Chapter 10 Flashcards
Individual Disability
Pays an income benefit when the insured is unable to work due to a covered illness or injury
Benefits pairs monthly and determined either flat dollar or percentage usually 60-70% of the insured current net earnings
Probationary period
May be included in some disability income policies to protect the insurer from paying immediate claims
15-30 days
Doesn’t apply to an accident
Elimination or waiting period
Length of time an individual must be totally disabled before benefits become payable
Benefits period
Length of time insured is eligible to receive payments after elimination period has been met
Can be for a specific number of years to age or life
Tax
Premium paid for individual disability income insurance are not tax deductible
Disability income benefits receive from an individual policy are not taxable as income
Own disability
Requires the insured be unable to perform the main duties of their own occupation to qualify as being totally disabled
Applies for first 2 years then changes to any occupation
Any occupation
Required insured to be unable to perform duties of not just their own job but duties of any occupation for which is reasonably suited by education, training, and experience
Partial disability
Person cannot perform 1 or more of the regular duties of their occupation but is totally not disabled
May provide 50% of total disability for 3-6 months
Residual disability
Benefits for loss of income after the insured returns to work, usually following a total disability
Based on reduction of earnings
Recurrent disability
Subsequent disability is suffered due to the same cause within a certain period of time, the elimination period will not apply and the disability will be considered continuous
Change of occupation
Provision in a disability policy could result in either a reduction of benefits, if new occupation is a higher risk, or the insured could reduce the amount of premiums to fit a lower occupational rating for the current level of benefits
Group disability income policies
Offered only on a nonoccupational basis, which will not cover work-related disabilities
Pay based in percentage of employees salary at time of loss, opposed to time of application
Contributory- employee pays a portion of premium
Noncontributory- employer pays 100% premium
Short term
Max benefit for short periods such as 13, 26, or 52 weeks
Will not pay benefits for disability lasting longer than 2 years
Long term disability
Benefit period of at least 2 years and as long as the lifetime of the insured
Elimination period will most commonly be either 30,60,90, or 180 days
Business disability income uses
Overhead Expense
Provides funds to cover overhead expenses of a business when the owner become disabled. Benefits include expenses such as office rent, utilities, and employee labor
Owner Connor collect for loss of income
Premiums paid by business are tax deductible
Benefits are tax deductible and must be reported as income
Key employee policy
Key employee become disabled, policy pays a benefit by helping pay for a replacement, train new employee, or replace loss of revenue due to the disabled employee lack of ability to work
Premium not tax deductible to business
Business disability buyout
Pays lump sum benefit if a partner become disabled, providing funds for the non disabled partner to buy out the total disabled partner interest in the business
Buy-sell agreement
Premiums not tax deductible
Workers Compensation Benefits
Med benefit- bodily injury and sickness are unlimited as to time, but dollar amounts payable may be limited by law
Disability income benefits- loss of income based on following benefits with limit set by each state (not taxable)
Subrogation
Transfers an insurers legal right of recovery to the insurer that has paid a claim. This prevents the insured from collecting twice for the same loss and holds the responsible 3rd party accountable for the loss
Social Security
Also provided disability benefits
Qualification for SS is contingent upon employee having a “fully” insured status
Def of disability
Employee must be engage in any substantial gainful activities due to a medically determined physical or mental condition that has lasted or is expected to last at least 12 months
5 month waiting period
Should apply for SSDI as soon as possible to be considered “full” month of disability, the individual must be disabled prior to first day of month and remain disabled through the last day of a month
Disability income benefits
Based on employee average indexed monthly earnings, consumer price index on which SS taxes been paid = primary insurance amount (PIA)
Not taxable
