Chapter 7

LOMA 280

Principles
of
Insurance

CHAPTER 7

Supplemental Benefits

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Chapter 7

Supplemental Disability Benefits

Individual life policies may include supplemental benefits
—usually by adding a rider to the policy—in addition to
the benefit payable upon the death of the insured. The
insurer generally charges an additional premium, which
typically ends when the supplemental benefits expire or
are cancelled. Premiums paid for supplemental benefits
generally do not affect the cash value, if any, of the basic
policy.
Common supplemental disability benefits include:
 Waiver of premium for disability (WP) benefit
 Waiver of premium for payor benefit
 Disability income benefit
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WP Benefit
waiver of premium for disability (WP) benefit: the
insurer promises to give up—waive—its right to collect
premiums that become due while the insured is totally
disabled; the insurer pays the policy premium

WP benefits usually define total disability as the

insured’s inability to perform the essential acts of her
own occupation or any other occupation for which she is
reasonably suited by education, training, or experience.
Cash values continue to build and policy dividends
continue to be received just as if the policyowner paid
the premiums.

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WP Benefit
 Most WP benefits contain a three- to six- month waiting period
after the insured becomes disabled before the insurer will waive
the premium payments.
 Disabilities resulting from specified causes—for example,
intentionally self-inflicted injuries, injuries suffered while
committing a crime or as a result of acts of war, and some
pre-existing conditions—are typically excluded from coverage.

Universal life insurance policies have variable premiums, so the

standard WP benefit usually is not offered. Instead, universal life
insurance policies may have a waiver of costs of insurance benefit
that simply waives most internal policy costs if the insured meets
the policy’s definition of disability.

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Waiver of Premium for Payor

waiver of premium for payor benefit: provides that the insurer will
waive its right to collect a policy’s renewal premiums if the
policyowner—the person responsible for paying premiums—dies or
becomes totally disabled; this benefit is for third-party policies
A waiver of premium for payor benefit covers disabilities suffered by
the policyowner who, generally, must provide satisfactory evidence
of his own insurability in addition to evidence of the insurability of the
insured.
This benefit usually has a two-part definition of total disability:
1. During the first two years of disability, the policyowner is
considered totally disabled if unable to perform the essential acts
of his own occupation.
2. After that two-year period, the policyowner is considered totally
disabled if unable to perform the essential acts of any occupation
for which he is reasonably suited by education, training, or
experience.

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Disability Income Benefit

The disability income benefit addresses a disabled insured’s
loss of earnings during a disability.

disability income benefit: provides a monthly income

benefit to the policyowner-insured if he becomes totally
disabled while the policy is in force
The definition of total disability is similar to the definition in a
WP benefit. Typically the amount of the benefit is expressed as
a stated dollar amount—such as $10—per $1,000 of life
coverage. The disability income benefit also usually includes a
three- to six- month waiting period before this benefit begins.
Life insurance policies that are issued with a disability income
benefit generally include a WP benefit as well. The WP benefit
waives both the renewal premiums for the life policy and the
additional premium for the disability income benefit.
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Accident Benefit
Accident benefits may be added to any type of life policy.
The two most common accident benefits are accidental
death benefits and dismemberment benefits.
accidental death benefit: a supplemental life insurance
policy benefit that provides a death benefit in addition to
the policy’s basic death benefit if the insured dies as the
result of an accident
The additional sum payable may be a multiple of—such
as three times—the policy’s face amount or it may be
unrelated to the face amount.
When the amount of the accidental death benefit is
equal to the face amount of the life policy, the benefit is
often referred to as a double indemnity benefit.
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Accident Benefit
Most accidental death benefit riders expire when the insured reaches
age 65 or 70.
Generally, the accidental death benefit is payable if the insured’s
death was caused, directly and independently of all other causes, by
an accidental bodily injury.

Accidental
Accidentaldeath
deathbenefit
benefitprovisions
provisionsusually
usuallycontain
containseveral
several
exclusions
exclusions and limitations. For example, the insurer willnot
and limitations. For example, the insurer will notpay
pay
the accidental death benefit if the insured’s death results from:
the accidental death benefit if the insured’s death results from:
 Self-inflicted injuries (suicide)
 War-related activities
 Aviation-related accidents, if the insured acted in a capacity
other than as a passenger during the flight
 Accidents resulting from the insured’s committing a crime.

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Dismemberment Benefit
When an accidental death benefit provides an additional benefit
for dismemberment, it is called an accidental death and
dismemberment (AD&D) benefit
 Generally, the insurer will pay a stated benefit amount if an
accident causes the insured to lose any two limbs or sight in
both eyes. The loss of a limb may be defined either as the
(1) actual physical loss or (2) loss of use of the limb.
 The amount of the dismemberment benefit for loss of two limbs
or sight in both eyes usually equals the amount of the
accidental death benefit. In many cases, a smaller amount—
such as one-half the amount of the accidental death benefit—
will be payable if the insured loses one limb or sight in one eye
as the result of an accident.
The insurer generally will not pay both accidental death benefits
and dismemberment benefits for injuries suffered in the same
accident.
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Accelerated Death Benefits

accelerated death benefit: provides that a
policyowner-insured may elect to receive all or part
of the policy’s death benefit before his death if
certain conditions are met.
The payment of an accelerated death benefit
reduces the death benefit that will be paid to the
beneficiary at the insured’s death by the amount of
the benefit that was paid to the policyowner-insured
before his death.
Life insurers generally offer accelerated death
benefit coverage only on policies with large face
amounts, such as $100,000 or $250,000 and above.

