CHAPTER 1

INTRODUCTION
TO
INSURANCE
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HISTORY OF WORLD
INSURANCE

HISTORY OF INDIAN
INSURANCE

INTRODUCTION TO INSURANCE

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INSURANCE, in law and economics, is a form of risk management primarily used to
hedge against the risk of a contingent loss. Insurance is defined as, “the equitable
transfer of the risk of a loss, from one entity to another, in exchange for a premium, and
can be thought of as a guaranteed small loss to prevent a large, possibly devastating
loss”. An insurer is a company selling the insurance; an insured is the person or entity
buying the insurance. The insurance rate is a factor used to determine the amount to be
charged for a certain amount of insurance coverage, called the premium. Risk
management, the practice of appraising and controlling risk, has evolved as a discrete
field of study and practice

In some sense we can say that insurance appears simultaneously with the appearance
of human society. We know of two types of economies in human societies: The first type
is money economies and non-money or natural economies. The second type is a more
ancient form than the first. In such an economy and community, we can see insurance
in the form of people helping each other. For example, if a house burns down, the
members of the community help build a new one. Should the same thing happen to
one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive
help in the future. This type of insurance has survived to the present day in some
countries where modern money economy with its financial instruments is not
widespread (for example countries in the territory of the former Soviet Union).

HISTORY OF WORLD INSURANCE:

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Turning to insurance in the modern sense (i.e., insurance in a modern money economy,
in which insurance is part of the financial sphere), early methods of transferring or
distributing risk were practised by Chinese and Babylonian traders as long ago as the
3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river
rapids would redistribute their wares across many vessels to limit the loss due to any
single vessel's capsizing. The Babylonians developed a system which was recorded in
the famous Code of Hammurabi, c. 1750 BC, and practised by early Mediterranean
sailing merchants. If a merchant received a loan to fund his shipment, he would pay the
lender an additional sum in exchange for the lender's guarantee to cancel the loan
should the shipment be stolen.

Achaemenian monarchs of Iran were the first to insure their people and made it official
by registering the insuring process in governmental notary offices. The insurance
tradition was performed each year in Norouz (beginning of the Iranian New Year); the
heads of different ethnic groups as well as others willing to take part, presented gifts to
the monarch. The most important gift was presented during a special ceremony. When a
gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was
registered in a special office. This was advantageous to those who presented such
special gifts. For others, the presents were fairly assessed by the confidants of the
court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift
registered by the court was in trouble, the monarch and the court would help him.
Jahez, a historian and writer, writes in one of his books on ancient Iran: "Whenever the
owner of the present is in trouble or wants to construct a building, set up a feast, have
his children married, etc. the one in charge of this in the court would check the
registration. If the registered amount exceeded 10,000 Derrik, he or she would receive
an amount of twice as much."

A thousand years later, the inhabitants of Rhodes invented the concept of the 'general
average'. Merchants whose goods were being shipped together would pay a

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proportionally divided premium which would be used to reimburse any merchant whose
goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD
when they organized guilds called "benevolent societies" which cared for the families
and paid funeral expenses of members upon death. Guilds in the Middle Ages served a
similar purpose. The Talmud deals with several aspects of insuring goods. Before
insurance was established in the late 17th century, "friendly societies" existed in
England, in which people donated amounts of money to a general sum that could be
used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other
kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools
backed by pledges of landed estates. These new insurance contracts allowed insurance
to be separated from investment, a separation of roles that first proved useful in marine
insurance. Insurance became far more sophisticated in post-Renaissance Europe, and
specialized varieties developed.

Toward the end of the seventeenth century, London's growing importance as a centre
for trade increased demand for marine insurance. In the late 1680s, Edward Lloyd
opened a coffee house that became a popular haunt of ship owners, merchants, and
ships’ captains, and thereby a reliable source of the latest shipping news. It became the
meeting place for parties wishing to insure cargoes and ships, and those willing to
underwrite such ventures. Today, Lloyd's of London remains the leading market (note
that it is not an insurance company) for marine and other specialist types of insurance,
but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666
devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an
office to insure buildings. In 1680, he established England's first fire insurance company,
"The Fire Office," to insure brick and frame homes.

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The first insurance company in the United States underwrote fire insurance and was
formed in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin
Franklin helped to popularize and make standard the practice of insurance, particularly
against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia
Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was
the first to make contributions toward fire prevention. Not only did his company warn
against certain fire hazards, it refused to insure certain buildings where the risk of fire
was too great, such as all wooden houses. In the United States, regulation of the
insurance industry is highly Balkanized, with primary responsibility assumed by
individual state insurance departments. Whereas insurance markets have become
centralized nationally and internationally, state insurance commissioners operate
individually, though at times in concert through a national insurance commissioners'
organization. In recent years, some have called for a dual state and federal regulatory
system (commonly referred to as the Optional Federal Charter (OFC)) for insurance
similar to that which oversees state banks and national banks.

INSURANCE TRENDS IN INDIA

With the de-regulation in Indian Insurance industry, the monopoly of public sector
companies in life insurance and general insurance has come to an end. This has
augmented the innovative practices initiated by the private players. Growth in the
interactive technology such as internet has further created a wave of excitement in the
insurance market. Indian economy and Indian Insurance sector is committed to a
double digit growth. Here’s a glimpse of Insurance Industry over 190 years.

BACKGROUND:

Insurance is an Rs 450 billion industry in India. The value of the market is determined
by gross premium incomes. The life insurance segment writes about 80% of the overall
market value. Indian Insurance market was at its all time high in 2003 with a growth of
about 17.4% over the pervious year. Since 2001 Insurance is growing at the rate of 15-

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20 % annually. The growth in the insurance industry is affected by volatility in real estate
rates, GDP rates and long term interest rates. Fluctuations in exchange rates also affect
the growth in this sector. The gross premium as a percentage of the GDP has gone up
from 2.3 in the year 2000 to 4.8 in 2006. Together with banking services, it adds about
7% to the country’s GDP.

HISTORY OF INDIAN INSURANCE:

A] ANCIENT HISTORICAL TIMES:

Insurance is as old as human society itself. The ancient origin of insurance is Emerigon,
whose brilliant and learned Traite des Assurances, first published in 1783, is still read
with respect and admiration. The result shows that insurances were known to the
ancients such as Romans, Phoenicians Rhodians, although the business of
underwriting commercial risks was probably not highly developed. The histories of Livy
and Suetonius shows that the contractors who undertook to transport provisions and
military stores to the troops in Spain stipulated that the government should assume all
risk of loss by reason of perils of the sea or capture and this was probably the first time
when insurance process was known. There were friendly societies organized, for the
purpose of extending aid to their unfortunate members from a fund made up of
contributions from all. These societies undoubtedly existed in China and India in the
earliest times. The earliest traces of Insurance in the ancient Indian history was in the
form of marine trade loans or carrier’s contracts, which can be found in Kautilya’s
Arthashastra, Yajnyavalkya’s Dharmashastra and Manu’s Smriti. These works show that
the system of credit and the law of interest were well developed in India. They were
based on clear appreciation of hazard involved and the means of safeguarding against
it.

B] BRITISH-INDIA PERIOD:

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Insurance in India without any regulations started in the nineteenth century. It was a
typical story of a colonial era where a few British insurance companies dominated the
market serving mostly large urban centers. Company started by Europeans in Calcutta
was the first life insurance company on Indian Soil.

Bombay Mutual Life Assurance Society indicated the birth of first Indian life insurance
company in the year 1870, and covered Indian lives at normal rates. 1930s was the last
of the old-style crises in the Indian economy because it marked the beginning of the end
of the colonial state and an acceleration of the pace of industrialization as entrepreneurs
moved their capital out of the countryside. Independent India reduced its vulnerability to
external economic shocks by close control of foreign exchange and by promoting a
massive change in the export schedule. Till the end of nineteenth century insurance
business was almost entirely in the hands of overseas companies.

C] POST INDEPENDENCE ERA OF INDIAN INSURANCE:

The insurance business grew at a faster pace after independence. Indian companies
strengthened their hold on this business but despite the growth that was witnessed,
insurance remained an urban phenomenon. During Mrs. Gandhi’s tenure (from 1966-
1968), there was a split within the business community of protectionists and those who
wanted more open trade. But what maintained the momentum was the commitment of
Two Ministers, Ashok Mehta and Subramaniam towards liberalization of the economy.
This was seconded with high hope of getting increased foreign aid.

Deregulation actually helped the poorest in India as it would eventually create more
employment and faster growth. Yet the intense fears of liberalization in the lower middle
class and among working class employees of the state sector, pose serious risks in
freeing the economy. It might be preferable to introduce liberalization during an
economic upswing when the risk of switching jobs is less traumatic. The three
liberalization episodes in Indian economic policy have followed clear cyclical patterns.

