Disability Insurance Glossary


Accumulation Period:  A period of consecutive months that begins on the first day of disability and during which the elimination period must be satisfied.

Association Coverage: Group insurance issued to an association rather than to the employees of a business or members of a union.

Attending Physician Statement (APS): A report, completed by the proposed insured’s physician, which documents current and prior health history. Used in the evaluation process of approving an application (or claim).

Automatic Increase Rider: An optional benefit that provides automatic increases each year at either a stated percentage or the Consumer Price Index, despite changes in health, income, or occupation.


Benefit Period: The longest period of time for which benefits are payable for continuous disability. Typical benefit periods are two-year, five-year, to age 65, or lifetime.

Business Overhead Expense Policy: A policy that reimburses a business owner for the day-to-day operating costs and expenses of the business in the event of a disability. This type of policy usually has a one or two year benefit period.

Buy-Sell Agreement: An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner’s share of the business and the exact terms of the buying and selling process are established before death or the onset of a disability.


Conditional Receipt: A receipt given for premium payment accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of prepayment or the date on which the last of the underwriting requirements, such as medical examination, has been fulfilled.

Consumer Price Index: The Consumer Price Index for All Urban Consumers as published by the Federal Department of Labor. This index shows the rate of change in the cost of living (inflation) in the United States.

Conversion Privilege: The right given to an insured person to change insurance without evidence of medical insurability, usually to an individual policy, upon termination of coverage under a group contract.

Cost of Living Rider: An optional benefit that provides for increases in the disability benefit during periods of disability. The amount of increase is based on a pre-set percentage or inflation.

Cross-Purchase Arrangement: An arrangement between two or more business owners that, in the event of an owner’s death or disability, the remaining owner or owners will purchase the business interest of the deceased or disabled owner.

Cumulative Benefit: In an overhead expense policy, the monthly benefit times the number of months the insured has been disabled after the elimination period.


Earned Income: Gross salary, wages, commissions, fees, etc., derived from active employment. This does not include investment income, rental income, or amounts received from annuities or insurance policies.

Elimination Period: The consecutive number of days for which no benefits are payable at the start of a claim. An insured must be disabled all of those days before benefits are payable. Typical elimination periods are 30, 60, 90, 180, or 365 days.

Exclusions: Certain conditions and causes (listed in the policy) that are not covered by the policy.


Future Increase Option: An optional benefit in a disability income policy that allows the insured future increases to the policy monthly benefit at specified dates (typically on insured’s policy anniversary), with a requirement of only financial (and not medical) insurability.


Graded Premium: A premium structure where premiums start out low and increase annually. If the insured starts with a graded premium, they may change to a level premium on a policy anniversary. Premiums will then be based on attained age.

Group Insurance: A policy covering the employees of a business or members of a union.

Guaranteed Renewable: A type of insurance that cannot be canceled or altered by the insurance company as long as the insured continues to pay premiums on time. However, the premium may be increased for classes of insured’s.


Income: Gross earned income, less business expenses, but before any other deductions. Income includes salaries, wages, fees, commissions, bonuses, business profits, or other payments for personal services. It does not include unearned income from savings, investments, or real property.

Indexing: A provision that increases the insured’s pre-disability earnings every year according to a given formula, so that residual disability benefits will not lose purchasing power because of inflation.


Level Premium: A premium that remains the same through the insured’s age 65.

Lifetime Disability Benefit: A benefit that is payable for the insured’s lifetime, if the insured is continuously and totally disabled before a specified age (i.e., 45 or 55).

Loss of Income: The difference between an insured’s prior income and current income. In better policies, if the loss of income is more than 75 percent of prior income, the loss is deemed to be 100 percent for purposes of the Residual Disability Rider.

Loss Payee: The individual or entity named to receive all benefits.


Monthly Indemnity: The amount the insurer will pay for each month of total disability.


Non-Cancelable: A policy that cannot be canceled or altered by the insurance company as long as the insured continues to pay premiums on time. This type of policy’s premium will not increase up through the insured’s age 65.


Occupation: An insured’s regular occupation or profession at the time of becoming disabled.

Optional Benefit: An additional benefit offered by the insurance company to certain occupational classes, which may be included in a policy at the applicant’s request, for an additional premium.

Owner: As named in the policy schedule page, the owner’s rights include, but are not limited to, the right to renew the policy and to request any change in benefits.

Own Occupation: A term that defines the most liberal wording of the total disability contractual provision. If the insured cannot perform the duties of his or her own occupation due to sickness or injury, the benefit will be paid even if income is earned in another occupation. A physician or dentist’s medical specialty will be deemed their occupation.


Partial Disability: An insured’s physical inability to perform some, but not all, of the duties of his or her regular occupation due to sickness or injury.

Participation Limit: The total amount of coverage that will be allowed by a company from all carriers.

Policy: All material that constitutes the contract of insurance.

Policy Term: The effective period of the policy, usually the period for which premiums are paid.

Pre-Disability Earnings: The earnings level of the insured prior to the onset of disability.

Pre-Existing Condition: An injury, illness, or physical condition that existed prior to the issue of the disability policy.

Presumptive Disability: The presumption that the insured is totally disabled, even if still at work, if sickness or injury results in the total and complete loss of sight in both eyes, hearing in both ears, power of speech, or use of any two limbs. The elimination period is waived from the date of the loss and total disability benefits are payable while such loss continues until the end of the benefit period.

Prior Expenses: An insured’s average monthly expenses for the same tax year in which his or her prior income is based for purposes of the residual disability rider.

Prior Income: The insured’s average monthly income for the tax year with the highest earnings in the three years just prior to the date on which he or she became disabled.


Recovery Disability Rider: A rider that provides reduced benefits when and insured returns to work after a compensable period of total disability.

Recurrent Periods of Disability: In some policies, recurrent periods of disability from the same cause or causes will be considered one continuous period of disability unless each period is separated by a recovery of six months or more.

Rehabilitation Benefit: A benefit paid to help meet some of the costs an insured may incur by enrolling in a rehabilitation program for the purpose of returning to his or her occupation.

Residual Disability Benefit: A provision that pays a partial benefit for a partial disability. A person is considered residually disabled if they are at work and not totally disabled, but due to an injury or illness, they suffer a 20% or more loss of income (Some companies also include a loss of time requirement or the inability to perform some duties of the insured’s regular occupation).


Social Insurance Substitute Rider: A rider that pays a benefit if the insured is disabled under the policy and not receiving social insurance benefits.

State Disability Benefit Insurance Laws: Laws enacted in California, Hawaii, New Jersey, New York, and Rhode Island that provide the payment of benefits for non-job-related sickness or injury.


Total Disability: The physical or mental inability to perform the major duties of one’s occupation because of sickness or injury.

Transplant Donor Benefit: In some policies, a provision that the insured will be considered disabled as a result of complications incurred during a transplant or donor surgery.


Waiting Period: The consecutive number of days for which no benefits are payable at the start of a claim. An insured must be disabled all of those days before benefits are payable. Typical elimination periods are 30, 60, 90, or 180 days.

Waiver of Elimination Period: In some policies, the elimination period will be waived if the insured becomes disabled within five years after the end of a period of disability that lasted longer than six months and for which benefits were paid.

Waiver of Premium: In some policies, a provision that relieves the insured of making premium payments after he or she has been disabled for 90 days, or the elimination period, if shorter. In addition, premiums paid during those 90 days are refunded and premiums due during the 90 days after recovery are waived.

Worker’s Compensation: Benefits paid to a worker to compensate for losses caused by a work-related injury or illness.