Risks Not Covered by the Disability Clause
Since the disability clause is in a more or less experimental stage, many
companies have attempted to confine its use to those policies or those risks
on which a normal mortality experience may be expected. Term insurance furnishes
one of the mooted questions to-day among insurance companies. Even among
those companies which have sold a great number of term policies the fear
has arisen that it may have been a mistake and that the company may suffer
because of the large proportion of term insurance which it carries. As a
probable result of these misgivings the disability clause is often refused
on term policies. If the objection to term insurance is the fear of adverse
selection or of a high mortality as compared with other policies, this objection
is properly corrected in the premium charged; and if the disability clause
is designed to guarantee the permanence of insurance in case of total and
permanent disability, there is as much need for it with term policies as
with any others.
There is, however, a more serious objection to the inclusion of the clause
in term policies. Many of these policies to-day allow renewal at the expiration
of the term at a higher premium, based on the age attained at the time of
renewal; or allow conversion into some other kind of policy requiring a
higher rate of premium, these privileges being granted without a new medical
examination. The presence of a disability clause in a renewable-term policy
may require the company to pay the higher premiums due after renewal, if
disability occurs shortly before the end of the term, and the renewal privilege
is exercised. This objection is likewise easily corrected in the premium
charged for the disability clause. The insured should unquestionably pay
the exact cost of the privilege of releasing him from premium payments.
Convertible term policies offer greater difficulties. Such contracts might,
after disability has occurred, be converted into short-term endowments and
under the guise of relief from premium payments the insured might thus obtain
an endowment at the expense of the company or of the other policyholders.
In this way the insured might convert a term policy with a $10 premium into
a ten-year endowment costing $100 per year, and by the terms of his agreement
compel the company to pay the $100 premiums. This would be equivalent to
obtaining a ten-year endowment without paying for it. The solution of this
difficulty lies, not in refusing to issue the disability clause on term
policies, but in refusing to extend the waiver of premium benefit after
the conversion of the policy.
The main reason for disallowing disability benefits on joint-life policies
as is done by a few companies, seems to be the difficulty of determining
when the premium will be waived or how much of it will be waived, for joint-life
policies comprehend insurance against two or more lives. The question arises,
therefore, whether the premium will be waived in case one insured person
is disabled, or whether both must be disabled in order to obtain this relief.
This problem should offer no difficulties to the actuary., for disability
benefits can be made payable under like circumstances with death benefits.
For instance, the ordinary joint-life policy matures upon the death, of
either insured; the disability benefit could be paid upon the disability
of either insured. But even these actuarial refinements are unnecessary
and it is equally satisfactory, as is done in some cases, to waive one-half
the premium in case of disability of one, or the entire premium in case
both persons are disabled.
Women are ordinarily excluded from the benefits of the disability clause.
Disability is usually so defined as to mean inability to carry on any occupation
for gain or profit, and since women frequently have no such occupation they
are not considered as acceptable risks. Some companies exclude them without
exception, and others make exception only in case of married women and women
Sub-standard lives are assumed to be subject to a higher rate of disability
than normal lives and are therefore often denied the right to disability
benefits. In the absence of any statistical basis to determine the truth
of this assumption the restriction is probably desirable. Persons engaged
in hazardous occupations are unquestionably in a select class that will
show a high rate of disability and are, therefore, often refused the benefits
of the disability clause. Cases of partial impairment sometimes exist, as,
for instance, where a person has lost a hand, a foot, or an eye, and these
are sometimes made reasons for refusing the clause. A better method would
be to make exception of those cases of disability affected by the partial
impairment and allow the clause to operate in all other cases. Few of the
foregoing restrictions appear in the clauses, but the companies give their
medical directors full discretion to exclude the clause from any policy
submitted to them. A number of companies, however, have advertised that
they will make no restrictions whatever and will include the clause in any
policy accepted by them.