Key Disability Terms + Definitions
Basic Disability Insurance Terms
- Benefit Period – the maximum length of time you will receive benefits after a qualifying disability. The insured may select a benefit period, generally physicians elect to be covered until retirement age (typically 65 / 67 / 70).
- Coverage – is the amount of monthly benefit (income protection) an insured person is eligible to receive each month while they are disabled
- Disability Insurance – is a type of insurance policy that serves as income protection. Disability insurance offers monthly cash payments to people who become unable to work due to an illness, injury, or an accident
- Disability Claim – insured people make a “claim” or request for your benefits from your insurer to compensate for the complete or partial inability to work due to an illness or injury
- Elimination Period – the waiting period between when a disability begins and when disability insurance benefits start to pay out
- Exclusions – disability policies include specific conditions in which a disability will not be covered. For example, many plans will not provide benefits for disabilities arising from being in a war, participating in a riot, committing a felony, or a self-inflicted injury.
- Grace Period – a grace period is the 31 days immediately following the due date of a premium. The policy will continue during the 31 days, but if the premium is not paid by the end of the grace period, all coverage will be terminated.
- Guaranteed Renewable – if premiums are paid by the end of each grace period, no changes can be made to any part of the policy, except the price of the premium. After three years, the premium price can change, but only if the change applies to all policies with the same benefits insuring the same risk class.
- Maximum Benefit Period (Benefit Duration) – the maximum benefit period is the longest length of time benefits are payable as long as the insured person remains continuously disabled
- Occupation Class – an underwriting category in which insured are placed based on their specific customary job duties
- Premium – is the amount an insured person pays for the income protection they receive under their disability insurance policy
- Pre-Existing Condition Limitation – a pre-existing condition is a physical or mental condition that existed before the effective date of the insurance coverage. Most policies exclude or reduce benefits for pre-existing conditions.
- Regular Occupation – a refers to the insured’s job at the time the disability began
The Most Critical Disability Insurance Provisions for Physicians
If you take only one thing away from this page, it should be that your policy as a physician absolutely must contain these crucial protections:
- Own-Occupation – we’ve learned this is the most important component of insuring someone in a highly specialized occupation, such as a physician. With this provision in place, if a Mohs surgeon can no longer perform their specialized procedure, for example, but can work performing exams or reading slides, he or she still qualifies for their full disability benefit under the protection of their own-occupation provision.
- Non-Cancelable – this provision gives the insured total control over their policy. The insurance company cannot raise rates, reduce benefits, or add exclusions after the policy is in force. This provision also extends the presumptive disability benefit to lifetime.
- Residual or Partial Benefits – policies pay residual benefits whenever income is reduced by typically 15% – 20% or more with a loss of time or duties due to disability. For example, if a policyholder earned $100,000 annually, becomes disabled, and then returns to work earning $50,000 annually, he or she will have a 50% loss of earnings and qualify for a 50% residual benefit. This protection also covers you if you work in your specialty on a part-time basis or can work full-time and are not able to perform your duties as efficiently as prior to disability. Partial disability should not have to follow a period of total disability for you to receive benefits and should serve to satisfy the elimination period.
Reading Your Policy: Important Elements of Your Disability Policy
- Concurrent Disability – occurs when there is more than one injury or illness. Though there is more than one injury / illness causing disability, the concurrent disability benefits are paid as if there is only one injury or illness; the insured will be considered to have one disability. Once a continuous period of disability begins, it remains one period, no matter what or how many injuries or illnesses cause the start or continuation of disability.
- Cosmetic or Transplant Surgery – a disability caused by cosmetic surgery or transplant surgery (Lasik, kidney transplant) is considered the same as a total disability due to an illness / injury after six months of the policy being in force.
- Definition of Disability – we call this the heart of a disability policy. It’s the exact language your policy includes to determine when and whether you are eligible for your disability benefit.
- Presumptive Disability – covers what insurance companies often consider the worst types of disability:
- the “loss of use of two or more limbs, sight, speech or hearing”
- In the event this occurs, you are “presumed” disabled and receive your total monthly disability benefit with no waiting period even if you can work in your specialty or another occupation
- Recovery Benefit – allows benefits to continue following recovery from disability and is intended to fill the income gap when you are no longer medically disabled but have not yet financially recovered. Recovery benefits usually end when you receive 80% – 85% of your pre-disability earnings.
