102- 6 Disability And Long-Term Care Insurance Flashcards Preview

CFP 2 - Risk, Insurance, Emp. Benefits > 102- 6 Disability And Long-Term Care Insurance > Flashcards

Flashcards in 102- 6 Disability And Long-Term Care Insurance Deck (22)
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Definitions of disability

1. Own occupation:
-the inability to engage in your own occupation. The insured is eligible for benefits if he is unable to perform his own occupation, even if he can still perform some other occupation. Most expensive. Most favorable protection.

2. Modified own occupation:
-the insureds’ inability to engage or perform any occupation for which they are deemed reasonably qualified by education, training, or experience

3. Any occupation:
-eligible for benefits only if he is unable to perform the duties of any occupation. Least expensive.


Social security definition of disability

More restrictive than that of private disability income policy

An individual must suffer from a mental or physical impairment that prevents him from engaging in any substantial gainful employment

The disability must have lasted for 5 months and be expected to last for at least 12 months of result in the death of the individual


Presumptive definition of disability

If the insured has total and permanent blindness in both eyes, loss of speech or hearing in both ears, or loss of hands, both feet or one hand and one foot, he may be presumed to be disabled and qualify for benefits


Residual disability rider

Means that if a disabled worker returns to work at lesser pay, the policy will pay the difference between the former pay and the current pay for the benefit period


Partial disability rider

Occurs when an insured is unable to perform 1 or more important duties of his own occupation but is still unable to perform some duties

The policy will pay a partial benefit, such as 50% of the total benefit


Elimination period

Aka waiting period

The period the insured must wait after becoming disabled before receiving benefits

Essentially works the same as a deductible in health insurance policy

The longer the elimination period, the lower the overall disability policy premium


Benefit Period

The duration for which the disability benefit will be paid

The longer the benefit period, the higher the policy premium


Morbidity rate

The probability of a person becoming disabled


Benefit amount

From a disability income insurance policy- is generally between 50-60% of monthly gross pay


Social insurance substitute

Operates to reduce the disability policy benefit by that amount of social security that the disabled person is eligible to receive

By including this benefit, the policyowner will be able to reduce the policy premium


Future increase option rider

Protects future earnings by allowing the policyowner to increase the potential monthly benefit as the insured gets older and earns more, regardless of any health changes


Disability Insurance Continuation Provisions

1. Noncancelable
-provides greatest amount of security for the insured (at the greatest premium cost)
-the insurance company guarantees the renewal of the policy for a stated period without any increase in stated premiums

2. Guaranteed renewable
-a right to renew is guaranteed, but the insurance company is permitted to increase the premiums if it does the same for an entire class of policyholders

3. Conditionally renewable
-may not be cancelled by the insurance company during the policy term, but the company may refuse to renew the policy for a subsequent term if conditions regarding the insured (such as a decline in health) exist as specified in the policy


Short-term disability

Provides coverage for up to 2 years (24 months)


Long-term disability

Provides coverage until an employee’s normal retirement age (usually age 65), until death, or for a specified term longer than 2 years


Taxation of disability insurance

Employer pays 100% of premium:
-employer receives an immediate tax deduction in the amount of the premium
-employee pays taxes on 100% of the benefit

Individual pays 100% of premium:
-no tax deduction on the premium paid by the individual
-benefit received 100% tax-free by the individual

Split premium:
-employer pays 60% of the premium and the employee pays 40% of the premium
-benefit is 60% taxable and 40% tax-free

For partners or shareholders of more than 2% of an S Corp:
-the partnership of S coronation is permitted to deduct the disability income policy premiums, but the entity must then attribute these premiums as taxable income to the partner or shareholder


Business overhead expense insurance

Aka disability overhead insurance

Designed to cover the expenses that are usual and necessary in the operation of the business should its owner become disabled
Does not cover the owner’s salary

Policy premiums are a deductible business expense to the company but the proceeds are taxable income to the entity


Tax-qualified long-term care policies

Established with the passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA)

If the LTC policy is tax qualified, premiums paid by the policy owner are deductible as medical expenses for itemized deduction purposes, subject to the 10% AGI limitation and up to a dollar limit that depends on the individual’s age

Benefits paid from the qualified LTC insurance plan to an individual are generally excludable from taxable income, subject to a $360 per day limitation in 2018
If an employer pays for LTC insurance, the premiums are tax deductible to the employer and are not taxable income to the employee


Eligibility for LTC Benefits

2 criteria:

A) insured must be chronically ill:
Chronically ill is defined as being unable to perform, without substantial assistance, 2 of 6 activities of daily living (ADLs) for at least 90 days
-transferring from bed to chair
-using the toilet
-maintaining continence

B) Alzheimer’s, strokes, other cause of brain damage


Define Period LTC Approach

The benefit is paid for a defined amount of time (e.g. 1-6 years) following an elimination period (90 days is standard)

Avg nationwide stay in a nursing home: 2.8 years


Pool-of-money LTC approach

The insured is entitled to a specific dollar amount, with the benefit period equal to however long these dollars will last in paying for the care


7 basic types of services covered by the standard LTC policy

1. Skilled nursing care

2. Intermediate nursing care

3. Custodial care

4. Home health care

5. Assisted living

6. Adult day care

7. Hospice care


Partnership long-term care insurance

Bring together state government an private insurance companies, which sell long-term care insurance, with residents who may want to purchase long-term care insurance

Key reason why clients may want to purchase:
It provides a specific dollar amount of assets which would be protected if the client exhausted all of the long-term care insurance benefit and had to apply for Medicaid

Clients can keep the face amount of the policy plus approximately $2,000 in assets and still qualify for Medicaid