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Accident and Sickness Insurance is important for people who are self employed or employees who have a group plan at work. There are two types of policies: Overhead Expense Income Policies and Disability Income Policies.
Disability Income Insurance is designed to replace income in the event of a disability resulting from an accident or sickness. Earned income, unearned income, net worth and other sources of income replacement are all considered in determining the amount of coverage that can be offered. Disability contracts are issued between the ages of 18-60, but older clients may have limited access to plan design and benefits. Payments begin after the stated “waiting period” and continue until recovery or at the end of the benefit period, usually age 65.
Occupation is the most important feature in a disability contract. Occupation, along with age, sex, health, and income, will affect the cost and the provisions of a disability plan and determine the amount of coverage and benefits available, the type of contract, and the premiums charged.
Insurance companies group occupations into different classifications and provide certain contract designs and benefits accordingly. Some occupations are classified more hazardous than others and are more likely to result in an injury or accident. There are three types of occupation definitions:
Any Occupation – unable to engage in any occupation for which one is reasonably fitted by education, training or experience.
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Regular Occupation – unable to perform the important duties of one’s regular occupation and not be gainfully employed in another occupation.
Own Occupation – unable to perform the important duties of one’s regular occupation (in which case, benefits are paid even if working at another occupation).
Disability income policies are very versatile and offer different riders to customize each individual’s needs. Some of the most common riders are:
Own Occupation – adds the “own occupation” definition to the contract so that even if one can earn an income while unable to work at one’s regular occupation, full benefits will be payable.
Future Insurability – allows one to purchase further benefits at stated times in the future regardless of health or occupation. Future purchases depend on earned income.
Cost of Living – increases benefits at stated times (usually annually) based on a fixed interest rate or the Consumer Price Index with or without an annual and overall maximum.
Catch-up – pays a retroactive benefit based on the number of months in the waiting period, after total disability has lasted 180 consecutive days.
Return of Premium – refunds a specified percentage of premiums after the policy has been in force for a specified number of years, provided that minimal or no claims have been paid.
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