- Recurrent Disability – this provision protects employees who return to work but become disabled again from the same or a related cause. If this situation occurs within a certain period of time, the insured is considered still disabled from the original disability and is not subject to a new elimination period. The recurrent disability provision encourages employees to return to work without the fear of losing benefits if the disability continues.
- Relation of Earnings to Insurance – this term means income from all sources including insurance cannot exceed 100 percent of the insured’s pre-disability earnings
- Total Disability – should protect you in your medical specialty. Your policy:
- should contain precise wording such as “inability to practice the material and substantial duties of your occupation”
- Occupation specifies “if you have limited your practice to a specialized area of medicine.”
- Beware policies with vague language: “completely,” “can,” “any and every,” “all,” “any occupation,” “gainful occupation,” “training, education, or experience” etc.
- Waiver of Premium – while benefits are being paid out, no further disability premium payments are required from individuals who become disabled and qualify for benefits. A waiver of premium is typically issued after the insured has been continuously disabled for a specified period.
Common Policy Provisions and Riders
- Automatic Increase Benefit – this provision increases your policy’s monthly benefit on the policy’s effective date anniversary without evidence of medical or financial insurability. It typically continues for 5 years and increases the benefit by 4%. You can refuse an increase. You may also apply to renew this benefit for an additional 5 years.
- Benefit Increase Options (FPO / FIO / BIR) – are a must for any resident or fellow establishing disability coverage. This provision allows an increase of monthly benefit in the future, regardless of health, if your income qualifies. It protects against any future risk class changes and ideally includes discounts established at policy inception.
- Catastrophic Disability Benefit Rider – is designed to pay an additional monthly benefit for loss of sight, speech, hearing, or the use of two or more limbs, or inability to perform two or more activities of daily living
- Cost of Living Adjustment (COLA) – increases the monthly benefit after one year receiving disability benefits. The increase is based on either a guaranteed percentage or change in the Consumer Price Index, up to a predetermined cap—3% or 6%. This rider tends to be an expensive option and may not be cost-effective.
- Rehabilitation Benefit – is an added benefit for those who join a vocational rehabilitation program approved by the insurer. While still receiving total disability benefits for up to 36 months, the rehabilitation benefit will pay any reasonable costs of the program that are not covered by other plans, policies or programs.
- Return to Work Provision – an additional incentive is usually provided for a period of time to encourage disabled employees to return to work. This is called a return to work provision. The insured can receive up to 100 percent of pre-disability earnings, based on a combination of disability benefits and return-to-work earnings, under this provision.
- Student Loan Protection Rider – is designed to pay up to 100% of the monthly payment for student loan debt to a maximum of $500 – $2,500 per month subject to specific conditions in the event of a total disability. This rider is not available with every plan.
- Survivor Benefit – the survivor benefit is the amount payable to the insured, the insured’s estate, or the insured’s designee if the insured dies while receiving total disability benefits. The survivor benefit is a lump sum payment that provides benefits to the insured’s eligible survivors. This is an optional benefit for most policies.
Types of Disability Insurance Policies
- Individual Policy – an individual disability insurance policy is a contract between you and the insurance company. These policies also offer the most robust benefits and can be designed to suit your unique personal situation. Policies should be non-cancellable and guaranteed renewable, which means
- premiums never change and are guaranteed level
- your policy can never be cancelled
- contractual provisions can’t be changed
- and exclusions can’t be added as long as premiums are paid
- Association Plans – are contracts between the insurance company and an association. Due to the uncertain nature of these policies and more restrictive policy provisions, we recommend association plans only be used to supplement individual policies.
- Premiums increase, and premium schedule and any policy provisions are at risk of change
- Partial disability benefits are typically only paid if total disability benefits are paid first
- Insurance companies can cancel the policy or increase premiums at any policy renewal
- Group Plans – are usually paid for and provided by your employer and are contracts between the insurance company and your employer.
- Group policies should only be used to supplement individual policies.
- Benefits received are taxable income, unlike with Individual or Association policies
- If you change employers, the policy does not go with you
Subject to ERISA
- ERISA (Employee Retirement Income Security Act of 1974) – is a federal law that severely restricts your legal rights if your claim is denied and applies to employer-provided group plans
- ERISA states if your benefits are denied, you must exhaust an administrative appeals process before you can seek a legal remedy
- If the insurance company loses in court, it is only required to pay what it would have paid for a claim originally (no punitive damages)
- A judge decides your case, not a jury
Physicians are our specialty.
Disability Insurance custom-designed for physicians, by specialists with decades of experience advising medical professionals.