Chapter 10: Disability Income Benefits

Question 1

TF: For group disability plans, the reason why the benefit is usually a maximum of payroll, not to exceed a total amount, such as 60% of pay, not to exceed $7,500 per month, is to make sure employees try to get back to work as soon as possible.

Answer 1

True

Question 2

TF: Group policies do not usually require individual underwriting. Depending on the type of renewal provision, the insurance company may have the right to increase premiums on an entire class of insureds.

Answer 2

True

Question 3

Short-term disability income policies provide short benefit periods of less than ____ ____

Answer 3

2 years

Question 4

The elimination period for short term disability is typically no more than ___ ____ Short-term disability income policies may be issued as occupational or nonoccupational coverages.

Answer 4

30 days

Question 5

TF: Short-term Disability = Excludes Work Related Injuries

Answer 5

True

Question 6

Long-term disability income policies provide long benefit periods of ___ ___ or ____, until the insured reaches age 65

Answer 6

two years or more

Question 7

The elimination period for long term disability ranges from __ to ___ days

Answer 7

30 to 180

Question 8

TF: Long-term disability income policies may be issued as occupational or nonoccupational coverages. Long-term disability income policies may coordinate benefits with an employer plan, Workers’ Compensation or Social Security.

Answer 8

True

Question 9

TF: If a benefit is paid in a lump sum, it must be paid immediately after written proof of loss. If the benefit is paid in periodic payments, it must be paid no less than monthly.

Answer 9

True

Question 10

____ _____ disability income - Businesses may purchase disability income insurance to protect against loss of income caused by a key employee’s disability.

Answer 10

Key Person

Question 11

___ ____ for business include:
Business owners,
Stockholders, and
Executive managers who are active in the company.

Answer 11

Key persons

Question 12

The amount of the disability income benefit is based on the key person’s ____ _____ to the business – the loss of income that would occur from reduced sales and hiring a replacement employee while the key person is disabled.

Answer 12

Economic Value

Question 13

TF: The key person is the insured individual, who must sign the application, consenting to the coverage.

Answer 13

True

Question 14

A disability ____-_____ policy is used to establish how ownership in a business is transferred upon an owner’s disability. Important facts:

The business owns the policy, pays premiums and receives the benefits.
The benefit is used by the business to purchase the disabled owner’s share in the business.
The elimination period in buy-sell policies is one to two years.
The benefits may be paid in monthly periodic payments or in a lump sum.

Answer 14

Buy-Sell (Buy-Out)

Question 15

TF: Disability Buy-sell = Buys Out Disabled Partner

Answer 15

True

Question 16

TF: The Business Overhead Expense policy does not pay the owner’s salary. BOE policies have elimination periods of 30 days or less and benefit periods of one to two years.

Answer 16

True

Question 17

____ _____ _____ policies were created to help small business owners pay overhead expenses and keep the business operating when the owner becomes disabled. The business owner owns the policy and pays the premiums, but the benefits are used to pay the business’ expenses such as rent, utility bills, and employee salaries.

Answer 17

Business Overhead Expense (BOE)

Question 18

A ______ ______ ______ policy pays a monthly benefit to pay off a business’ loan if the business owner becomes disabled. This protects the business from losing assets if loans are in default.

Answer 18

disability reducing term

Question 19

Social Security, also referred to as _____________, is a federal program that protects workers against the risk of financial loss due to death, disability and old age.

Answer 19

Old Age Survivors Disability Income Insurance (OASDI)

Question 20

TF: Social Security disability benefits are only available to covered workers who are fully insured at the time of disability. Social Security is financed by equal contributions from employers and employees.

Answer 20

True

Question 21

Individuals eligible for Social Security disability must be fully insured and disability insured at the time of disability with at least ____ ____ of coverage or ___ ___ of work. Up to four quarters can be earned in one year.

Answer 21

40 quarters
10 years

Question 22

TF: for SS disability, Individuals must also be totally and permanently disabled for at least five months, and the disability must be expected to last at least 12 months or result in death.

Answer 22

True

Question 23

TF: For SS disability, Disability income benefits are paid to a covered worker in the amount of the primary insurance amount (PIA) after a five-month waiting period.

Answer 23

True

Question 24

____ ______ disability benefits are only available prior to the age of 65.

Answer 24

Social Security

Question 25

These conditions must be met to qualify for _____ ____ disability benefits:

The covered worker cannot do the work they did prior to the disability;
The covered worker cannot do other work because of physical or mental conditions; and
The disability has already lasted or will last for at least 12 full months, or the disability is expected to result in death.

Answer 25

Social Security

Question 26

Social Security Disability benefits include?