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Accelerated Death Benefits

An insured might use money received as accidental
death benefits for payment of:
 Medical expenses
 Outstanding debts and living expenses
 Home health care costs
 Travel expenses for himself and/or his family
The specific amount of accelerated death benefits that
are payable and the circumstances that trigger such
payments depend on the wording of the benefit provision
or rider.
Three commonly offered types of accelerated death
benefits are: (1) the terminal illness benefit, (2) the dread
disease benefit, and (3) the long-term care benefit.
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Terminal Illness (TI) Benefit

terminal illness (TI) benefit: a benefit under which
the insurer pays a portion of the policy’s death
benefit to a policyowner-insured who suffers from a
terminal illness and has a physician-certified life
expectancy generally 12 or 24 months

 The amount of the TI benefit payable varies from

insurer to insurer. Generally, the maximum TI
benefit payable is a stated percentage—usually
between 25 and 75 percent—of the policy’s face
amount up to a specified maximum dollar amount

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Terminal Illness (TI) Benefit

 The benefit usually is paid in a lump sum to the
policyowner.
 The remainder of the death benefit is paid to the
beneficiary following the insured’s death.
 Unlike other supplemental benefits for which
insurers impose an additional premium charge,
the TI benefit typically is paid for by an
administrative charge that the insurer assesses
when a policyowner-insured elects to exercise
the TI benefit.

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Dread Disease (DD) Benefit

dread disease (DD) benefit: an accelerated death benefit
under which the insurer agrees to pay a portion of the policy’s
face amount to the policyowner if the insured suffers from one
of a number of specified diseases
The specified diseases or medical procedures—known as
insurable events—that are covered by the DD benefit include:
 Life-threatening cancer
 Coronary artery bypass surgery
 Myocardial infarction (heart attack)
 Stroke
 End-stage renal (kidney) failure
 Acquired immune deficiency syndrome (AIDS)
Some DD benefits include vital organ transplants and Alzheimer’s
disease as insurable events.
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Dread Disease (DD) Benefit

 The DD benefit is typically paid in a lump sum. Insurers
sometimes pay the benefit in monthly installments over a period
of 6 to 12 months. The remainder of the death benefit is paid to
the beneficiary following the insured’s death.
 Most insurers provide DD coverage only to insureds who are
under the age of 70 and only to insureds who have no serious
health problems. Some insurers do not make payments for
multiple or recurring events.
 The DD benefit may offer a WP option under which the insurer
agrees to waive all renewal premiums payable for the life
insurance policy after the accelerated death benefit is paid.
Sometimes the WP option applies only to premiums payable
while the insured remains disabled; if the insured recovers, then
subsequent renewal premiums are not waived.

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Long-Term Care (LTC)

Insurance Benefit
long-term care (LTC) insurance benefit: an
accelerated death benefit under which the insurer agrees
to pay a monthly benefit to a policyowner if the insured
requires constant care for a medical condition
The types of care given and the medical condition
required to qualify for the LTC benefit are specified in the
LTC policy provision or rider.
Premiums generally are waived on both the long-term
care benefit and the basic life insurance policy during the
period that the insured receives LTC benefits.

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Long-Term Care (LTC)

Insurance Benefit
The amount of each monthly LTC benefit generally is equal to a
stated percentage of the policy’s death benefit.

For example, the benefit may state that 2 percent of the policy’s face
amount will be paid each month if the insured requires long term-
care.

Most LTC benefits impose a 90-day waiting period, i.e., no benefits

are payable until 90 days following the date on which the insured
becomes eligible for benefits. Typically, benefits are paid until a
specified percentage—between 50 and 100 percent—of the policy’s
death benefit has been paid out. Any remaining death benefit is paid
to the beneficiary after the insured’s death.

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Benefits for Additional Insureds

Spouse insurance rider a supplemental life
insurance policy benefit that provides term life
insurance coverage on the insured’s spouse
Children insurance rider a supplemental life
insurance policy benefit that provides term life
insurance coverage on the insured’s children. It
does not take effect until the child reaches age 15
days and expires typically when child reaches age
21 or 25.
Second insured rider a supplemental life insurance
policy benefit that provides term life insurance
coverage on the life of a person other than the
policy’s insured. For Exp. Business Partner.
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Insurability Benefits
The guaranteed insurability benefit and the paid-up
additions option benefit allow policyowners to buy
additional insurance without the insured’s providing
evidence of insurability at the time of purchase.

guaranteed insurability (GI) benefit: a

supplemental life insurance policy benefit that gives
the policyowner the right to purchase additional
insurance of the same type as the basic life
insurance policy—for an additional premium amount
—on specified option dates during the life of the
policy without supplying evidence of the insured’s
insurability
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Insurability Benefits

 The GI benefit may permit the purchase of additional

life insurance coverage on specified dates or when
certain events occur, such as when the insured
marries or at the birth of a child.

 Typically, the amount of coverage the policyowner

may purchase on an option date is limited to the
policy’s face amount or to an amount specified in the
GI rider, whichever is less.

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Insurability Benefits

 Although the right to purchase the additional coverage is

automatic, the actual purchase is not. The policyowner who
desires the extra coverage must take positive action to
purchase the new coverage. Otherwise, that option expires.
The policyowner is permitted to exercise the next option
when it comes due.

 Most GI riders limit the benefit by permitting the policyowner

to exercise the GI option only until the insured reaches age
40.

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Insurability Benefits

The paid-up additions option benefit is a

supplemental life insurance policy benefit that
allows the owner of a whole life insurance policy to
purchase single-premium paid-up additions to the
policy on stated dates in the future without providing
evidence of the insured’s insurability.

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End of Chapter 7

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