability income insurance where a loss of income is required before benefits are paid.
- Loss Ratio – The ratio of claims divided by premium; may refer to either a cash or incurred loss ratio.
- Low-Ball Settlements – Payments offered to claimants for less than the value of the claim benefits.
- Mandated Benefits – Benefits that states require be included in group insurance contracts issued within the state.
- Master Contract – A contract issued to someone other than the persons insured that provides benefits to a group of individuals.
- Material Misrepresentation – A material misrepresentation occurs when the policyholder/ applicant makes a false statement or omits an important fact on the application, and when the statement in question is an important or significant one.
- Mediation – A private, informal dispute resolution process in which a neutral third person (mediator) helps disputing parties to reach an agreement.
- Medical Underwriting – The process of underwriting evaluation of an applicant’s medical condition and history for insurance purposes.
- Morbidity – The frequency and length of time that a group or class of individuals are disabled or may be expected to be disabled.
- Mortality – The probability of when individuals in a group or class may be expected to die.
- National Association of Insurance Commissioners (NAIC) – An association of the Insurance Commissioners of the 50 states.
- Non Cancelable Policy (non-can) – An individual disability policy that can be maintained through the timely payments of premiums until the insured is typically, age 65.The insurer may not unilaterally change any provision of the in-force policy, including premium rates.
- Non-Disabling Injury – An injury that may require medical care, but does not result in the loss of working time or income.
- Notice of Claim – The form required by the insurance company and specified in the policy provisions that notifies the insurer of a potential claim.
- Notice of Non-Renewal – If the insurance company elects not to renew a policy on the anniversary date, it must provide notice of non-renewal, usually 30 days before your policy expires, so that insurance may be sought elsewhere.
- Notice of Loss – – The policyholder must inform the insurance company within a specific period of time that a loss has occurred.
- Occupation Class – The insured’s occupation at the time he or she becomes disabled.
- Optional Benefit – An extra benefit that may be applied for on a disability policy that provides for additional benefit payments under specified circumstances.
- Outline of Coverage – A description of policy benefits, limits and restrictions required to be provided to applicants in most states that may not be part of the binding contract between the parties.
- Overhead Expense Insurance – Insurance for business owners (and professionals) to help offset continuing business expenses when the owner is disabled.
- Own Occupation- A definition of disability in a disability income policy that guarantees payment of benefits if an individual is unable to perform the duties of his or her occupation, even if the individual is able to work at another occupation.
- Own Occupation Coverage – A disability policy that provides Total Disability benefits if the insured becomes unable to perform the important duties of his or her own occupation. Own Occupation coverage is distinguished from Any Occupation coverage which provides benefits only if the insured is unable to perform the important duties of any occupation for which he or she is qualified by reason of education, training or experience.
- Paramedical – An insurance medical examination, usually performed by a nurse or technician, that typically includes medical history, blood pressure, urinalysis and perhaps a blood profile, but not a physical examination.
- Partial (Residual) Disability Coverage – Coverage under a disability policy that purports to provide lower benefits than those provided for Total Disability.
Partial Disability coverage is a highly controversial concept because in many states an insured cannot be Partially Disabled under an Own Occupation Policy if he or she is not also Totally Disabled. Therefore a decision by the insurer to pay only Partial Disability benefits amounts to unlawfully underpaying the insured.
- Permanent Disability – An injury or illness from which the insured is not going to recover.
- Portability – The ability to continue employer-provided or employer-sponsored benefits after termination of employment.
- Pre-Disability Earnings – The pattern and amount of earned income that a disabled policyholder received prior to his or her disability.
- Preexisting Condition – Any physical and/or mental condition or conditions that exist prior to the effective date of disability insurance coverage or a condition that manifested itself before the policy was issued.
- Policy Term– The period in which the policy continues in effect.
- Premium – The amount of money an insurance company charges for insurance coverage.
- Presumptive Disability – A specified serious physical or medical impairment or condition where the insurer treats the impairment as a total disability and does not require periodic claim forms (i.e., loss of sight or loss of use of hands).
