A&S: DISABILITY (till pg 49?) Flashcards
Insurance needs pyramid (LCDLI)
TOP(least important) TO BOTTOM (most important):
- LTC
- CI
- DI
- LI
DISABILITY: capitalization of income def + formula
def: how much capital req to replace income indefinitely
required annual income / expected investment return
DISABILITY: job classifications risk class
top(best)…. bottom (worst/hiest risk)?:
4A (BEST): DOCTORS, LAWYERS, DENTISTS, SENIOR EXECUTIVES
3A
2A
A
B (WORST): MANUAL LABOURERS IN HIGH RISK JOBS, I.E CONSTRUCTION WORKERS
DISABILITY:Definition of disability (3) for individual policies
- Any occupation: worst form of coverage
- regular occ
- own occ (best)
note: definitions can be mixed, i.e own occ for 1 year, then any occ
DISABILITY: Any occupation definition of disability
disabled if unable to perform their OWN OCC or ANY OTHER OCC suited by education/experience
- ## offered to WORST risk class (B)– i.e construction
DISABILITY: Regular occupation definition of disability
- similar to own occ
- disabled if unable to do ur regular occ
- can CHOOSE (not forced) to work if diff occ w reduced/eliminated bens.
DISABILITY: Own occupation definition of disability
- similar to regular occ
- disabled if unable to do ur regular occ
- can CHOOSE (not forced) to work in diff occ, BENEFITS WILL CONTINUE
- Offered to BEST risk class (4A) – i.e doctors, lawyers
DISABILITY Occupational clause
- if insured switches to riskier job: will adjust premium accordingly (more expensive)
- if switches to less risky job: request downward adjustment (cheaper)
DISABILITY Elimination period (waiting period before benefits)
- time period insured must be disabled before receiving benefits
- shorter period= higher premium
DISABILITY Benefits Period
- max time insured will receive benefits while disabled
DISABILITY: Renewability options- 3 types (NGC)
- Non canelable– best
- guaranteed renewable
- cancelable —- worst
Non cancelable (Non- Can)
- Insurer MUST RENEW policy to specific age as long as premium being paid
- cannot change premium, amend benefits, or cancel policy
- offered to BEST risk— 4A (doctors, lawyers)
Guaranteed Renewable
- insurer CAN ALTER premium if doing so for entire class of policies
Cancelable
- inurer can cancel or adjust premiums at any time
- worst policy, so offered to worst risk— class B (i.e construction workers)
insurable income (for disability coverage)
- salary from work
- biz income
- Part time work income
UNinsurable income
- pension income
- investment income!!!!! (but can reduce amt of coverage)
- trust fund income
Waiver of premium
- standard in disability policies
- when disabled, insured pays premium for 1st 90 days, afterwards premium waived (and refund premiums colleted)
waivede till:
insured no longer disabled
certain age
certain number of years
recurrent disability clause
- if insured OFF disability, returns to work and suffers same/related disability withing a time frame (i.e 6 months) ===== continuation of benefits (deduct time already used on previous claim)
- elimination period waived 2nd time and benefits restart right away
presumptive disability clause
if:
- perm blind
- perm hearing
- loss of 2 limbs incl use of limbs
Assumes disbaled w/o proof
no elimination period
benefits start ASAP
no proof that stopped work
Common Exclusions for disability coverage
- war/terrorism
- self inflicited wounds/ suicide attempt
- participating in illegal activities
- normal pregnancy/delivery
insurer could also add specific exclusions relevant to insureds health conditions or high risk sports
disability Policy rider
an add on options added when policy purchased or adterwards
disability rider: Future Purchase Option (FPO)
- Isured can add coverage in stated amounts on stated dates W/O MEDICAL underwriting but subject to FINANCIAL underwriting (need to proove income) + this increases premium
Disability RIder: Cost of Living Adjustment (COLA)
- ADED TO DISABILITY POLICY
- BENEFITS INCREASE YEARLY TO COMBAT INFLATION
- 2 CALCULATION METHODS: SIMPLE METHOD OR COMPOUND METHOD
COLA calculation : simple method
- benefit oncreases by SAME % annually
COLA calculation: Compound Method
- coverage increased by rate of inflation as measured by consumer price index (CPI) up to a max amount
- unused increase (less than max) can be carry fwd to future years
Accidental death + Dismemberment (AD+D)
- BENEFIT PAID IF DIES AS RESULT OF ACCIDENT (CAR ACCIDENT, FIRE, ETC) OR IF INSURED DISMEMBERED
- NO MEDICAL UNDERWRITING, BC ITS AN ACCIDENT, NOT HEALTH
- claim does not impact benefits to be received
AD+ D exclusions
- self inflicted injuries
- suicide (or attemtped suicide)
- Participation in dangerous sports
- Flying plane (except passengers/ commercial airline)
