Glossary of Terms

Attending Physician Statement (APS)

The APS is a report written by the insured’s doctor that documents his or her past and current health history. Insurance companies use this report to review applications for insurance and/or to evaluate benefit eligibility, in the event of a claim.


Automatic Increase Benefit

This policy provision increases the policy benefit on an annual basis without evidence of medical or financial insurability. This provision helps the benefit level keep pace with the rising cost of living.



A beneficiary is a person or entity who is named to receive proceeds or benefits from an insurance policy. There are three types of beneficiaries. Primary beneficiaries (such as a spouse) are first entitled to the proceeds. Secondary beneficiaries (such as a child) are entitled to the proceeds if the primary is no longer living when the insured dies. And, tertiary beneficiaries (such as a grandchild) receive the proceeds if both the primary and the secondary beneficiaries are no longer alive when the insured dies.


Benefit Period

A benefit period is the maximum amount of time the insured may receive proceeds for a continuous disability. The benefit period is subject to underwriting requirements. The insured may select a benefit period of two years, five years or up to retirement age of 66 or 67.


Benefit Percentage

A benefit percentage is the amount payable to the insured, based on a percentage of the insured’s income prior to disability. The proceeds are limited to an overall maximum amount.


Business Overhead Expense

This type of policy reimburses business owners for covered business-related expenses that are incurred during their period of disability.


Buy-Sell Policy

A buy-sell policy pays a lump sum or installments to the insured’s corporation or business partner to buy out the business interest of the disabled owner.


Carry-Over Account

Used in Business Overhead Expense policies, this account accumulates unused benefits so they carry-over and can be used by the insured later.


Cash or Accrual Method

To collect benefits for a partial disability under the residual provision, the insured must show proof of loss of earnings. The insured can choose one of two accounting methods to determine monthly earnings – either cash or accrual. The same method must be used at all times for any one disability.


Cash Value Rider

If a policy contains a cash value rider, it builds cash value. The cash value typically reaches 100 percent at age 65.


Commencement Date

The commencement date is the first day a disability is covered. It immediately follows the completion of the waiting period.


Concurrent Disability

A concurrent disability occurs when there is more than one injury or illness. Though there is more than one factor 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 caused the start or continuation of disability.


Conditional Receipt

If a policy owner pays a premium at the time of insurance application, she will receive a conditional receipt. With this receipt, the insured receives interim coverage during the underwriting process. This is subject to the terms and conditions of the receipt.


Conditionally Renewable

This policy provision indicates that the insurance company will renew the insurance policy if the insured complies with certain stated conditions.


Continuous Disability

A continuous disability occurs when recurrent periods of disability stem from the same cause and are separated by less than 12 months of recovery.


Conversion Privilege

A conversion privilege allows employees who are leaving a job to keep some or all of their LTD coverage without having to submit evidence of insurability. This is done at the employee’s expense. It also allows Business Overhead Expense policyholders to convert to individual DI policies if and when their needs change.


Cosmetic or Transplant Surgery

A disability caused by cosmetic surgery or transplant surgery is considered the same as a total disability due to illness, after six months of coverage.


Cost of Living Rider

A cost of living rider increases the disability benefit each year according to a percentage derived from the Consumer Price Index measure.


Covered Expenses

This is a list of expenses that are covered and reimbursable during an insured’s period of disability.


Cross Purchase Agreement

Used in circumstances when there are two business owners, this agreement allows owners to be both the owners and the beneficiaries of a buy-sell policy.


Definition of Partial/Residual Disability

To encourage a return to the workforce, most disability insurance carriers offer limited benefits to those who return to work part time or full time (with a loss of earnings). If the insured can work in a limited capacity and is earning less than a set level of income, he is eligible for limited benefits.


Definition of Total Disability

This important provision in a disability contract defines the parameters used to determine if an employee is eligible for benefits. There are several levels to this definition.

  • Own Occupation:
    Disability is initially determined by whether or not an employee can still perform the duties of his or her own job. If the insured cannot do his usual work, he may qualify for benefits. Insurance companies may use generalized job descriptions when evaluating the physical and mental demands of an occupation. This provision lasts just a short period – one, two or five years. After that, the policy may become more restrictive.
  • Any Occupation:
    At this level of disability, the insured will be considered disabled if he cannot work in any occupation he is qualified for by education, training or experience. This definition is subjective because it is based on all past education and experience, not just a current profession.


Disability Benefit

Disability benefits are any proceeds the insured receives for a disability covered in the policy provisions.


Disability Income

The monthly benefit received by the insured to help replace lost earnings during his or her period of disability.