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Economic policy has swung broadly between controls and greater openness, with a
tendency toward decontrolling larger and more important segments of the economy.

D] NATIONALIZATION PHASE OF INDIAN INSURANCE:

1944: The Nationalization of insurance industry gathered momentum in 1944 when a bill
to amend the Life Insurance Act 1938 was introduced in the Legislative
Assembly.

1956: 154 Indian insurance companies, 16 non-Indian companies and 75 provident

societies were taken over by the central government and nationalised. LIC
formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of
Rs. 5 Crore from the Government of India.

1972: The General Insurance Business (Nationalisation) Act, which nationalised the
general insurance business in India with effect from 1st January 1973. 107
insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd. and the United India Insurance Company Ltd.

Nationalization was accomplished in two stages; initially the management of the

companies was taken over by means of an Ordinance, and later, the ownership too was
taken by means of a comprehensive bill. However, it was only in 1956, LIC was
nationalised, with the objective of spreading life insurance much more widely and in
particular to the rural areas with a view to reach all insurable persons in the country,

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providing them adequate financial cover at a reasonable cost. And as of 2007, LIC is
India’s leading Insurance Company, with 2000 branches, which probably is the highest
number of branches across India insurance sector.

E] LIBERALIZATION OF INDIAN INSURANCE:

1994: Insurance sector invited private participation to induce a spirit of competition

amongst the various insurers and to provide a choice to the consumers.

1997: Insurance regulator IRDA was set up as there felt the need:

a) To set up an independent regulatory body, that provides greater autonomy to

insurance companies in order to improve their performance,

b) To enable them to act as independent companies with economic motives.

c) To protect the interest of holders of insurance policies.

d) To Amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and
the General insurance Business (Nationalisation) Act, 1972

e) To end the monopoly of the Life Insurance Corporation of India and General

In the first year of insurance market liberalization (2001) as much as 16 private sector
companies including joint ventures with leading foreign insurance companies have
entered the Indian insurance sector. Of this, 10 were under the life insurance category
and six under general insurance. Thus in all there are 25 players (12-life insurance and
13-general insurance) in the Indian insurance industry till date.

F] INDIAN INSURANCE IN 21ST CENTURY:

2000: IRDA starts giving licenses to private insurers: ICICI prudential and HDFC
Standard Life insurance first private insurers to sell a policy

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2001: Royal Sundaram Alliance first non life insurer to sell a policy

2002: Banks allowed selling insurance plans. As TPAs enter the scene, insurers start
setting non-life claims in the cashless mode

2007: First Online Insurance portal, https:/// set up by an Indian Insurance Broker,
Bonsai Insurance Broking Pvt Ltd.

The Government of India liberalised the insurance sector in March 2000 with the
passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all
entry restrictions for private players and allowing foreign players to enter the market with
some limits on direct foreign ownership.

Minimum capital requirement for direct life and Non-life Insurance company is INR1000
million and that for reinsurance company is INR 2000 million. In the 2004-05 budget, the
Government proposed for increasing the foreign equity stake to 49%, this is yet to be
effected. Under the current guidelines, there is a 26 percent equity cap for foreign
partners in direct insurance and reinsurance Company.

ONLINE INSURANCE IN INDIA:

Internet access in India has doubled every year over the last five years and forecasts
predict this growth to quadruple every year over the next three years. According to
emarketer report on India online, in 2007, about 33.2 million people in India accessed
internet and that’s about 2.9% of Indian population. This figure is going to be 71.6
million people, which will be about 6% of population by 2011. Considering limited
access of human-insurance agents in rural areas, there will more demand of purchasing
insurance online from these areas, followed by semi-urban areas. The insurance portals
that are active in online distribution are www.icicilombard.com, www.bajajallianz.co.in,
www.insurancemall.in, www.bimaonline.com, www.insurancepandit.com. Recently,

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Compare – Choose – Buy portals like Bonsai Insurance Broker’s www.insurancemall.in,
have been developed for providing comparison of different types of insurance policies,
their premiums and their purchase online. The policy details are stored digitally and all
transactions are made over secure channels. E-insurance offers a new gateway of
incomes and provides additional market penetration, which is a need of an hour for
Indian Insurance Segment.

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CHAPTER 2

DEFINITION

BENEFIT
PERIOD

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 COST-OF-LIVING
INCREASE IN BENEFITS

INTRO
DU
CTION
TO
DISAB
ILI ONGOING
TRANSITION TY COVERAGE
BENEFITS INSUR
AN
CE
WAITING
PERIOD
FINANCIAL
STABILITY

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DISABILITY INCOME INSURANCE: AN INTRODUCTION

Most people insure their material possessions—their homes and cars, for example. But
many of these same people don't insure what is probably their most valuable asset —
their ability to work and earn income. If one becomes sick or are injured and can't work,
will he be able to pay his bills and maintain his standard of living? If he depends on his
income to pay the bills, then he needs to seriously consider buying disability income
insurance. Disability income insurance can help one pay his bills by replacing a portion
of his income. It can help him maintain his current lifestyle and help protect him and his
family from going into serious debt.

His chances of being disabled at some time during his working career are probably
higher than he thinks. According to the Social Security Administration's Disability
Benefits brochure, "Studies show that a 20-year-old worker has a 3-in-10 chance of
becoming disabled before reaching retirement age". Of course, the chances that any
one individual will be disabled before retirement depends on many factors, including
age, general health, and occupation.

DEFINITION OF DISABILITY

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Some policies pay benefits if you are unable to perform the customary duties of your
own occupation. Others pay only if you are unable to perform any job suitable for your
education and experience. Some policies define disability in terms of your own
occupation for an initial period of two or three years and then continue to pay benefits
only if you are unable to perform any occupation. "Own occupation" policies are more
desirable, but more expensive.

Disability insurance, often called disability income insurance, is a form of insurance

that insures the beneficiary's earned income against the risk that disability will make
working (and therefore earning) impossible. In other words, it answers the question,
"How would I pay for my living expenses if I became unable to work?"

 BENEFIT PERIOD

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The benefit period is the amount of time you will receive monthly benefits during your
life. Experts usually recommend that the policy you buy pay you benefits until at least
age 65, at which point Social Security disability will take over. If you are young, you may
consider buying a policy offering lifetime benefits because it will still be relatively
inexpensive.

A policy that will replace from 60 percent to 70 percent of your total taxable earnings

A higher replacement percentage, if available, is more expensive. Evaluate your other

sources of income before deciding how much disability coverage you need.

Coverage for disability resulting from either accidental injury or illness

An accident-only policy is less expensive but does not provide adequate protection.
Ideally, both accident and illness coverage should be purchased.

 COST-OF-LIVING INCREASE IN BENEFITS

You are buying a policy today that may not pay benefits for a decade or more. Should
you need those benefits, you will want them to have kept pace with increases in the cost
of living. (Some companies also offer "indexed" benefits, keeping pace with inflation
after benefit payments begin.)

A policy paying "residual" or partial benefits

This type of policy is available so that you can work part-time and still receive a benefit
making up for lost income. A standard feature in some policies, and added by a rider to
others, a residual benefits policy pays partial benefits based on loss of income without
an initial period of total disability.

 TRANSITION BENEFITS

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Offered by some companies, it can offset financial loss during a post-disability period of
rebuilding a business or professional practice.

 ONGOING COVERAGE

A non-cancelable policy which will continue in force as long as the premiums are paid;
neither the benefit nor the premium can change. A guaranteed renewable policy keeps
the same benefits but may cost more over time since the insurer can increase the
premium if it is increased for an entire class of policyholders.

 FINANCIAL STABILITY

Check the financial ratings of an insurer. Your insurance agent or company

representative should provide this information or check with the following companies,
which rate insurance company strength:

 WAITING PERIOD

Every disability policy imposes a waiting period, also known as the elimination period.
This is the n umber of days you must be disabled before receiving benefits. If you are
disabled during the elimination period, you will not receive any benefits, even though
you are not able to work. If the elimination period is short, such as 30 or 60 days, the
premium will be higher. A longer elimination period may strain your finances more when
you need it, but you will be charged a lower premium. Most experts recommend that
you select an elimination period of 60 to 90 days. The first check is usually paid 30 days
after the waiting period.

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 CHAPTER 3

CAUSES Page STATISTICS

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 DISABILITY
INSURANCE

CAUSES OF DISABILITY

Many professionals and business people think they're "exempt" from the possibility of
becoming disabled. The following list of actual claimants is taken from a major
insurance carrier's disability files. What could prevent you from working?