- Qualification Period (QP) – The number of days disability is required before benefits kick in.
- Qualified Condition Rider – An exclusion rider that reduces or eliminates benefits for a specific conditions.
- Recurrent Disability – A physical or medical condition that reoccurs and causes disability.
- Recurrent Disability Clause – A policy provision that defines what a recurrent disability is and how it will be treated i.e., a disability that recurs within six months following cessation of benefits from the original disability will be considered a continuation of the original disability.
- Regular Occupation – See Own Occupation above
- Rehabilitation – The process whereby an individual who has been disabled is able to return to gainful employment.
- 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 premiums due plus interest before they will reinstate the policy.
- Reinsurance – The process whereby an insurance company insures all or a portion of a specific insurance policy with another insurance company.
- Renewability – The policy provision that relates to continuing the policy at the renewal date.
- Replacement Cost Guarantee -A provision in a homeowner’s or property coverage policy that increases the amount an insurance company will pay beyond the dollar limits of the policy.
- Replacement Ratio – The ratio of disability benefits to income.
- Rescission – The act of voiding or disavowing a contract – – treating it as if it had never existed.
- Replacement Guarantee – A provision under a Homeowners Policy that provides coverage beyond the stated dwelling limits in order to account for increases in the costs of materials and workmanship. Read these provisions carefully. They are often subject to a cap or limit.
- Reservation of Rights – The act of an insurance company in which it agrees to defend a liability suit against an insured, but does so while asserting that it does not have to pay for any settlement or verdict in the case. This is called a defense with a reservation of rights.
- Residual Disability – A provision that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work full-time.A benefit is payable when the insured is unable to perform one or more of his or her occupational duties or is unable to perform all the duties for as much time as a result of an accident or sickness and/or suffers a loss of income (usually 20% of more of prior earned income).
- Return of Premium -An optional benefit on an individual disability policy that returns all or a portion of the premium depending upon claim experience.
- Return to Work Benefit – A benefit (sometimes optional) that provides additional or temporary benefits as an incentive for an individual to return to work following a disability claim.
- Rider – Adds coverage to persons or property who would otherwise be excluded from the insurance policy. Also known as a “floater.”
- Risk Classification – The underwriting process that determines how to consider an applicant from an occupation, avocation, income and health perspective.
- Short-Term Disability Insurance – Group disability Insurance that provides benefits for loss from accident or injury generally no longer than one year in length.
- Social Security Disability Insurance (SSDI) – That portion of the Social Security program that provides limited disability income benefits through the Social Security administration.
The definition of disability for Social Security purposes is a much narrower definition than that provided through individual disability policies.
- Social Security Offset Provision – A Provision in group long-term disability policies that allows the insurance benefits to be reduced by the paid or anticipated Social Security benefits payable to the disabled insured.
- Third-Party Administrator (TPA) – A person or organization hired to provide certain administrative services to employee benefit plans.
- Total Disability – A claimants inability to perform the important duties of his or her occupation in the usual and customary manor and with reasonable continuity.
- Underwriter – (1) A company employee who decides if the company should assume a particular risk, (2) a company that receives premiums and fulfills the policy contract, or (3) the agent who sell a policy.
- Underwriting – The process of determination during which the insurer decides acceptance of an application for insurance.
- Waiting Period – The time to pass before one becomes eligible. The waiting period is also referred to as the “Elimination Period.
- Waiver– The act of giving up certain legal rights.
- Waiver of Premium – Provision that, under certain conditions, insurance will be kept in full force without further payment of premiums. It is usually a 90-Day provision in disability policies.
- Workers/Workman’s Compensation – A governmental plan that provides disability benefits when the covered person is totally disabled from an on-the-job accident or sickness.
- Workers Compensation -Insurance providing very limited benefits for injuries that occur in the work place. Workers compensation is not the same as Own-Occupation disability insurance which provides much more substantial benefits regardless of where and how the injury occurred.