Disability Insurance

Disability insurance is a type of health insurance which pays the insured a monthly benefit, replacing earnings lost from an accident or sickness.


Education, Training and Experience

State laws and insurance policies say the insured’s education, training and experience must be taken into consideration when determining if there is a disability from “any occupation.” Continuation of benefits may be denied if it is determined the insured can work in a different occupation that is comparable to the job held prior to injury or illness.

To make the analysis, two criteria are considered.

  • Comparable earnings:
    The alternative occupation should pay comparably to the former occupation.
  • Age limitations:
    For those over age 55, the insured must be able to physically and mentally perform the alternative position. By using local market reviews it can be determined if the job is suitable for the insured.


Effective Date

The effective date is the day the policy begins.


Elimination Period

Also referred to as the qualifying period, the elimination period is the time during which an employee must be disabled before benefits will begin.


Entity Purchase Agreement

Similar to a cross-sell agreement, this agreement designates the corporation as both the owner and the beneficiary of buy-sell policy proceeds.



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 self-inflicting an injury.


Exclusion Rider

This document is attached to the disability policy and outlines the specific conditions that will not be covered under the policy. Excluded conditions often include preexisting conditions identified by medical history or physical exam.


Executive Bonus

A payment arrangement that allows the insured to pay his or her disability premium using a salary bonus that can be deducted under Section 162 of Internal Revenue Code.


Financial Underwriting

A method of evaluating earnings and other financial data to determine an insured’s appropriate monthly benefit.


Future Purchase Option Rider

The future purchase option rider allows the insured to buy additional monthly benefits on specific option dates. This is regardless of the insured’s health, as long as the earned income at the time justifies the increase of benefits.


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.


Guarantee of Insurability

A policy option that allows the insured to increase the monthly benefit at specified dates. Only a review of financial insurability is required.


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.


Indexed Cost of Living Indemnity Benefit Rider

This rider is designed to provide the insured protection against inflation. It pays an additional monthly benefit, which is tied to the Consumer Price Index. After the first year of disability, the insured’s pre-disability earnings are increased (or indexed) by a percentage. This additional benefit is recalculated on an annual basis.



An injury is any accidental bodily injury sustained by the insured after the policy effective date and while the policy is in force.


Insurance Company Ratings

Insurance company ratings can provide information on the companies’ financial performance, stability claims paying ability and more. There are five major insurance industry ratings services: A.M. Best, Standard and Poor’s, Moody’s, Duff and Phelps, and Weiss.

Their top ratings are:

  • A.M. Best – A++
  • Standard and Poor’s – AAA
  • Moody’s – Aaa
  • Duff and Phelps – AAA
  • Weiss – A+


Inspection Report

A report ordered by the underwriter that summarizes an applicant’s health history, employment and habits. This information is obtained by interviewing the applicant directly and by interviewing his/her personal and professional associates.


Installment Option

This buy-sell policy provision offers the insured an alternative payout option of monthly installments for a specified period.


Key Person Policy

This policy reimburses the business for financial loss during a key person’s period of disability.



Group disability plans may have specific provisions that limit coverage in certain areas. Only limited benefits are often payable for specific conditions or under certain circumstances (such as mental illness or a pre-existing condition).


Lump-Sum Payment

Buy-sell policies typically pay the disability benefit in a lump sum.


Key Person Policy

This policy reimburses the business for financial loss during a key person’s period of disability.


Mandatory Rehabilitation

To encourage disabled employees to participate in rehabilitation programs, some policies include a mandatory rehabilitation provision. This provision states that if an employee refuses to cooperate or participate in a rehabilitation program, benefits will be terminated.


Maximum Benefit Period (Benefit Duration)

The maximum benefit period is the longest length of time benefits are payable as long as the employee remains continuously disabled.


Maximum Monthly Benefit

The maximum monthly benefit is the most a disabled employee can receive on a monthly basis under the LTD plan.


Medical Examination

A medical examination and report are often part of the application process for disability insurance policies. The information becomes part of the contract and is attached to the policy.


Medical Underwriting

A method of evaluating an applicant’s health and medical history to determine if a policy will be issued and if so, the appropriate rates and exclusions.


Mental Illness and Substance Abuse Limitations

Group policy benefits are limited when a disability is caused by a psychological, behavioral or emotional disorder; by alcoholism; or by the non-medical use of narcotics or sedatives. Benefits are usually limited to 12 to 24 months unless the insured is confined to a hospital. Individual disability policies generally do not have this limitation.