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CAUSE OF DISABILITY AGE OCCUPATION
Acute Myocardial Infarction 42 President-Executive
Cervical and Lumbar Back Sprain 34 Advertising Consultant
Anxiety Disorder, Depression 30 CPA
Neurotic Depression 35 Insurance Broker
Severe Headaches, Anxiety 42 CPA
Coronary Artery Disease 62 Executive - Vice
President
Degenerative Disc Disease 54 Veterinarian
Uncontrolled Diabetes 31 Attorney
Multiple Trauma-Accident 38 President - Construction
Company
Cancer of Lung 48 General Sales Manager
Bipolar Disorder, Manic Depression 38 Director of Advertising
Acute Myocardial Infarction, Acute 51 Attorney
Encephalopathy
Coronary Artery Disease, Acute Myocardial 55 Accountant
Infarction, Angina
Cerebral Aneurysm 55 Psychiatrist
2 Lumbar Laminectomies 42 ER Physician
Severe Coronary Artery Disease 58 Ophthalmologist
Degenerative Disc Disease 59 Manufacturer's
Representative
Carcinoma Lung 60 Orthopedic Surgeon
Lou Gehrig's Disease (ALS) 36 Dentist
Lumbar Nerve Root Irritation 55 Orthopedic Surgeon
Alzheimer's Disease 58 Pathologist

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Brain Tumor 48 Medical Doctor
Multiple Sclerosis 58 Vice President
Left Brachial Plexus Compression Syndrome 34 Dentist
Parkinson's Disease 62 CPA
Acute Myocardial Infarction 45 Owner / Manager
Myocardial Infarction, Coronary Artery Disease 62 OB/Gyn
Pancreatitis, Neuropathy, Diabetes, Angina 52 Pediatrician
Fracture, Elbow-Radial Head and Neck 55 General Surgeon
Parkinson's Disease 59 Vascular Surgeon
Multiple Sclerosis 37 ER Physician
Peripheral Myelopathy 30 Dentist
Arteriosclerotic Heart Disease, Angina 44 Thoracic Surgeon
Malignant Fibrous Histiocytoma 48 Plastic Surgeon
Crohn's Disease 43 Surgeon
Obstructed Right Lateral Ventricle, Seizures 31 Orthopedic Surgeon
Post Traumatic Stress Disorder, Panic Disorder 54 Neurosurgeon

DISABILITY INSURANCE STATISTICS

WHAT ARE THE ODDS OF A DISABLING INJURY OR ILLNESS?

Many people probably insure their home, car and other personal assets. But what about
the income that provides those assets? Many of them might be surprised to learn what
poses the greatest threat to most people during the course of one year.

Consider these statistics:

Odd for risks Covered by Insurance

1 out of 5 That your auto will be damaged in an accident
1 out of 21 That you will have a disabling accident
1 out of 96 That you will have a fire
1 out of 114 That you will die

Did you know: During the course of one’s career, one may be three and a half times
more likely to be injured and need disability coverage then one is to die and need life
insurance?

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Did you know: Approximately 30% of all people ages 35 to 65 will suffer a disability
for at least 90 days, and about one in seven can expect to become disabled for five
years or more.

WHAT IS THE LIKELIHOOD OF DISABILITY?

One of the biggest myths about disability is that it doesn’t happen to younger people.
See the chart below showing the odds of having a long term disability (one lasting more
than 90 days before age 65) along with average duration of disability.

LIKELIHOOD OF DISABILITY BEFORE AGE 65 AT DIFFERENT AGES

Your Age Likelihood of long term disability Average Duration

30 1 in 3 32 months

40 3 in 10 42 months

50 5 in 22 50 months

60 1 in 10 54 months

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PLANNING A LONG VACATION?

Probably plan ahead, even for a short vacation. But, one may not have planned ahead
for an unexpected "vacation"...a long-term disability. The conditions listed below could
leave one person unable to work for a month, six months, or even longer.

Conditions Causing Limitation Number(in Percent of

thousands) All
Conditions
Heart Disease 7,932 13.0
Deformities, orthopedic impairments & disorders of the 7,672 12.6
spine or back
Osteoarthritis and allied disorder 5,048 8.3
Orthopedic impairment of lower extremity 2,817 4.6
Asthma 2,592 4.2
Diabetes 2,569 4.2
Mental Disorders 2,035 3.0
Cancer 1,342 2.2

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Age Number of Disabilities Number of Deaths Disability vs.
per 1000 Lives* per 1000 Lives* Death Ratio
27 5.17 1.46 3.54 to 1
32 5.36 1.64 3.27 to 1
37 7.45 2.14 3.48 to 1
42 10.22 3.22 3.17 to 1
47 13.93 4.68 2.98 to 1
52 17.52 6.82 2.57 to 1
57 23.02 10.23 2.25 to 1

And it can last for years

Most likely, one realizes the need for life insurance –if one knows he is going to die, and
planning for the well being of your family upon the event of one’s death is not often
questioned. Planning for a disability shouldn’t be any different. Especially since the
chance of becoming disabled before age 65 is greater than one’s chance of dying.

DISABILITY PLAYS NO FAVORITES

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With Disability Income Insurance one can feel secure in knowing that a person is
protected from the most valuable asset – your ability to work and earn an income. Avoid
the financial strain even a short-term disability can cause when a person is sick or hurt
to work.

The causes of disability may surprise everyone! Here is a breakdown (by percentage of
claims) of some typical reasons an individual may become disabled:

48% of all home foreclosures are the result of disability, while only 3% of all
foreclosures result from death

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DISABILITY INSURANCE FACTS

1. Someone who is 35 years old has a 50% chance of disability for 90 days or more
before they turn 65.

2. People in India are better prepared financially in case of death (usually with life
insurance) than if they get disabled, even though the chances are at least three
to five times greater (depending on age) that a disability will occur.

3. Upwards of 375,000 Indians become totally disabled every year.

4. Approximately one out of seven people who are between the ages 35–65 can
expect to become disabled for five years or longer.

5. Almost 30 percent of the people who are between the ages 35 and 65 will
experience a disability that lasts at least 90 days during their working careers.

6. About 110 million Indians do not have long term disability insurance.

7. About 8 million adults have some disability that limits or prevents them from
working.

8. 46 percent of all foreclosures on conventional mortgages are brought about by a

disability. Approximately 2 percent are caused by the death of the homeowner.

9. Benefits from an employer plan are taxable. Individual policies, purchased as an

individual pay benefits free of income tax.

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10. Most people, no matter their income, spend 65 percent to 75 percent of their
cash flow. In thinking about this, this means a person should aim toward securing
as much disability income insurance they can toward the goal of replacing such
income.

11. If you put away 10 percent of your income each year, then simple arithmetic says
that one year of being totally disabled could wipe out the 10 years of principal
that you put into your savings.

12. How good is social security disability income? Anyone at any income level can
apply for Social Security Disability Insurance but one requirement is that you
have to have worked at least 10 years before becoming disabled.

13. The most common chronic conditions listed for limitation on working are back
disorders (21 percent), followed by heart disease and arthritis.

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 CHAPTER 4

TYPES OF DISABILITY
INSURANCE
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 LONG TERM SHORT TERM

DISABILITY INSURANCE DISABILITY INSURANCE

INDIVIDUAL
GROUP
DISABILITY INSURANCE
DISABILITY INSURANCE

DISABILITY BUY-OUT INSURANCE

TYPES OF DISABILITY INSURANCE:

 LONG TERM DISABILITY INSURANCE:

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 Provides monthly benefits for employees who are totally or partially disabled by a
covered injury or illness.
• Benefit periods of 2 years, 5 years and to age 65
• Elimination periods from 30 days to 2 years
• Coverage up to 70% of income
• "Own Occupation" definition of disability plans available

There are basically two types of long term disability insurance:

• NON-CANCELABLE LONG TERM DISABILITY INSURANCE- Under this policy if

one pays required premium at time, then one has extra security that premiums can
never be raised over and above of that shown in the policy document.

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• GUARANTEED RENEWABLE LONG TERM DISABILITY INSURANCE- The
premiums under this policy can be raised only if the change affects an entire class of
policy holders. So guaranteed renewable policies usually cost less than
Noncancelable policies in terms of premium.

Policies other than the above mentioned types are also available. These can be either a
variation or a mix of these two types. Policies that replace a greater percentage of one's
lost salary are more expensive.

Points to Remember before taking Coverage under Long Term Disability

Insurance:

 Before applying for long term disability insurance one must calculate the amount of
alternative income he has. Sometimes employer pay a part (50%-60%) of the
income if an employee becomes disabled and can't work for about 6 months or
more. Also the total income of the family be enough to cover the expenses incurred
by the family. Having diversified sources of income may obviate the need of long
term disability insurance.

 It is of utmost importance to read the plan document carefully before taking cover.
For instance, some policies pay benefits only against injuries that are quite serious.
So one must know the definition of disability offered by the insurer.

 Long term disability insurance is sold through insurance agents as well as directly by
insurance companies. So shopping around before buying is important.

