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 without occupation.

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.