What is the definition of Relation of Earnings to Insurance Clause?

Relation of Earnings to Insurance Clause refers to a clause that says that the insurance company will pay income benefit amounts that are equal to or approximately equal to the insured person's earning before he was disabled.

It is important to note that insurance is not designed for the insured to benefit from it. It is designed to restore the person to the same standing he used to be prior to the injury or disability.

If an insured person is disabled, he loses income because he is unable to work or find employment that pays the same amount that he used to receive from his previous job. Insurance companies will then pay for income benefits (according to the coverage of the policy). However, its income payments should not exceed the insured person's lost income.

If, for example, a policy states that it will pay $3,000 in monthly income payments in the event of the person's disability, and the insured person's monthly income at the time of the injury is $2,500, the insurance company will just pay $2,500 and will refund the premium for the extra $500 that is not payable.

• Insolvency
• Misstatement of Age or Sex Provision
• Modified Premium Policies
• Moral Hazard
• Comprehensive Coverage