 It is crucial to check whether the company and agent are licensed in the state to
which the insurance seeker belongs. Also one should check the repute and financial
condition of the insurance company.
 SHORT TERM DISABILITY INSURANCE

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 Provides weekly benefits for employees who are totally or partially disabled by a
covered injury, illness, pregnancy or mental disorder.
• Benefit periods up to 52 weeks
• Elimination periods as little as 0 days for an accident and 3 days for an illness
• Coverage up to 70% of income

HOW “LONG” IS SHORT TERM DISABILITY?

There is a simple answer to the question, “How long is short term disability?” from an
insurance perspective. Benefits in the majority of short term insurance contracts are
payable to a maximum of one year. Many short term programs last considerably less,
some for just 13 through 26 weeks. These programs are not typically designed to serve
the function or have the options of long term disability coverage.

Short term disability insurance is sometimes called “cash sickness” coverage or

temporary disability insurance (TDI) because it protects people from a typical injury or
illness that prevents them from performing their occupations for a short period of time,
usually measured in months. This coverage was not created to help you in more serious
situations.

People covered by employer-paid short term disability insurance and/or government

programs should consider matching this insurance with long term protection. Should
you suffer an injury or illness that prevents one from working for years instead of
months, the difference between long term and short term disability insurance will be
graphically displayed with unwelcome results.
 INDIVIDUAL DISABILITY INSURANCE

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An individual disability insurance policy is a disability insurance offered to an individual
who is not enrolled by the employer. Self-employed individuals, who desire disability
coverage, may purchase their own policies on the open market. Premiums and
available benefits for individual coverage vary considerably between different
companies, for individuals in different occupations, and by State and Country. In
general, premiums are higher for policies that provided more monthly benefit, pay the
benefit for a longer period of time, and start payments for benefits more quickly
following a disability. Premiums also tend to be higher for policies that define disability in
broader terms, meaning the policy would pay benefits in a wider variety of
circumstances.

Individual disability insurance is more expensive than group disability insurance. Not
many disability insurance companies offer an individual disability insurance policy to the
public. Due to the expensive underwriting and other medical related costs, the individual
disability insurance is more costly than group disability insurance.

Individual insurance plans can be of the following types:

• INDIVIDUAL DISABILITY INSURANCE GUARANTEED NON CANCELABLE:

Under this type of individual disability insurance plan an applicant's past medical
history, occupation, proof of income is taken into consideration prior to approving
the application form of individual disability insurance policy.

• INDIVIDUAL DISABILITY INSURANCE NON TRADITIONAL DISABILITY POLICY:

This type of individual disability insurance is meant for those who are not
registered with the Worker's compensation.
The Individual disability insurance non traditional disability policy was launched in 1934.
Individual disability insurance non traditional disability policy has undergone several
changes for the good of the people.

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Individual disability insurance non traditional disability policy does not cover benefit
coverage for certain diseases like stress, depression, fatigue, excessive burn out,
nervous and mental ailments, anxiety.
Applicants of Individual disability insurance non traditional disability policy buy this for
availing tax benefits also.
Individual disability insurance non traditional disability policy is more expensive than a
group disability insurance policy due to the under mentioned reasons:

• Under Individual disability insurance non traditional disability policy, each risk
needs to be separately underwritten. The cost involved in underwriting each risk is
very expensive. The cost of each risk being underwritten gives little scope to the
applicant to avail of too many options.

Individual disability insurance is more expensive. The reason being that the cost of
billing premium, for those disability insurance policy holders under one contract is easier
and less time taking.

Premium of individual disability insurance is level under during the entire term of the
policy.
• Individual disability insurance policy holders are in an advantageous position
regarding the portability of the Individual disability insurance.
In case the employee or the individual wants to go for a large number of jobs. Portability
of Individual disability insurance policy is a very big advantage.
• A part time or a contract worker can be insured under an Individual disability
insurance policy.

In case of Individual disability insurance there is less restriction for the eligibility criteria
for availing an Individual disability insurance.
 GROUP DISABILITY INSURANCE

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DEFINITION - The most common definition we see is a "modified" own-occupation for
the first two years of a claim, then a change to the restrictive "gainful" occupation
definition for the rest of the benefit period.

PORTABILITY - It is extremely rare to find a group LTD policy you can take with you
should you change employers, or become self-employed. Most LTD contracts are not
portable, and do not fall under any regulations.

TAXABILITY OF BENEFITS - If your company pays the premiums for the LTD
coverage, if you go on claim the benefits are taxed as ordinary income to you. That 60%
benefit is truly much less after you pay taxes on it

RESIDUAL/PARTIAL BENEFITS - Some group LTD plans make no provisions for

partial coverage; some pay partial benefits for up to 2 years, and very few have
extended partial benefits to 65.

MENTAL & NERVOUS RESTRICTIONS - Group plans typically limit claims paid for any
mental and nervous disability to 2 years. Many will also limit claims paid for drug and
alcohol abuse to one year.

MONTHLY MAXIMUMS - Every group plan has a monthly maximum benefit. Two of the
most common maximums are $5,000 and $10,000. A group LTD policy will typically pay
60% of base salary to a monthly maximum of 5K / 10K a month.

COVERED INCOME - Many group LTD plans only cover base salary, and leave out
commissions and bonus income. Anybody in sales, or who depends on bonus money
for a portion of their income has even less LTD coverage than they think.

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 DISABILITY BUY-OUT INSURANCE

Statistically, a person is up to ten times more likely to become disabled than they are to
die. In the case of businesses and their owners, this means that is especially important
to insure against one owner becoming disabled and unable to continue running the
business. A disability buy-out insurance policy enables either the remaining owners, or
the business entity itself, to buy-out the disabled owner's share of the business at an
agreeable price.

THE BENEFITS OF DISABILITY BUY-OUT INSURANCE

Disability buy-out insurance provides benefits for all parties.

• The disabled owner is guaranteed a buyer willing to pay a reasonable price for their
share of the business. Because a formula is already put in place to determine a
reasonable price, it also negates the need for litigation or for negotiation on the
price. Furthermore, it enables the individual to concentrate on recovering from illness
or injury without the added concerns of running the business or finding a suitable
buyer.
• The remaining owners are enabled to purchase the shares in their business without
having to seek an outside investor. This ensures that they are able to continue in the
normal operation of the company without having to relinquish any control. Continuity

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 in daily operations is guaranteed and the remaining owners are provided with
adequate funding to buy out the disabled partner.
• The business itself would normally continue to pay the disabled partner an income,
or return on their investment. This financial drain can cause serious problems for the
remaining partners, especially, who will need to pick up the pace to meet the
increased demands. With a buy-out policy in place, this does not have to be the
case because the insurance is used to cover against this liability.

 NATIONAL SOCIAL INSURANCE PROGRAMS

In most developed countries, the single most important form of disability insurance is
that provided by the national government for all citizens. For example, the UK's version
is part of the National Insurance; the U.S.'s version is Social Security (SS)—specifically,
several parts of SS including Social Security Disability Insurance (SSDI) and
Supplemental Security Income (SSI). These programs provide a floor beneath all the
other piecemeal forms of disability insurance in our societies. In other words, they are
the safety net that catches everyone who was either (a) otherwise uninsured or (b)
otherwise underinsured. As such, they are very large, very important programs, with
many beneficiaries. The general theory of the benefit formula is that the benefit is not
large but is enough to prevent abject poverty.

 WORKERS' COMPENSATION
Workers' compensation (also known by variations of that name, e.g., workman's comp,
workmen's comp, worker's comp, compo) offers payments to employees who are
(usually temporarily, rarely permanently) unable to work because of a job-related injury.
However, workers' compensation is in fact more than just income insurance, because it
may pay compensation for economic loss (past and future), reimbursement or payment
of medical and like expenses (functioning in this case as a form of health insurance),

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general damages for pain and suffering, and benefits payable to the dependents of
workers killed during employment (functioning in this case as a form of life insurance).

 OTHER
These policies offer payments to employees who are (usually temporarily, rarely
permanently) unable to work because of any injury or illness, even if it is not job-related.
Unlike workers' compensation, this coverage may not involve any aspect of health
insurance, life insurance, or payments for pain and suffering. Similarly to most
employer-supplied health insurance, these plans are essentially just open-market plans
with the advantage of a negotiated group rate. That is, they are similar to what an
individual would buy, but they are purchased with a volume discount. Another general
fact about them is that they tend to offer rather basic, low-end coverage, essentially
because most people balk at paying for anything more. Sometimes each employee has
the option to buy upgraded coverage if they are willing to pay for it.

 VETERANS' BENEFITS

The various kinds of compensation and insurance that are provided to military veterans
by organizations such as the U.S. Department of Veterans Affairs (VA) are very much
analogous to workers' compensation, with soldiers, sailors, and marines being the
analogues of the worker. In both cases, the overall compensation system involves more
than just one type of insurance, but rather encompasses health insurance, disability
income insurance, life insurance, and even mortgage insurance on VA mortgages. The
scope of each of these is limited. For example, the life insurance aspect is limited only
to paying (rather small) survivors' benefits to survivors of veterans killed in the course of
their service; it is not a general term life policy.

