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Individual Coverage

This is the core Disability Insurance product: it is designed to replace a portion of your earned income if you become too sick or hurt to work and should be positioned as the foundation of any sound financial plan. There are two basic types of individual coverage: Guaranteed Renewable and Non Cancelable.

Guaranteed Renewable Products state that the insurer guarantees continual coverage without cancellation as long as premiums are paid. However, they reserve the right to increase premiums should they have unfavorable claims experience for an entire occupational class.

This means the insurer cannot raise premiums for just one person—they must increase premiums across the board for each contract issued at that class. Guaranteed Renewable products are usually offered to all of the occupational classes that a carrier covers. In Guaranteed Renewable products the contract language, the benefit amount (or issue limits), the benefit period, and available options are generally more restrictive, but the premiums are also generally the most affordable.

The definition of disability is generally more basic with the Guaranteed Renewable products. Many of these plans offer a true or modified own occupation definition (see below for explanation) for the first two years. However, after the first two years it can change to what is known as Any Occupation. Any Occupation means that the insurer will pay a benefit if you become ill or injured and cannot perform the main duties of your occupation or any other occupation, by reason of your education, training or experience. Some carriers reduce the definition further to mean not engaged in any occupation for wage or profit. Even some of the non cancelable policies can revert to these definitions after the true or modified own occupation period. Guaranteed Renewable plans also offer shorter benefit periods and fewer, or less liberal, options or riders. These are “No Frills” policies that offer protection for more severe situations and may be the only type of protection your client is concerned about or can afford, as they are typically the most affordable types of plans. Guaranteed Renewable may be the coverage available to clients in occupations that are exposed to great amount of risk.

Non Cancelable Products state that the insurer will guarantee continual coverage and will not cancel the policy as long as premiums are paid. In addition, they guarantee not to increase premiums for the life of the contract, regardless of claims experience. These plans generally have the most liberal contract language, the highest issue limits and the widest range of options. Non Cancelable products’ guarantee of premium level, attractive features and options generally make this type of policy a more expensive product that is only available to certain occupational classes.

The definition of disability offered on most Non Cancelable products is the Modified Own Occupation definition. This defines totally disabled as:

1) Being unable to perform the material and substantial duties of your occupation
2) You are not working
3) You are under a doctor’s care

It can be modified even further by adding the optional Residual or Extended Partial Benefits Rider, which does allows you to work and still receive benefits provided you have at least a 20% loss of income due to changing jobs and are only able to work part time, as determined by your doctor.

Some carriers will pay these residual or partial benefits all the way to age 65; others may limit this. Limitations vary from five years to only six months. Depending upon the occupational class, the modified own occupation definition itself can also be limited to two or five years.

A current trend with the major carriers is to offer most occupational classes a choice of definitions, products, and optional features to select from. This allows you, as the financial professional, to design a plan expressly for your client’s needs. See the Sales & Marketing Ideas file in Broker Resources.

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