DISABILITY INSURANCE

Subtlety of Disability Insurance Policy Wording

The Subtlety of Disability Insurance Policy Wording

A Word can Taketh or Giveth

Here are two examples of the subtlety in disability insurance policy wording:

Situation #1 – “Self-Inflicted Injury” Clause

Some disability insurance policies will not pay for disability caused by a “self-inflicted injury”.  Others will not pay if disability is caused by an “intentionally self-inflicted injury”.  Some policies pay, even if a disability is “self-inflicted”.

Here are examples for the three different policy wordings.  Obviously, this assumes the medical incident prevents the person from working:

 

 

INCIDENT

 POLICY EXCLUDES “SELF-INFLICTED INJURIES” POLICY EXCLUDES “INTENTIONALLY SELF-INFLICTED INJURIES” POLICY HAS NO “SELF-INFLICTED INJURY” CLAUSE
The insured person walks into the insurer’s office and cuts off a hand. Policy does not pay. Policy does not pay Policy will pay.
He jumps over a picket fence and impales himself. Policy might not pay because the injury was “self-inflicted”; i.e. he did it to himself. Policy probably will pay because the situation was likely unintentional. Policy will pay.
He is sharpening a knife, and cuts off his thumb. Policy likely will not pay.  He did it to himself. Policy might or might not pay.  How can you determine if it was “intentional”?  If this person has a failing business and declining income, and stands to benefit financially by being “disabled”, the insurer may assume the incident was “intentional.” Policy will pay.
He skis “out-of-bounds” and crashes. Policy probably will pay, but if deemed intentionally reckless, the insurer might say it is “self-inflicted”. Policy probably will pay because nobody “intends” to crash. Policy will pay.

 

Situation #2 – “Elimination Period” days – Do they add up?

The “Elimination Period” is the number of days you must be disabled before you start receiving either Total Disability or Residual Disability payments.  Typically it is “30 days”, or “60 days”, or “90 days”.  You might think this is a simple concept:  “If I am disabled (for example) 60 days I start receiving insurance money.  You may choose to buy one disability policy over another because what you think is the best policy pays after 60 days and the apparently-inferior policy pays after 90 days.  There is more to it – so much more that presenting the information in chart form doesn’t work well.

Here are the different ways of measuring and accumulating the Elimination Period days:

  1. The days must be “total disability” and consecutive, OR

 

  1. The days may be either “total disability or residual disability” and must be consecutive, OR.

 

  1. Periods of “total disability” may be added to each other as long as they’re from the same or related cause, and not separated by more than six months, OR

 

  1. As above but with “twelve months” instead of six, OR

 

  1. Periods of “total disability” or “residual disability” may be added to each other as long as they’re from the same or related cause, and not separated by more than six (or twelve) months, OR

 

  1. Periods of disability (either “total” or “total and residual”) may be added together as long as they’re from the same or related cause, and not separated by more than six (or twelve) months. As well, the days must be accumulated within 365 days of the first day of disability, OR.

 

  1. Before being eligible to collect “Residual (or Partial) Disability” benefits, you must be Totally Disabled for the Elimination Period.

 

There may be more than seven options, but you see the point – they are all different!

The bottom-line:  When buying disability insurance, don’t buy inexpensive!  Instead, take some time to learn, and buy quality.  Your future financial happiness may depend on it.