DISABILITY rider: partial and residual benefots
residual benefits: Income related
Partial benefits: job function related
DISABILITY residual benefits definition
- paid if: after being totally disabled, no work at all, insured can return to work at reduced capacity, making less then they were before
- pays portion of benefits if able ti work p/t
- reduftion of 20% pre- disability inc (cannot earn more than 80%) = partial benefits
- if esrns LESS than 20%= full benefits paid
- 20-80% = pro rated benefits
DISABILITY residual benefits calculation 4 steps
- Income lost
- % of income lost
- 80/20 rule
- end benefit X % inc lost (if 80/20 rule doesnt apply)
DISABILITY: residual benefits calculation (how to)
- Income lost: original monthly income - current monthly income= lost $
- % of income lost: lost $ / original monthly income= % lost
- 80/20 rule:
lost more than 80%= full benefits
lost less than 80% ==NO benefits - full benefit X % inc lost = % of benefit he will receive
DISABILITY partial Benefits
- does not require period total disability
- pyas partial benefit ( i.e 50% of full benefit)
- pays if insured unable to do some substantial duties of job ORRRR can do all but only part time
DISABILITY Rider: Return of Premium (ROP)
- POLICY HOLDER receives part of premium back (tax free , W/O interest) under certain circumstances
- total claims must not exfeed total premiums paid (premiums - total claims)
DISABILITY RIDERS
- PARTIAL BENEFITS
- RESIDUAL BENEFITS
- RETURN OF PREMIUM (ROP)
Types of individual disability insurance policies (CNNGG)
- C: Cancellable
- N: non cancellable
- N: non traditional
- G: guaranteed renewal
- G: guaranteed issue
Mortgage insurance (vs individual DI ins) - Key word: less
- ensures monthly mortgage (only) will be paid if disabled
- less expensive
- less underwriting
- less flexible
Individual disability policies (vs mortgage insurance) - key word: MORE
- gets monthly pay outs, can use however u want incl pay mortgage
- more expensive $$$
- more underwriting
- more flexible
Guaranteed cacellable
- ins co cannot cancel
- premiums dont increase
- benefits cannot be reduced or modified
Guaranteed renewable
- insurance must renew every yesr
- insurer CAN change premiums
- changes must be made to entire class of policies
Canfellable policy
- insurer can modify policy themself
- insurer can cancel policy
- changes nust be to entire class of policies
- lower premoums
Guaranteed issue
- guaranteed standard risk or guaranteed issue
Restrictions based on sise of group, occupational class (i.e 4a) - min annual premium
- min avg age group for group memebrr
Non traditional DI
- not just for employees, also for self employed
Individual DI policy premium factors
Age Gender Health Smoker status Occupation Definition of disability Claims history Length if waiting and benefit period
Definition of disability for Adi
- own occ
- regukwr occ
- any occ
- total disability
DI riders
- future purchase option (FPO)
- cost if living allowance (COLA)
Residual Disability ben. : loss of income as %
Pre disability inc - p/t income / predisability income
%
1st day hospitalization rider
- bridges gap btwn 1st day hospital mised abd 1st day of benefits (i.e 90 days later)
- no waiting period
- min hospital stay : 18-72 hrs
Hospitalization indemnity rider
- daily benefit btwn $50-250 to cover hopital exp like parking, child care, etc…
- stay of atleast 24hrs
- benefit: 3-4 mths max
Taxation of premiums and benefits
- premiums paid not tax defugtible, benefits not incl in taxable invome
- as long as emoloyer oays premiums + is beneficiary = valid biz exp, but not tax deductible
Groupd disabilty insuranfe common traits
Same:
- employer
- industry
- association
- alumni
- union
Tyoes of group disability insurance policies
- short rerm disability (STD)
- long term disability (LTD)
Group DI: short term disability (STD)
- aka weekly indemnity
- short term disabilities (kess than 1 yr)
- benefits based on % of salary: 70-75%
- benefits start after 7 days
- Max ben: 12 mths
- own occ
Group DI: long term DI
- after STD
- benefits between 50-60% previous income
- benefits for : 2, 5,10 yrs or to age 65
- own occ 1st 12 mths, the any occ
Group DI: qualification period pg48
- # days betweeen date of employment and date employee qualifies for group olan
- usually 30-90 days (probation period?)
Group DI: premium pmt
Non participating: employer makes 1 pmt to ins co/ mth on behalf of all group members
Participatinng (employee pays part of premium) : enployer collects premiums from oayroll deduction and remits 1 pmt to ins co for both employer/employee portions
Group DI; terminsting membership pg49
May have optikn to convert to individual policy w/o medical, usually w/in 30 days
