Chapter 10

Question 1

Individual Disability

Answer 1

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

Question 2

Probationary period

Answer 2

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

Question 3

Elimination or waiting period

Answer 3

Length of time an individual must be totally disabled before benefits become payable

Question 4

Benefits period

Answer 4

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

Question 5

Tax

Answer 5

Premium paid for individual disability income insurance are not tax deductible

Disability income benefits receive from an individual policy are not taxable as income

Question 6

Own disability

Answer 6

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

Question 7

Any occupation

Answer 7

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

Question 8

Partial disability

Answer 8

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

Question 9

Residual disability

Answer 9

Benefits for loss of income after the insured returns to work, usually following a total disability

Based on reduction of earnings

Question 10

Recurrent disability

Answer 10

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

Question 11

Change of occupation

Answer 11

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

Question 12

Group disability income policies

Answer 12

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

Question 13

Short term

Answer 13

Max benefit for short periods such as 13, 26, or 52 weeks

Will not pay benefits for disability lasting longer than 2 years

Question 14

Long term disability

Answer 14

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

Question 15

Business disability income uses

Overhead Expense

Answer 15

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

Question 16

Key employee policy

Answer 16

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

Question 17

Business disability buyout

Answer 17

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

Question 18

Workers Compensation Benefits

Answer 18

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)

Question 19

Subrogation

Answer 19

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

Question 20

Social Security

Answer 20

Also provided disability benefits

Qualification for SS is contingent upon employee having a “fully” insured status

Question 21

Def of disability

Answer 21

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

Question 22

5 month waiting period

Answer 22

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

Question 23

Disability income benefits

Answer 23

Based on employee average indexed monthly earnings, consumer price index on which SS taxes been paid = primary insurance amount (PIA)

Not taxable