Chapter 16 : Disability Income Insurance

Question 1

Any Occupation

Answer 1

A total disability that requires that for disability income benefits to be payable, the insured must be unable to perform any job for which the insured is “reasonably suited by reason of education, training, or experience”

Question 2

Own Occupation

Answer 2

A total disability that requires that in order to receive disability income benefits the insured must be unable to work at the insured’s own occupation

Question 3

Presumptive Disability

Answer 3

A disability income policy benefit that provides that if an insured experiences a specified disability, the insured is presumed to be totally disabled and entitled to the full amount payable

Question 4

Partial Disability

Answer 4

An illness or injury preventing insured from performing at least one or more, but not all, of the insured’s occupational duties

Question 5

Residual Amount Benefit

Answer 5

A disability income payment based on the proportion of income the insured has actually lost

Question 6

Accidental Means

Answer 6

The unforseen, unexpected, unintended cause of an accident

Question 7

Accidental Results

Answer 7

Policies that use the accidental bodily injury provision required that the result of the injury has to be unexpected and accidental.
Far less restrictive than the accidental means provision

Question 8

Elimination period

Answer 8

Period between the beginning of the insured’s disability and the payable benefits.
AKA. Deductible for the disability

Question 9

Social Security Rider

Answer 9

Provides for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun

Question 10

Cost of Living Adjustment Rider

Answer 10

A rider available with some policies that provides for an automatic increase in benefits (typically tied to the consumer price index)

Question 11

Rehabilitation Benefit

Answer 11

Facilitates vocational training to prepare insured for a new occupation.

Question 12

Flat Amount Approach

Answer 12

Specifies a flat income benefit amount that will be paid if the insured becomes totally disabled.
Usually 50% of the full disability benefit.

Question 13

Elective Indemnity Options

Answer 13

Selected when applying for a disability policy.
For short term disability and provide for an optional lump sum payment

Question 14

Total Disability

Answer 14

Insured cannot be engaged in gainful employment or occupation for wages or profit.

Question 15

Pure Loss of Income

Answer 15

AKA Income replacement contracts
Ones earned income must decrease by at least 20%

Question 16

Partial disablity

Answer 16

Flat amount
Maximum 6 months
50% of total disability benefits

Question 17

Presumptive disability

Answer 17

Identifies certain condition that automatically qualify an insured for the total benefit.

Double dismemberment
Total and permanent loss of the following- Loss of sight
Loss of hearing
Loss of speech

Question 18

Delayed Disability

Answer 18

The amount of time allowed is 20, 30, 60, 90

Question 19

Credit Disability

Answer 19

Purchased to help make loan payments if the insured were ever to become disabled.

Question 20

Social Security Disability

Answer 20

The inability to perform any substantial gainful work/any occupation.

You are not able to do the work you did before.
You cannot adjust to the other work.
Your disability will last 1 year or result in death.

40 quarters/10 years
100% of PIA, dependents can receive payments as well.

Question 21

Workers’ Compensation

Answer 21

First coverage when paid, then group disability insurance and other social insurances.

A form of liability insurance that guarantees medical, disability, and survivor benefits for workers harmed by work-related accidents or occupational diseases.
Weekly benefit.
Excluded: Seasonal or casual workers

Question 22

Short Term Disability Insurance

Answer 22

6 months - 2 years

Question 23

Long-term Disability Insurance

Answer 23

2, 5 or up to age 65

Question 24

Elimination Period Timing

Answer 24

30,60,90,180 and 365 days.

Short term disability: 7 or 10 days.

Question 25

Probationary Period

Answer 25

Occurs only once at the policy’s inception
15, 30, 60 days after inception

Question 26

Premium rates are based on? (6)

Answer 26

1. Length of waiting period
2. Monthly income benefit amount
3. Length of the benefit period
4. Age, sex, income and health of applicant
5. Insured’s occupation
6. Whether or not the insured owns other disability income insurance

Question 27

Annually Renewable Disability Income (ARDI)

Answer 27

Lower premium that increases with age.

Question 28

Personal underwriting critiera

Answer 28

1. Age
2. Sex
3. Occupation

Question 29

Disability Income Exclusions: (5)

Answer 29

1. War
2. Self-harm
3. Aviation
4. Military
5. Illegal

Question 30

Impairment Rider

Answer 30

AKA Exclusion Rider
AKA Waiver for impairments
Insurers use this rider to exclude certain losses for coverage, and allows them to cover an applicant for a standard premium.

Question 31

Medical Reimbursement Benefit

Answer 31

AKA Nondisabling injury benefit
Pays up to a specified amount if the insured suffers an injury and no other claim is filed under the policy.
Must provide proof of treatment.

Question 32

Accidental Death and Dismemberment

Answer 32

Catastrophic loss, defined as death, loss of limbs or permanent loss of one or more sense.

Death Benefit = Principal sum

Dismemberment benefit = Capital sum, 50% of principal sum

Multiple indemnity coverage

Question 33

Hospital Confinement Rider

Answer 33

Indemnity Type Rider

An additional benefit is paid over and above the regular monthly disability benefit based on the number of days the insured is confined to a hospital.

6-12 months

Question 34

Lifetime Extension Rider

Answer 34

Extends beyond age 65

Question 35

Social Secuirty Rider

Answer 35

AKA Social Insurance Supplement
AKA Social Insurance Substitute

Pays a monthly benefit whenever worker’s comp denies the claim.

Beneficial for middle-income individuals that might benefit from most SI

Question 36

Additional Monthly Benefit

Answer 36

A short-term benefit that addresses the insured’s needs during the 6-12 months of disability.

May help cover gaps during the 5 month SSDI waiting period.

Question 37

Group Disability Characteristics (4)

Answer 37

1. Natural Group
2. Premiums based on aggregate risk
3. Employer may offer more than one coverage plan
4. Minimum degree of participation to avoid adverse selection

Question 38

Group Short-term Disability Income Plan

Answer 38

13 weeks or 26 weeks
50-100% of income

Question 39

Group Long-term Disability Income Plan

Answer 39

2+ years
50-70%of participant’s income.

Question 40

Business Overhead Expense Policies

Answer 40

Pays a maximum monthly amount rather than a fixed indemnity.

Expenses include:

1. Rent
2. Utilities
3. Telephone and internet
4. Leased equipment
5. Employee wages
6. Cost of hiring someone as temporary replacement

Question 41

Social Security Disability Insurance Taxes

Answer 41

25K individual
32K married

If exceeds above, 50-85% of benefits will become taxable.

Question 42

Workers’ Compensation Taxes

Answer 42

Not subject to state or federal income tax

Exception: if insured receives both worker’s comp and social security benefits.

Question 43

Individual Disabilty Income Insurance Taxes

Answer 43

Premiums non deductible
Benefits not taxable

Question 44

Group Disability Income Insurance Taxes

Answer 44

Employers = premiums paid by employers are tax-deductible

Employees =

1. If employer paid, benefits received are taxable.
2. If employee contributes through a cafeteria plan or pre-tax vehicle, IRS will tax as income.