Mental and Nervous Condition

Any disability caused by or related to a mental or nervous disorder is often limited in coverage by long-term disability insurance policies. Contracts include a definition of mental and nervous disorders and the insured must meet that definition in order to receive benefits. A major gray area, there are many interpretations and opinions of the terms.

  • Properly deemed:
    If a policy’s language is restricted, such as “disability due solely to a mental and nervous disorder,” then the limitation can be invoked only when a disabling condition is due only to the mental or nervous condition. However, if a policy states that the limitation will be applied if the condition is “caused by or resulting from” or “caused or contributed to by” the mental or nervous condition, the insurer may limit benefits.
  • Definition:
    If a policy limits coverage for mental or nervous disorder disabilities, it should also contain a definition or the term “mental and nervous disorder.” The definition should include whether there is a cause of the disability, what the symptoms are, and the form of treatment.


Minimum Monthly Benefit

Typically, there is a minimum amount paid as a monthly benefit after reductions are taken for other income benefits.


Minimum Residual Benefit

Under the residual disability provision, the minimal residual benefit provision typically stipulates that during the first six months of disability, the insured must be paid at least 50 percent of the total disability benefit.


Net Worth

This figure is used in financial underwriting to determine an appropriate benefit amount. It includes the total non-business related assets of an insured.


Non-Cancelable Rider

A non-cancelable rider changes a policy and all riders from a guaranteed renewable status to a non-cancelable and guaranteed renewable status. With this rider, the insurer cannot change the policy or its premiums as long as all premiums are paid by the end of each grace period.


Occupation Class

An underwriting category in which insured’s are placed based on their specific, customary job duties.


Optional Benefit

Optional benefits are usually available in the form of riders. They add additional coverage to the basic policy.


Other Income Benefits (Benefit Integration)

An insured, while disabled, may receive benefits from other sources, such as Social Security, workers’ compensation or disability benefits received from other employer-sponsored plans. However, benefits payable under a group LTD plan may be reduced by other sources of income.


Overhead Maximum

In Business Overhead Expense policies, the Overhead indicates the maximum benefit payout. It is calculated by multiplying the monthly benefit by the number of months in the benefit period.


Own Occupation

Own Occupation is the most generous and preferred policy definition available. It defines disability as the insured’s ability to perform the duties of his or her own occupation.


Partial Disability

This policy provision or rider pays a specified benefit percentage if the policyholder is unable to perform one or more duties of his own occupation.


Personnel Replacement Expense

This optional policy benefit reimburses a company for the expense of recruiting a replacement for a disabled key person.


Physician Care Requirement

This policy provision requires the insured to be under the regular care of his or her attending physician as an eligibility requirement.


Policy Schedule Page

This page within the policy outlines all policy data such as the policy number, benefit amount and premium.


Pre-Disability Earnings

Pre-disability earnings are the employee’s salary that is covered by the plan on the day before the disability began.


Pre-Existing Conditions

Pre-existing conditions are often defined in long-term disability policies. Pre-existing conditions are often defined as any mental or physical condition for which:

  • The insured has consulted a physician; or
  • The insured has received medical treatment or services; or
  • The insured has taken prescribed drugs or medications; or
  • A reasonably prudent person would have sought medical advice, care or treatment during the 365-day period ending the day before the policy’s effective date.

If the insured, during a specified period of time (often three months) prior to coverage, received medical attention for the same reason as a claimed disability that began after the policy’s effective date of coverage, the disability will not be covered. Some policies have more restrictions that state if the insured did not seek medical attention for the condition but still experienced the symptoms prior to coverage, the disability may be excluded from benefits.


Pre-Existing Condition Limitations

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.


Preferred Risk Class

A preferred risk class is a group of individuals who have a lower anticipated mortality or morbidity rate (based on health, family medical history and occupation) than those in the standard risk class.



A premium is the periodic payment required to keep an insurance policy in effect.


Premium Mode

The premium payment frequency selected by the insured. My insurance companies offer annual, semi-annual, quarterly or monthly payment modes.


Presumptive Total Disability

The grounds for presumptive total disability, a total and permanent loss because of injury or illness, can be defined as one of the following:

  • Loss of speech;
  • Loss of hearing in both ears, not restorable by hearing aids;
  • Loss of sight in both eyes — This means that both eyes must measure at or below 20/200 after efforts have been made to correct vision;
  • Loss of use of both hands;
  • Loss of use of both feet; or
  • Loss of use of one hand and one foot.



A method for determining how much disability coverage is needed by an individual.


Qualification Period

The qualification period is the number of days that the insured must be totally disabled before he/she becomes eligible for residual benefits.


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.


