102- 6 Disability And Long-Term Care Insurance

Question 1

Definitions of disability

Answer 1

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.

Question 2

Social security definition of disability

Answer 2

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

Question 3

Presumptive definition of disability

Answer 3

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

Question 4

Residual disability rider

Answer 4

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

Question 5

Partial disability rider

Answer 5

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

Question 6

Elimination period

Aka waiting period

Answer 6

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

Question 7

Benefit Period

Answer 7

The duration for which the disability benefit will be paid

The longer the benefit period, the higher the policy premium

Question 8

Morbidity rate

Answer 8

The probability of a person becoming disabled

Question 9

Benefit amount

Answer 9

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

Question 10

Social insurance substitute

Answer 10

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

Question 11

Future increase option rider

Answer 11

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

Question 12

Disability Insurance Continuation Provisions

Answer 12

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

Question 13

Short-term disability

Answer 13

Provides coverage for up to 2 years (24 months)

Question 14

Long-term disability

Answer 14

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

Question 15

Taxation of disability insurance

Answer 15

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

Question 16

Business overhead expense insurance

Answer 16

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

Question 17

Tax-qualified long-term care policies

Answer 17

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

Question 18

Eligibility for LTC Benefits

Answer 18

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
-eating
-bathing
-dressing
-transferring from bed to chair
-using the toilet
-maintaining continence

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

Question 19

Define Period LTC Approach

Answer 19

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

Question 20

Pool-of-money LTC approach

Answer 20

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

Question 21

7 basic types of services covered by the standard LTC policy

Answer 21

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

Question 22

Partnership long-term care insurance

Answer 22

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