Core Guidelines for Disability Income Loss Insurance: Multidimensional Definition of Total Disability and Actuarial Logic of Benefit Amount

Section Four: Disability Income Loss Insurance I. Concept of Disability Income Loss Insurance Disability income loss insurance refers to insurance that provides protection against income reduction or interruption for a certain period, based on the condition that the insured's ability to work is lost due to illness or accidental injury as stipulated in the insurance contract. It includes disability income insurance, income loss insurance, and income insurance, and compensates for losses caused by the insured's disability, partial or complete loss of working ability due to illness or accident, resulting in the inability to obtain normal income or a reduction in labor income. It does not cover medical expenses incurred by the insured due to illness or accidental injury. If a person loses their ability to work due to illness or accidental injury, the duration of their disability is uncertain, and the resulting income loss may be total or partial. More seriously, the person who has lost their ability to work will need to rely on the income of other family members to maintain their livelihood, and expenses in some areas may increase significantly. Disability income loss insurance can generally be divided into two categories: one compensates for income loss due to disability caused by illness, and the other compensates for income loss due to disability caused by accidental injury.

II. Definition of Total Disability In disability income insurance, the most crucial aspect is the definition of total disability. The insured can only receive insurance benefits if they meet the definition of total disability. Traditional income protection insurance defines total disability as absolute total disability, requiring the insured to be unable to perform any occupation due to an accident or illness. However, this requirement is too strict. There are several general definitions of total disability: (I) Total Disability in Original Occupation Total disability in original occupation refers to the insured losing the ability to perform their original work. According to this definition, as long as the insured is unable to perform their original occupation due to disability, they can receive the agreed-upon disability income insurance benefits, regardless of whether they are engaged in other income-generating occupations. The definition of total disability in original occupation is the broadest definition of total disability. (II) Currently Commonly Used Definition of Total Disability Most disability income insurance policies in the United States stipulate that if, in the early stages of disability, the insured is unable to perform the basic work of their usual occupation, they can be considered totally disabled and receive total disability income insurance benefits. If the insured is still unable to engage in any occupation commensurate with their education, training, or experience within the agreed period after becoming disabled (usually 2-5 years), they can also be considered totally disabled and receive the corresponding insurance benefits. In other words, an insured who is disabled but engaged in an income-generating occupation cannot be considered totally disabled. (III) Total Disability with Income Loss It defines total disability as the situation where the insured loses income due to disability caused by illness or accidental injury. Specifically, it is divided into two situations: one is that the insured loses the ability to work due to total disability and is unable to engage in any income-generating (or suitable) occupation; the other is that the insured is still able to work, but their income is reduced due to disability. (IV) Presumed Total Disability Income Protection Insurance Policies also make a presumed total disability definition for certain special circumstances. In practice, there are two different definitions of presumed total disability: one refers to the situation when the insurer stipulates a disability assessment period, such as 180 days, in the insurance policy after the insured becomes ill or suffers accidental injury. If the insured does not show any obvious signs of improvement by the end of the disability assessment period, they will be automatically presumed to be totally disabled. The second situation is when the insured suffers a disability condition stipulated in the policy, such as complete and permanent blindness, loss of mobility in any two limbs, loss of speech or hearing, etc. (V) Enumerated Definition of Total Disability These situations typically include the insured experiencing one of the following: (1) Permanent complete blindness in both eyes; (2) Loss of both upper limbs above the wrist joint or both lower limbs above the ankle joint; (3) Loss of one upper limb above the wrist joint and one lower limb above the ankle joint; (4) Permanent complete blindness in one eye and loss of one upper limb above the wrist joint; (5) Permanent complete blindness in one eye and loss of one lower limb above the ankle joint; (6) Permanent complete loss of function of all four limb joints; (7) Permanent complete loss of chewing and swallowing function; (8) Extreme impairment of central nervous system function or abdominal organ function, resulting in lifelong inability to perform any work and requiring assistance from others for all daily activities necessary to maintain life. Disabilities caused by congenital diseases are not covered by income protection insurance.

III. Payment Amount and Method of Disability Income Loss Insurance The insurance benefit provided by disability income loss insurance does not fully compensate the insured for income loss caused by disability. In fact, there is a limit to disability income insurance benefits, which is generally lower than the insured's normal income before disability. (I) Determination of the Insurance Amount For a specific policyholder, when determining the maximum limit, the insurance company requires consideration of the following income of the policyholder: (1) Normal labor income before tax; (2) Non-labor income; (3) Other sources of income during the disability period; (4) The currently applicable income tax rate. (II) Determination of the Payment Amount of Disability Income Loss Insurance Benefit There are two types of payment amounts for disability income loss insurance benefits: fixed amount payment and proportional payment. 1. Personal Disability Income Loss Insurance usually adopts the fixed amount payment method. Fixed amount payment means that the two parties to the insurance contract negotiate and agree on a fixed insurance amount (usually determined by month) based on the insured's income situation when entering into the insurance contract. Under this method, regardless of whether the insured has other sources of income or how much income they have during the disability period, the insurer must pay the insurance benefit according to the contract. 2. Group Disability Income Loss Insurance usually adopts proportional payment. Group Disability Income Loss Insurance usually adopts proportional payment, that is, after the insured event occurs, the insurer pays a certain percentage of the insured's original income based on the degree of disability of the insured. For group long-term income insurance policies, this percentage is usually between 60% and 70%. (III) Payment methods of income protection insurance benefits 1. Lump sum payment If the insured becomes totally disabled due to illness or accidental injury, and the policy stipulates that the insurance benefit is paid in a lump sum, then the insurance company usually pays the insured in a lump sum according to the insurance amount agreed in the contract. 2. Installment payment (1) Monthly or weekly payment. The insurance company starts to pay at the end of the waiting period until the longest payment period. (2) Payment according to the payment period. The payment period is divided into short-term and long-term. Long-term payment usually stipulates that the payment will be made until the insured reaches the age of 60 or retirement age. (3) Payment according to the postponement period. The period following the insured's disability is called the deferral period, typically 90 days or six months, during which the insured is not entitled to any benefits. Setting a deferral period can also reduce insurance costs and better protect those who genuinely need insurance assistance.