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CHAPTER 5

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40
WILL EMPLOYER
PROVIDE HOW CAN ONE
DISABILITY SAVE MONEY?
COVERAGE?

PREMIUMS DETERMINED IN
DISABILITY INSURANCE

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41
HOW ARE DISABILITY PREMIUMS DETERMINED?

Disability premiums are based on one’s age, sex, occupation and the amount of
potential lost income that a person is trying to protect. In general, the lower the chance
that the occupation puts a person in harm’s way, the lower the premium. The higher the
chance of injury, the bigger the premium. So, for instance, an accountant working in an
office would have much lower disability premiums than a construction worker.

 How can one save money?

There are two ways to keep the cost of disability insurance down:

» Electing a longer waiting period before benefits begin

If a person has enough resources to cover expenses during the first three months of
disability, the premium will be lower than with coverage that starts after 30 days.

» Electing a shorter benefit period

In this case, benefits are payable to age 65—the age at which one would normally retire
—instead of for a lifetime. However, choosing a benefit period of two-to-five years,
ending before normal retirement age, could be penny-wise and pound-foolish. He might
save money on premiums, but he could be without coverage when you need it most.
Disability of long duration poses the greatest financial hardship.

 Will employer provide disability coverage?

Most employers offer some kind of disability insurance, but one should find out exactly
what the employer offers before one has to file a claim. Most allow some short-term sick
leave, which might last from a few days to as much as six months. In some cases, the
employer requires to provide disability benefits for up to 26 weeks.

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42
So the employee needs to check with his benefits department to see if he is covered
and if so, how long he must wait before benefits begin and how long payments will last
while he is still disabled. Also, ask if the employer’s disability plan takes other disability
programs, such as Social Security, into account when calculating your disability pay.

No laws require employers to offer long-term disability (LTD) coverage, but about half of
large and mid-sized employers offer it to their workers. Typical group long-term disability
benefits replace about 60 percent of the worker’s usual salary. These benefits usually
start when short-term benefits are exhausted and continue from five years to life.
Usually, group long-term disability insurance is fully paid for by employers, with no
contribution expected from employees. When you receive employer-paid disability
income, you must pay federal and state income tax on the benefits, unless your
company pays it for you.

DISABILITY INSURANCE COST

Disability insurance cost is the cost which one has to bear for buying or availing a
disability insurance. Disability insurance cost varies depending upon the type of
disability insurance opted for.

One should not compromise with the disability insurance cost. The reason being a
disability insurance can be of immense help in the event when one falls sick and is out
of job due to an injury, which is not related to work.

In case of group disability insurance the employer usually pays the amount needed to
pay premium. The employees usually are not required to pay.

If however the norm of a company desires so, a very small fraction is required to be
paid by the employee.

Not compromising with the disability insurance cost does not necessarily mean that one
has to accept whatever the disability insurance provider quotes. There are several
factors to be kept in mind while calculating the disability insurance cost.

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One should opt for group disability insurance than an individual disability insurance
policy.

Group disability insurance cost is much less than an individual disability insurance cost.
Although the group disability insurance cost is less but group disability insurance policy
offers much less benefit and flexibility.

One has to find out from the disability insurance agent which policy suits him the best.

In the event when a group disability insurance policy cannot be availed of, one may
adopt of the following measures to enroll oneself with an individual disability insurance
policy.

 Reducing the disability insurance cost:

The individual disability insurance cost can be reduced in the following manner.

» One can reduce ones monthly benefit offered by the disability insurance provider in
the event of sickness or injury leading to disability.

» In order to lower disability insurance cost one can increase the waiting period prior to
the disability insurance policy which becomes equivalent to a short term disability
insurance policy.

 Waiting period can vary widely. A waiting period can range from a year to many
years.

If one plans to increase the waiting period to lower the disability insurance cost one
should be prepared with sufficient money in the event of an emergency arising out of
disability.

» A disability insurance policy holder can also find out if the disability insurance policy
being held includes any coverage which is optional or facultative.

 To lower the disability insurance cost one can do without the optional coverages.

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» To lower the disability insurance cost, one should cut the benefit period short. This
method of lowering the disability insurance cost may not be very much advisable.
The risk lies in the fact that the benefit one is availing for disability may cease to
exist even before the disability gets over.

An individual intending to buy a disability insurance policy should weigh the advantages
and disadvantages before deciding upon lowering the disability insurance cost.

There are people who feel that buying a disability insurance policy is of no use and
there are yet others who tend to buy policies with disability insurance cost on the lower
side.

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Page
46
CHAPTER 6

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47
 CLAIMS
IN
DISABILITY INSURANCE

DISABILITY INSURANCE
ATTORNEY

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DISABILITY INSURANCE CLAIM

Disability insurance claim can be simple or difficult depending upon the extent of
damage. Almost 86% of the disability insurance claims are caused by illness. Almost all
private employee benefit plans are regulated and enforced under the law by Employee
Retirement Income Security Act (ERISA) of 1974. Claims arising from group plans or
employer provided disability plans are governed by ERISA whereas State Law is applied
for settling claims in private individual disability plans.

ASKING FOR DISABILITY INSURANCE CLAIM:

Disability is a physical or mental impairment (temporary or permanent) that prevents one

from working efficiently in the particular occupation he is involved. There are three
different definitions of disability:

» OWN OCCUPATION- The person is unable to perform the important duties related to
his own occupation.

» MODIFIED OWN OCCUPATION- The person is unable to perform the

important duties and on top of that he is refraining from his work.

» ANY OCCUPATION- This disability renders the person unsuitable for any
occupation where otherwise the person may find worth according to his education
and experience.

The HIAA Source Book of Health Insurance depicts 'back problems' as the major reason
for asserting disability insurance claim. Surprisingly the second major reason for
claiming benefit is psychiatric and emotional disorders. This might occur because one
saw his 10 year old child going through chemotherapy or due to a tense situation at

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office or home. A claim depends on the type of coverage on has bought. Another factor
is the type of disability i.e. whether the disability is partial, full or residual. One just has to
complete a form and return it to the insurance company. One portion of these forms is to
be filled by the physician treating the disabled. In case of a group plan an employer also
has certain obligations. The claim must be substituted within a specified period of time
(30 days) of being disabled. In case of short term disability insurance plans one must be
disabled for at least 8 consecutive days and must either be employed or seeking job in
an active manner.

POINTS TO REMEMBER BEFORE FILING DISABILITY INSURANCE CLAIM:

 First things first. One must understand the precise definition of disability in his policy
to determine whether his condition qualifies for benefits.

 Most disability policies require one to be under the care of a doctor. So it is

mandatory that the doctor treating the disabled confirms and explains the problem in
writing.

 The answers given in the disability insurance claim form must be true to the
maximum extent. An unsure question must be marked unsure. In case an answer
contradicts the medical record that the insurer will obtain, the insured must have a
comprehensive explanation for that.

 Almost all disability policies incorporate an elimination period. An elimination period is

the period of time one remains disabled before receiving benefits. So one must
arrange for enough money to meet usual expenses.

 A disability insurance claim must be filed as soon as one discovers his disability. A
failure to do so can lead to the insurance provider denying the claim.

 Under no circumstances should the insured give up his rights. An offer to

compromise by accepting less can lead to worse consequences.

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 Under an own occupation policy, one can collect benefits if he can no more continue
his own job but can get employed in another kind of job.

 Insurance companies can videotape a person who has filed a disability insurance
claim to record him doing something that he claims he is unable to do.

 One must not keep any stone unturned in understanding the policy and disability
insurance claims. So he must not bother asking questions that look stupid.

DISABILITY INSURANCE ATTORNEY

Disability insurance attorney refers to the law firms or lawyers who negotiate the
settlement or handle the litigations of disabled professionals or corporate executives.
Insurance companies have multiple reasons for delaying and denying the claims of
disability insurance beneficiaries. Someone can also contact a disability insurance
attorney if he is interested in a lump-sum buy-out of his disability policy.

APPLICABILITY OF DISABILITY INSURANCE ATTORNEY:

The insurer and the insured enter into a contract while buying a disability insurance
policy. The insurance company promises pays to (usually partially) cover the lost wage
if the insured gets disabled according to the terms of disability income policy. The
insurer's failure to cover the loss is a breach of contract. This generally happens mostly
in the case of physiological and psychological ailments when the claimant has suffered
an illness or an injury which involves only subjective symptoms and is hard to diagnose.
Many people give up after the denial of their claim. Disability insurance attorney are law
firms which provides the harassed persons options to file a lawsuit against the
insurance provider. Nowadays disability insurance attorney also has alternatives
whereby the law firm enters into a communication with the insurer and gets the claim re-
evaluated. These services are available both for short and long term disability plans.