Regular Occupation

The term regular occupation refers to the insured’s job at the time the disability began.



Rehabilitation is a program of clinical and vocational services that aids in the restoration or improvement of the insured’s health and functionality. The goal of rehabilitation is the return of a disabled employee to work and health.


Rehabilitation Benefit

The 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.


Relation of Earnings to Insurance

This term means that income from all sources including insurance cannot exceed 100 percent of the insured’s pre-disability earnings.


Renewability Provision

This provision determines the terms of renewal. Common examples include conditionally renewable, guaranteed renewable or non-cancelable.


Residual Disability Rider

If the insured is residually disabled, but not totally disabled, the residual disability rider provides a reduced basic monthly benefit.


Return of Premium

This benefit refunds a percentage of the premium less the amount paid in claims at specified intervals during the life of the policy.


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.



A rider is any extra agreement that is part of the policy that expands or limits the policy’s conditions, coverage or benefits.


Salary Continuation Plan

Also called a Section 105 plan, this allows the employer to make full or partial deductible wage payments to a disabled employee.


Self-Reported Symptoms

Many policies have a provision limiting coverage (often two years) for disability benefits due to an illness or injury that is based on self-reported symptoms. These are disabilities that cannot be verified by medical testing. Common examples include headaches, pain, fatigue, stiffness, soreness, ringing in the ears, dizziness and numbness. Some states have found that Fibromyalgia and Chronic Fatigue Syndrome may not be included in such provisions.


Sickness Provision

This provision covers both physical and mental illness or disease that is diagnosed following the policy effective date.


Significant Earnings Loss Provision

This provision allows the insured to collect the full disability benefit if he/she returns to work and suffers a significant loss of income as defined by the policy.


Smoker Rating

Policy applicants who use tobacco produces are subject to a higher premium rate, called a smoker rating. Those who do not smoke or use tobacco products are given a lower premium rate. If an applicant smoked in the past, but has quit more than a year ago, most insurers will still consider the applicant as a nonsmoker. Nicotine can be detected in routine screening tests commonly required by most insurance companies.


Social Security Offset Rider

This optional benefit coordinates insurance benefits with Social Security disability benefits to avoid under- or over-payment.


Standard Risk Class

The standard risk class is the group whose mortality and morbidity rate is thought of as average. Most insured are included in this class.


Substitute Salary Expense

This optional business overhead policy benefit reimburses for the business expense of paying a replacement worker during insured’s period of disability.


Supplemental Health Statement

This form provides the underwriter with additional details about the applicant’s health.


Supplemental Social Insurance Rider

The supplemental social insurance rider is a monthly benefit. For those receiving a benefit for total disability, this rider pays for additional benefits, less any legislated benefits (like Social Security or workers’ compensation) for the same time period. The payment is in addition to other benefits payable under the insurance policy.


Survivor Benefit

The survivor benefit is an 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.


Term of Policy/Policy Renewability

The term of policy/policy renewability is the time period for which a policy is in force. Disability insurance is typically renewable annually until the insured reaches retirement age. Some policies continue after retirement as long as the insured continues to work and pays the required premiums.


Total Disability/Totally Disabled

An employee qualifies as totally disabled if, due to illness or injury, he is unable to perform the substantial and material duties of his occupation; is not engaged in any other occupation; and is under the care of a physician for the illness of injury.


Total Disability in Your Occupation Rider

This rider changes the definition of total disability by allowing the insured to work another job while still totally disabled from the regular occupation.



The underwriter is a company that receives premiums and accepts responsibility for fulfilling policy contracts. The company employee who decides what risks the company should assume is also called an underwriter.


Unearned Income

Unearned income continues regardless of whether an individual is working. Examples include interest or dividend income.


Uninsurable Risk

An uninsurable risk is someone who is not accepted for insurance due to excessive risk of loss..


Waiting Period

The waiting period is the time from the first day of disability until disability benefits go into effect. To become eligible for coverage the insured must be disabled for a certain number of continuous days. This is also called the elimination period. To qualify for disability coverage under the policy, the insured must satisfy a certain number of continuous days of active, full-time work.


Waiver of Premium

As long as benefits are being paid out, no further disability premium payments are required from individuals who become disabled and qualify for benefits. The waiver of premium is typically issued after the insured has been continuously disabled for a specified period of time.


Workers Compensation

A state-administered program that provides benefits to workers who are injured during the course and scope of employment.


Workplace Modification or Accommodation

The workplace modification or accommodation benefit assists an employer when a disabled employee requires special needs or equipment in order to return to work. The employer is reimbursed up to a set amount.

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