How to Insure Your Income: Key Concepts and Definitions: Q - W
QUALIFICATION PERIOD
The qualification period -- often abbreviated QP -- is generally defined as the period of time that you must be totally disabled before becoming eligible for residual benefits. In addition, you also must satisfy the policy's elimination period.
RECURRENT DISABILITY
A recurrent disability provision in a disability income policy is similar to a relapse provision. If you suffer a relapse (a disability that is related to a prior disability) and if this relapse occurs within six months of your return to work, then the second disability will be considered a continuation of the initial disability. This works to your advantage, because the elimination period does not have to be satisfied a second time.
REINSTATEMENT
Should a disability policy lapse for non-payment of the premium, there usually will be a provision that states how the policyholder may request reinstatement of the policy. Typically, the reinstatement process consists of submitting an application for reinstatement, proving insurability and paying all back premiums plus interest.
Some insurers may permit reinstatement without a formal application, depending on the length of time that has elapsed since the policy lapsed. In this situation, usually a signed statement of continued good health and the premiums in arrears plus interest are the only requirements.
Upon receipt of the request for reinstatement, the insurer will either approve or disapprove the application within 45 days. When no decision is rendered within 45 days, the policy is considered automatically reinstated after the 45th day.
INCOME AND INSURANCE
The purpose of the relation of earning to insurance provision -- also known as the average earnings clause -- is to prevent overinsurance. The provision states that, if you are overinsured, the company can reduce disability benefits based on your average monthly income. The average monthly income will be based on your average earnings for a period of time prior to the onset of the disability, such as one or two years (or longer).
RENEWABILITY PROVISIONS
Renewability refers to your right to renew the policy. Many disability income policies are issued for periods of one year. At the end of one year, assuming you pay the new premium, the policy is renewed for subsequent periods of one year. However, there are different types of renewability.
A disability income policy may be issued as cancelable. A cancelable policy is one that may be canceled or have the premiums increased, at any time, by the insurer, as long as you are given proper written notice (usually five or 10 days). This type of renewability is not usually found in disability income policies.
A guaranteed renewable policy is one in which the insurer guarantees to renew the contract, but it does not guarantee the premium. The premium may be increased on the policy anniversary, but the policy cannot be canceled. Many disability income policies are issued as guaranteed renewable.
A non-cancelable contract is one in which the insurer guarantees both the premium and the renewability of the policy. This type of renewability assures the policyholder that the premium cannot be increased, nor can the policy be canceled by the insurer. This is a common type of renewability found in policies issued to the lower-risk occupational classes -- such as doctors, lawyers and dentists.
SICKNESS
Sickness is usually defined as a disease or illness that first manifests itself while the policy is in force. The definition of sickness in the policy also may include a reference to pre-existing conditions.
Generally, a pre-existing condition is any sickness that exists prior to the effective date of the policy. Sickness may then be defined as:
any illness that first manifests itself while the policy is in force or a sickness that began prior to the effective date of coverage if it was stated on the application for insurance.
The expression first manifests itself does not necessarily imply that a condition has been diagnosed or treatment has been given by a doctor. Basically, first manifests itself refers to the appearance of symptoms of a sickness or disease.
TEMPORARY DISABILITY
A temporary disability occurs when you are unable to work while recovering from an illness or injury, but are expected to fully recover from that illness or injury. Examples would be a broken leg or a sprained back.
TIMELY PAYMENT OF CLAIMS
Once an insurer receives the proof of loss, it is its responsibility to pay the claim promptly. Promptly means immediately. Many states will also define promptly as within 60 days of receipt of the proof of loss.
TOTAL DISABILITY
Total disability can be defined in a number of different ways, depending on how liberal or restrictive the insurance company wants to be. A fairly liberal definition of total disability might read as follows:
the inability to perform the duties of your occupation.
By changing your occupation to any occupation, the entire contract is changed.
There can be any number of variations between these two definitions of total disability. For example, total disability could be defined as:
the inability to perform the duties of your occupation for the first two years of a disability and, thereafter, the inability to perform the duties of any occupation relative to your education, experience and prior economic status.
Example: Dr. Smith is a neurosurgeon who owns a disability income policy that pays a $5,000 monthly benefit for total disability, payable to age 65 following a 30-day EP. Dr. Smith wakes up one morning and is unable to shave because of hand tremors. Needless to say, he is also unable to perform surgery.
Dr. Smith's policy contains the "your occupation" definition of total disability mentioned above. Following the EP, Dr. Smith begins to collect $5,000 monthly, because he is unable to perform the duties of his occupation -- neurosurgeon.
Two years later, Dr. Smith decides to teach medicine at a local university. He still has the hand tremors, but this does not prevent him from teaching. Dr. Smith is paid $5,000 per month for teaching.
He can continue to receive his disability income benefits in addition to his earnings from teaching. He is still totally disabled as a neurosurgeon, and thus, in accordance with the policy definition, is still eligible to receive benefits.
However, if Dr. Smith's policy defined total disability as "the inability to perform the duties of any occupation," he would no longer meet the definition of total disability. He is now able to perform the duties of another occupation, and thus is no longer considered totally disabled.
UNPAID PREMIUM
Simply, this provision allows the insurer to deduct any unpaid premium from any disability income claim payment.
WAIVER OF PREMIUM
Waiver of premium provides for the payment of the insured's premium when he or she is disabled in accordance with the policy's definition of total disability. Usually, there is a waiting period of three or six months before the insurer begins to pay the policy's premium. For example, once the three-month waiting period is satisfied, the insurer commences paying the policy premium so long as the insured remains totally disabled. The insurer also will refund any premium paid during the waiting period.