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CHECK OUT MORE BEFORE AVAILING DISABILITY INSURANCE ATTORNEY
SERVICE:

 Short and long term disability plans are usually governed by Employee Retirement
Income Security Act (ERISA). One has a full range of rights when ERISA applies but
there are many hidden dangers also. For instance a review becomes impossible if
an ERISA appeal is unsuccessful and a lawsuit is necessary. Many lawyers do not
understand ERISA. So it is utmost important that previous success rate is examined
to avoid further litigation.
 Choosing a law firm having good repute pays because insurance companies respect
good law firm's abilities and are almost submissive from the beginning.

Many disability insurance attorney law firms don't charge any attorney fees unless they
can work out a successful recovery for clients. Choosing such a firm can prevent an
additional pecuniary loss if the claim fails.

Therefore choosing to use disability insurance attorney to get back the claim is always a
rational decision but care must be executed.

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CHAPTER 7

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53
 DISABILITY INSURANCE
IN
WESTERN COUNTRIES

DOCTOR
DISABILITY
INSURANCE

RETIREMENT PROTECTION
DISABILITY INSURANCE

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Disability Insurance has been a huge success in Western Countries especially in
countries like U.S.A & U.K. There people have understood the importance of getting a
disability insurance and hence the policies sells like a hot cake over there. Many
insurance companies such as MetLife Insurance Company, Prudential financial, New
York Life & Abbott Insurance Agency have come up with innovative schemes in
Disability Insurance which has made sure that they have helped Hundreds of people in
hundred different ways.

For an Insurance company its important to know what type of a cover does a person
needs to exactly want and they have to set up plans accordingly. In America, surveys
and reports have shown that people face a most crunch situation when the earning
person himself gets ill or disabled leaving his entire family into disarray. Studies have
shown most of the homes in America gets foreclosures due to disability and not much
due to death.

So it was imperative for the Western Society to understand the fact that disability cover
ought to be there. The Government has also been supportive for the same and there
are schemes in which the employer himself insures his employees, in certain cases it is
mandatory as well. Most employers offer some kind of disability insurance, but you
should find out exactly what your employer offers before you have to file a claim. Most
allow some short-term sick leave, which might last from a few days to as much as six
months. In some states, such as Hawaii, New Jersey, New York and Rhode Island, state
law requires employers to provide disability benefits for up to 26 weeks.

There has been lot of innovative ideas that has been introduced in Western Countries I
would like to highlight some of the innovative insurance schemes.

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DOCTOR DISABILITY

MEDICAL STUDENT DISABILITY INSURANCE

Could one continue to support his family and pay his bills if he were unable to work for
any length of time because of illness or injury? If one were to become disabled, do you
know how much money would be coming in each month and from what sources?

Some people hope that group disability coverage provided by their employers,
government disability income programs or worker's compensation will cover them. But,
for many physicians and dentists, a disability that stops their paycheck would leave
them - and their families - in financial hardship. Individual disability income insurance is
designed to replace a significant portion of income lost when illness or injury prevents
the policyholder from earning a living. It is designed to help pay ongoing bills while the
policyholder is recuperating and unable to do his or her job.

Last year the Association of American Medical Colleges (AAMC) said that schools
should require disability insurance for all medical students and provide access to
policies. Medical students are particularly vulnerable to the financial hardships that may
result from a disability. Medical student disability insurance protects students from
possible fiscal disaster and is also a prudent investment. Purchasing a policy while still
in medical school presents tremendous advantages that can save students money after
graduation and provide the peace of mind necessary to focus on the demands of a
career in medicine.

Most medical students do not generate income while in school, but instead accumulate
debt at staggering rates. In 2005, medical school graduates who took out loans started
their residencies with an average debt of $100,000, a figure that does not include

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undergraduate debt. Only the expected future income from a career in medicine makes
such exorbitant debt palatable; however, a student that suffers a disability may never
realize that income. According to the 1994 Statistical Abstract of the United States, in
the course of a year, 1 in 10 people between the ages of 25 and 64 will suffer a
disability. When comparing that ratio to the odds of being victim of a house fire (1 in
122); injured in an automobile accident (1 in 160); or even of death (1 in 117), the value
and protection offered by medical student disability insurance is clear.

A student who suffers a disability and is unable to complete their education will be
saddled with student loan debt and may not be able to work in any field depending on
the disability and its severity. Repayment of student loans combined with medical
expenses and lack of income due to disability can destroy a financial future. Even a
student that is able to continue medical school could face the burden of simultaneously
repaying loans and paying tuition.

Advantages of purchasing a medical student disability policy:

• Rates are based on age – the younger a person when the policy is purchased, the
less expensive it will be.
• A person’s health status effects eligibility and premiums - obtaining insurance at a
younger age may protect the policyholder from the difficulties of securing a policy
later in life when other health issues may affect insurability.
• Medical students can purchase up to $2,100/month of benefit
• The policy benefit can be increased in the future regardless of health status.

The Liaison Committee on Medical Education (LCME) is the sole accrediting authority
for medical education programs leading to the M.D. degree in the United States.
Accreditation standard MS-28 states, “all students must have access to disability
insurance.” Simply allowing access to disability insurance—a minimal requirement
placed on accredited medical schools—or even recommending it, is not enough to save
students from the risks of not protecting their future income. In light of the monetary

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investment that students make to medical schools, it should be the responsibility of
each school to promote and educate its students about the benefits, value, and
importance of medical student disability insurance.

RESIDENT PHYSICIAN DISABILITY INSURANCE

Dr. Romans was in her third year of emergency medicine residency when the
unthinkable happened. After a long shift in the ER she left the hospital and on her way
home was rear ended while waiting to make a left turn. The impact pushed her car into
opposing traffic and an oncoming vehicle struck her broadside. The impact caused a
compression in her lower back that six months later still causes her excruciating pain.
“Most days I’m in so much pain that I wonder how I’ll be able to complete my residency,
let alone get a job after graduation”, said Dr. Romans in an interview with Doctor
Disability. Between medical school and undergrad, she is in debt over $130,000 and
because of her injury, can no longer qualify for individual disability coverage.

According to the 1994 Statistical Abstract of the United States, in the course of a year, 1
in 10 people between the ages of 25 and 64 will suffer a disability. When comparing that
ratio to the odds of being victim of a house fire (1 in 122); injured in an automobile
accident (1 in 160); or even of death (1 in 117), the odds of being out of work due to an
injury or illness are very high.

With average salaries that are roughly a quarter that of a physician’s median salary,
resident physicians are treading water until their full income potential is realized.
Insuring the ability to earn that future income with medical resident disability insurance
is crucial, especially as a recent medical school graduate. According to the Association
of American Medical Colleges (AAMC), if medical school tuition continues to increase at
its current rate, the projected median indebtedness for 2007 medical school graduates

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will be over $120,000 for those who went to public school and just shy of $160,000 for
private school attendees. While repayment of Stafford loans may be deferred in a case
of economic hardship, many residents must begin to repay student loans six months
after graduation. Regardless of whether these loans are deferred, an injury or illness to
a medical resident with substantial debt could have debilitating long-term financial
effects.

Many residency programs offer group disability insurance, but these plans can have
major limitations. Group plans can be changed or canceled at any time, and most do not
extend past residency. A physician under one of these plans would have to purchase
disability insurance again after residency—which is still a wise decision—but would
likely miss out on lower premiums that were available as a resident. In addition, by
waiting, any medical conditions that emerged as a resident could make the future
purchase of an individual policy very difficult. Finally, many group plans only offer
coverage for a total disability. If a resident or intern under a plan that only offers total
disability coverage is partially disabled and still able to perform any type of work, the
benefits may not be payable.

The simple solution to protecting future income and eliminating the risk of being unable
to repay student loans is purchasing an individual disability insurance policy. Rates are
based on age and health status, so it is advantageous to purchase a policy sooner
rather than later. A policy purchased by a resident has the flexibility to meet changing
needs of the insured after residency and offers significant financial advantages. Buying
disability insurance at a younger age and while healthy will get a medical resident or
intern the best policy and rate.

There are several features and terms to be aware of when looking for a good disability
insurance policy. The first is an own occupation definition of disability. With own
occupation coverage, if the insured becomes disabled, benefits are still payable even if
he or she is able to gain employment in another profession. Group or individual plans
that are not own occupation specific may only cover total disability and not pay benefits

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if the policyholder is partially disabled or can do other work. For example, Social
Security Disability Insurance (SSDI) only covers total disability and the inability “to
adjust to other work” because of medical conditions. Because the average income of a
physician is notably higher than the income for most other occupations, an own
occupation plan is the only way to protect a resident physician’s true future earning
power.

Choosing a policy that is guaranteed renewable and non-cancelable is also important.

These policies cannot be canceled or altered due to change in health status or age, and
can be renewed at the same premium for as long as the policyholder desires. By
investing in an own occupation policy as a resident physician, the insured can protect
future income while acquiring guaranteed coverage that is locked in at a lower rate.

With flexible premiums and the benefit of longer coverage at a less expensive rate,
there is no reason for a resident physician or intern not to inquire about a disability
insurance policy today. Even group discounts are available when three or more doctors
from a residency program apply.

Doctor Disability offers the following benefits for medical residents:

• Own occupation coverage of up to $3,700 for residents and $5,000 for fellows
• Group discount plans when three or more doctors from your residency program
apply
• Flexible premium plans to fit your budget
• Quotes from the top companies

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RETIREMENT PROTECTION INSURANCE

What would happen to one’s ability to save for retirement if he were hurt or too sick to
work? Most people in this situation, with no income and increased medical bills, are
forced to use their savings to meet everyday living expenses. It’s important to put a
fallback plan in place to ensure that money continues to be put away for one’s
retirement even if he becomes disabled.

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Can you afford a
42% loss to your
retirement
savings?

A permanent
disability could
disrupt your
retirement savings,
as shown here. If
you can't make
contributions to your
retirement plan, your
retirement dreams
may not become
reality.

Retirement Protection Disability Insurance helps you continue saving for retirement in
the event of a disability. If you become disabled, the policy pays a benefit in the amount
of your retirement plans monthly contribution into a special trust. The money in the trust
is invested at your discretion until you reach age 65 and then distributed to help
supplement your retirement income. It is not a pension plan. Rather, it is a program that
provides disability income insurance to ensure your ability to make retirement plan
contributions until the age of 65. The goal: to provide you with close to what you could

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have expected from the retirement plan if you had not become disabled. In addition to
protection for your own retirement, it also makes an excellent benefit for select
employees – or your entire staff.

Retirement Protection Disability Insurance Features:

• Monthly benefits up to $3,800/month

• Coverage can be added to an existing individual or group disability insurance plan to
cover more of your annual income
• Non-cancelable, guaranteed renewable coverage to age 65, which means your
policy cannot be changed or canceled except for non-payment of premiums
• Portable, individually-owned coverage

Tax-free benefits (when premiums are paid by the insured with after-tax dollars;
investment earnings within the Trust are taxable)

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 CHAPTER 8

In India, Insurance has a long history it has increased by leaps & bounds, people in
India have understood the importance of having an insurance policy. But Disability
Insurance is still alien to India. Disability Insurance policies are still not familiar to Indian
people. Though they prefer taking life insurance but they have negated the fact that

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disability insurance is equally important. Disability can come to a person anytime in his
life and that can seriously hamper his earning capacity. I would like to illustrate some of
the real stories and expert opinions about the same.

NEW DELHI: Rahul (name changed) was abandoned at an orphanage in New Delhi
four years back. The reasons are obvious - he is disabled. Hundreds of babies like him
are deserted every year by parents who can make no place in their lives for disabled
children.

In India there are at least four companies that have insurance policies for unborn
children that covers them for disability after birth. But unfortunately, there are few takers.

AGM, New India Assurance Company H P Singh says, "There is a policy that we offer
that protects children against disabilities, but we have sold very few because Indian
parents are very superstitious by nature and they think that by going in for a policy like
this would mean bad luck."

Take New India Assurance Company for example. Their Unborn Child Welfare
Insurance scheme has been around since 1987. But to date, they have hardly sold
more than 200 policies.

The policy offers an insurance of Rs 75,000 for a one time premium of Rs 1,500. And
the policy covers a range of disabilities for new born babies from lung and heart defect
to physical disabilities.

However, parents like Pooja and Pankaj Sharma who have just had baby Ananya are
not convinced that such policies do expectant parents any good.

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"There is such a positive energy all around when you're expecting a baby. The last thing
you need is a policy like this to put that seed of thought in your mind that some thing
might go wrong," says Pankaj Sharma.

Paediatricians are stunned are what they call a typical situation where superstition
prevails over logic especially since treating disability in children runs into lakhs and a
little monetary help would always be welcome. With most parents unable to afford the
expensive medical treatment, it's the children who have to pay the price. To make
matters worse, companies who offer such policies haven't made much of an effort to
market them.

Says Paediatrician A K Gulati, "I think it is ridiculous to say that its bad luck because one
in three live births are disabled children. Also these insurance companies need to
approach doctors instead of parents because hardly any one knows about these
policies"

There are lakhs of children who are born with some kind of disability every year in India.
Their lives could have been much better if their parents had taken out disability
insurance.

But hope of new perfect life inevitably overrides caution. When shopping for coloured
clothes for a baby to come, disability insurance probably seems far too gloomy.

NOVEMBER 12, 2007

When Sunil Kumar Sinha, 34, lost his left hand in an accident, he felt completely
desolate. An engineer by profession, Sinha had got married recently, was planning to
purchase an apartment soon and then there were other financial goals that he wanted
to attain in the years to come. But all seemed lost now.

A sad story that can happen to any of us. In advanced countries, there are support
systems for people like Sinha, either in the form of direct financial assistance or in terms
of identification of opportunities.

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For instance, in New Zealand, if you are above 16 years of age and have been
permanently and severely incapacitated, the government has schemes under the head
of disability allowance and sickness benefits.

However, in India, there is no protection available for such people. Also, with the rising
cost of medical treatment, it is a huge financial hit that one has to incur in case of an
unfortunate event. Thus, it is always prudent to plan for such issues in advance.

In order to plan for your financial support in case of disability you need to look into:

 Cost of medical treatment: First, you should be aware of the insurance cover that
your employer provides for you and your family. If this cover is not enough, you need
to buy additional cover.

Ideally, the total insurance should be to the tune of Rs 300,000 to Rs 500,000 per
head. The expense is also not too much. For a 30-year old, health cover of Rs
300,000 would cost only about Rs 3,000 per year. Of course, the premiums are
higher for older citizens.

It is also important that when you are taking additional cover, mention the existing
cover from your employer in the application form. Most insurance agents may
ask you not to do it or may not even bring up the subject. But this is important
because such hidden facts may allow the insurance company to reject your claim
at the time of need.

 Transfer of other expenses: If your life insurance policies offer premium waiver
benefit, take it. Essentially, these waivers are offered in case you are incapacitated.
Here, the insurance company, on your behalf, will pay for the premiums, either till the
disability continues or the end of the policy term, whichever comes earlier.

The cost of such riders is not very high. For a 30-year old taking a policy of Rs 50
lakh (Rs 5 million) for 20 years, the premium waiver option comes for a mere Rs
490 a year.

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 Compensation: While expenses covered above are useful, they do not help in
running a household. Here too, there are some good policies available. Almost all
policies have a critical illness plan as well as a disability rider.

If you are diagnosed with critical illness like paralysis, stroke, heart attack etc,
you will get the entire assured sum. For a 30-year old, a critical illness policy of
Rs 10 lakh (Rs 1 million) would cost Rs 3,000 a year.

Likewise, with the disability benefit rider with your life insurance, the company
(depending on type of plan) will pay you regular installments. For instance, Reliance
[Get Quote] Life Insurance pays you basic sum assured in ten equal annual
installments.

However, while all these policies sound great, it is important to remember that it is
cheaper to create safety nets through investment rather than insurance plans. So, it
would be great if you can get rid of such insurance policies as you grow older because
the premiums are much higher.

That is, a Rs 10 lakh (Rs 1 million) health cover costs just Rs 3,000 for a 30-year old but
the same policy costs Rs 30,000 for a 55-plus person. It is the same case with other
policies as well. Moreover, it is at this later age where your chances of such illness or
disabilities are higher.

If you plan your finances well, you will be able to knock off the critical illness cover much
before your retirement. Later, if need be, you can get rid of other covers as well. The
idea is to get rid of these covers as soon as possible. This is because you save the
premiums which can be directly used to invest in income generating assets. Also, since
these premiums get higher with age, it becomes particularly difficult to pay them during
retirement years when income is practically zero.

But remember, this can only be achieved if you have planned your finances properly
and amassed enough resources to take care of any contingency.

TO DO LIST:

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Buy insurance of Rs 3 lakh to 5 lakh per person

Opt for the disability rider in a health plan

Get a premium waiver rider in the health plan

Get a critical illness policy

MORTGAGE DISABILITY INSURANCE

Mortgage Disability Insurance is a special type of life insurance policy and is gaining
huge popularity in the Indian mortgage industry. The mortgage disability insurance is a
special type of life insurance policy that guarantees repayment of a mortgage loan in the
event of disability of the person who borrowed the mortgage. Further, the mortgage
lender can also protect his loaned capital through these special type o f insurance
instruments. .

These types of specialized mortgage disability insurance products are of two types, viz

• Private Mortgage Insurance

• Mortgage Insurance Premium

 PRIVATE MORTGAGE INSURANCE - They are mortgage disability

insurance products that protects the borrower from the lender in the event of default
which generally, covers a substantial portion of the capital borrowed. They are
insurance products of private insurance companies.

 MORTGAGE INSURANCE PREMIUM - They are mortgage disability

insurance products that also protects the lender in the event of non-payment due to
disability of the mortgage borrower. This life insurance products are generally
government insurance products.

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The predominant market leaders in organized Indian mortgage industry are housing
finance companies like LIC Housing Finance, HDFC, ICICI Home Finance etc and they
are the main facilitator of mortgage disability insurance in India. This mortgage disability
insurance products comes as a package with mortgage life insurance products as
whole, where the mortgage borrower or the insured is also covered for life. This is the
most popular type of mortgage loan prevalent in India. The government of India, Life
Insurance Corporation of India enjoys complete market leadership in this sector.
The estimated size of the organized mortgage industry in India account only for 25% of
the total housing investment in India. Private financial institutions like, commercial banks
both National and Foreign Banks along with Cooperative banks and other non-banking
financial companies are also registering steady growth since 2000. The Indian mortgage
loan industry is consistently registering 20-50 % growth on year-on-year basis, from the
year 2000 onwards. Much of the success of the growth of this industry in India can be
attributed to the Government of India liberal economic policy promulgated in the early
1990s

The business of mortgage life insurance is mainly concentrated in the urban India only.
This is because the semi-urban or semi-rural India communities are still ignorant and
skeptical about its advantages in owning a house. The main bottlenecks that are
hampering smooth growth of this industry in semi-urban India, are as follows -

• Ignorance amongst masses

• Poor accessibility
• Lengthy processing time
• Elaborate documentation

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CHAPTER 9

CASE STUDY

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NEW INDIA ASSURANCE COMPANY LTD

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New India Assurance is currently the largest Non-Life Insurance Company in India. It is
one of the five Public Sector Insurance Companies in India with its headquarters in
Mumbai.

Previously it was a subsidiary of the General Insurance Corporation of India (GIC). But
as GIC became a reinsurance company as per IRDA Act 1999, all of its four primary
insurance subsidiaries (New India Assurance, United India Insurance, Oriental
Insurance and National Insurance) got autonomy.

New India Assurance has been operating both in India and foreign countries. In the
recent past it has succeeded in forging tie-ups with some of the leading public sector
banks in India such as State Bank of India, Central Bank of India, Corporation Bank and
United Western Bank to increase its distribution network.

HISTORY

Established by Sir Dorab Tata in 1919, New India is the first fully Indian owned
Insurance company in India. New India was a pioneer among the Indian Companies
on various fronts, right from insuring the first domestic airlines in 1946 to satellite
insurance in 1980.

The latest addition to the list of firsts is the insurance of the INSAT-2E.
With a wide range of policies New India has become one of the largest non-life
insurance companies, not only in India, but also in the Afro-Asian region

In 1919 The New India Assurance Company Ltd. was first incorporated in Bombay, now
known as Mumbai in India, initially as composite company for both life and general
insurance business. As of 1956 New India Assurance converted to an Exclusive
General Insurance Company and today it is a leading worldwide general insurance
brand catering to the communities of 27 countries with a large network of offices staffed
by committed and enthusiastic workforce that aims to please.

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New India Assurance Aruba opened her doors to the local community on July 1st,
1963 by initiative of the founder, the late Mr. C.H. Raghunath.
Currently New India Assurance Aruba is directed by the founder’s youngest daughter,
Ms. Joy Raghunath whom together with the entire Team New India strives to maintain
and improve on the proven reliability and sustainability which has been carefully
nurtured for almost half a century.

NEW DEVELOPMENTS

Corporation Bank, a premier government of India Enterprise, has entered in to an

Agreement to-day, i.e. 28th October, 2003 with The New India Assurance Co.Ltd. in
continuation to their Memorandum Understanding signed earlier to provide Non-life
insurance products to its customers. Corporation Bank has been consistently in the
forefront to provide new value added services to its customers. Constant innovation
has been its forte and it has spared no efforts to provide the best of service to its
clientele. It may be recalled that the Bank is already action as Corporate Agent for
Life Insurance corporation of India for life insurance business. At present, the Bank
has 700 branches and 88 extension counters and 555 ATMs across the country.

The New India Assurance Co. Ltd. is the largest Non-life Insurance Company in the
Indian Market and the first Indian Non-life Insurance Company to cross global direct
premium of Rs. 4812.79 crores in Indian and Abroad. The Company has been re-
affirmed 'A' Excellent rating by A.M.Best (Europe) for fourth consecutive year for its
superior capital base, strong presence in domestic market and conservative
investment portfolio. New India's range of 180 products caters to the needs of various
cross section of society, trade, industry and commerce in rural and urban sectors.
Both the Institutions are known for their sound Management Policies and long term
commitments. Corporation Bank envisages vast scope in insurance penetration and
immense potential to boost its revenue income through Corporate Agency.

DISABILITY INSURANCE IN NEW INDIA ASSURANCE

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Like any industry, the industry providing Disability Insurance has it's own unique terms.
The definitions of these terms are general in nature, and may vary by company and/or
state insurance regulations. At New India Assurance Company they have provided
these terms and definitions so that one can make the best choice for his family or
business. Therefore they have provided some glossary of the same.

AVAILABILITY

Generally", individuals 25 to 50 years old employed in blue, gray, and white collar
occupations earning from Rs.60,000 to Rs. 25,00,000 annually. Small business (under
100 employees) owners, managers, and/or employees.

AUTOMATIC BENEFIT INCREASE RIDER

This rider provides for an annual increase equal to 5% of the original Base Policy
Monthly Benefit amount on each anniversary of satisfying the elimination period. The
lifetime cap on Monthly Benefit amounts is two times the original base policy Monthly
Benefit. If the Insured recovers from Total Disability and there was a Monthly Benefit
increase under this rider, the Insured can increase the base policy Monthly Benefit to
the amount of the last Monthly Benefit payment. To obtain the increase, the Insured
must: .be under age 60, .apply within 90 days of the end of Total Disability, and .have a
full-time job. A new premium for the increase will be charged, based on our then current
rates and the Insured’s attained age. The new premium must be paid within 31 days of
the increase.

BUSINESS IN THE HOME

Persons who work at a business in their home are not eligible for disability income
coverage, unless at least 50% of the job duties are performed away from the home.

CATASTROPHIC DISABILITY RIDER

"Generally", available in all Classes to Standard and Substandard.

Issue Ages 18-55 for 1-, 2-, and 5-year Benefit Periods; 56-60 for 1- and 2-year Benefit

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Periods. Generally not available with 30 day elimination periods. This rider will provide
a Disability Benefit if • the Insured’s Total Disability continues beyond the Maximum
Benefit Period of the Policy, and • the Insured requires assistance or supervision with at
least two of six Activities of Daily Living (bathing, toileting, transferring, continence,
eating, dressing), OR • is Cognitively Impaired, and • is not engaged in any job for wage
or profit, and • a Physician has certified the Catastrophic Disability with a plan of
treatment. The rider extends the total Benefit Period payable under the base policy to a
total of 5 or 10 years.

DEFINITION OF TOTAL DISABILITY

The best policy definition of total disability will state that you are unable to work at your
regular occupation because of sickness or injury.

EARNED INCOME

Earned income is the gross income from the applicant’s occupation, including salary,
wages, bonuses, fees and any other compensation received from all sources for work
performed by the applicant. If the applicant is self-employed or owns any part of a
business, earned income is the applicant’s share of income earned by the business,
plus the salary or draw from the business, minus the applicant’s share of business
expenses that are deductible for income tax.

ELIMINATION PERIODS

The number of consecutive days that an Insured must be totally disabled before the
Monthly Disability Benefit amount becomes payable. The Elimination Periods available
are generally 30, 60, 90, 180, and 365 days.

PARTIAL DISABILITY

This provision pays 50% of the Monthly Base Policy Benefit amount for each month of
a Partial Disability from an insured injury or sickness for up to 6 months, when the

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Partial Disability immediately follows a period of Total Disability during which Monthly
Benefits were paid. The combined Total and Partial Disability benefits cannot extend
beyond the Maximum Benefit Period. Partial Disability is a sickness or injury that keeps
the Insured from being employed on a full-time basis.

PREMIUMS

"Generally", level; based on nearest age (age as of nearest birthday), Gender,

Occupational Class, Elimination Period, Monthly Disability Benefit Amount, Benefit
Period, and any Optional Benefits selected.

Hence these are the few ways that New India Assurance finds an individual to qualify in
Disability Insurance policies. They approach a unique way throught which they try to
give maximum coverage to the insured. They study the individual’s salary properly and
then they determine the premium of the individual and at the time of the claims they are
prompt and settle the claims quickly. They have dedicated staff who are at the desk
24/7.

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