Answer 26

Monthly payments to the disabled worker in the amount of the worker’s PIA. At the earliest, the disabled worker may be eligible to receive Social Security disability benefits upon the sixth month of disability.
Monthly payments to the disabled worker’s spouse, if the spouse is caring for a child under the age of 16, or a disabled child under the age of 22 in the amount of ½ of the worker’s PIA.
Monthly payments to an unmarried child under age 18 (19 if the child is a full-time high school student), or a child who became disabled before the age of 22 in the amount of ½ the worker’s PIA.

Question 27

TF: A disabled covered worker, regardless of age, is eligible to receive full Medicare benefits after the waiting period and two years of receiving Social Security disability benefits – after 29 months. The maximum family benefit also applies to Social Security disability benefits.

Answer 27

True

Question 28

____ _____ benefits include medical, disability income, death, and rehabilitation benefits.

Answer 28

Workers’ Compensation

Question 29

In the event the insured is covered by more than one policy for the same condition or benefit, the _____ of ____ provision defines the method for determining which insurance company is the primary insurer and which insurance company is the secondary insurer.

Answer 29

coordination of benefits

Question 30

TF: In order to protect against a disabled person receiving greater income by being disabled than they can earn by working, most group disability plans offset policy benefits with wage continuation plans, Social Security, and Workers’ Compensation.

By using the coordination of benefits provisions, all these policies coordinate together in order to prevent duplication of benefits.

Answer 30

True

Question 31

TF: Tim averages $4,000 / month income at his job. He had two disability policies when he became disabled. Each policy provided for payments up to $2,400 / month. If neither policy contains a coordination of benefits provision, he could conceivably make more than he would if he was working ($2,400 + $2,400 = $4,800). Also, because disability income payments are tax-free (if Tim paid the premium with after-tax dollars), he could make quite a profit on his disability income. In this example the two policies would pay a combined maximum limit so Tim does not make a profit from his disability.

Answer 31

True

Question 32

All of the following statements are true regarding short-term disability income policies, EXCEPT:
Select one:
a. Short-term disability income policies have benefit periods of less than 2 years.
b. Group disability income policies are typically short-term disability policies.
c. The benefit amount is 90-100% of the insured’s income.
d. Elimination periods are usually no more than 30 days.

Answer 32

C

Question 33

After the 5-month waiting period, Social Security disability benefits are payable to a disabled covered worker in the amount of:
Select one:
a. 1/4 their PIA
b. 1/2 their PIA
c. 3/4 their PIA
d. Their PIA

Answer 33

D

Question 34

Which of the following is true regarding long-term disability income policies?
Select one:
a. The benefit amount is 90 to 100% of the insured’s income.
b. The benefit period is 2 years or more.
c. Long-term disability income policies are most commonly used for group insurance.
d. None of the above

Answer 34

B

Question 35

Disability income policies may be offered through:
Select one:
a. A group plan
b. An individual plan
c. Through an employer-sponsored group plan
d. All of the above

Answer 35

D

Question 36

All of the following are true statements regarding business overhead expense coverage, EXCEPT:
Select one:
a. Overhead expense coverage includes benefits for rent and utilities
b. Overhead expense coverage keeps the business functioning after the owner becomes disabled
c. Overhead expense coverage pays the owner’s salary
d. Overhead expense coverage pays employees’ salaries

Answer 36

C

Question 37

Which of the following policies pays for a loss of income without regard to performing work duties?
Select one:
a. Own occupation
b. Any occupation
c. Income replacement
d. Partial disability

Answer 37

C

Question 38

All of the following are true regarding key person disability income insurance, EXCEPT:
Select one:
a. Key person insurance pays periodic income benefits to businesses when a key employee is disabled.
b. The amount of the disability income benefit is based on the key person’s economic value to the business.
c. Benefits may be paid monthly or in a lump-sum.
d. The key person owns the policy, but the business pays the premiums and receives the benefits.

Answer 38

D

Question 39

John is totally disabled and has applied for Social Security disability benefits. How long must John wait to be eligible to receive full Medicare benefits?
Select one:
a. 6 months
b. 12 months
c. 24 months
d. 29 months

Answer 39

D

Question 40

ll of the following are characteristics of disability buy-sell policies, EXCEPT:
Select one:
a. Disability buy-sell policies are used to transfer ownership when a business owner becomes disabled.
b. The business owner has ownership of the policy, but the business pays the premiums and receives the benefits.
c. The elimination period is 1 to 2 years.
d. Benefits may be paid monthly or in a lump-sum.

Answer 40

B

Question 41

TF: The elimination period in Buy-Sell policies are ___ to ____ years. The benefits may be paid in monthly periodic payments or in a lump-sum.

Answer 41

1 to 2

Question 42

How much is the Social Security disability benefit payable to a covered worker?
Select one:
a. 1/4 their PIA
b. 1/2 their PIA
c. 3/4 their PIA
d. Their PIA

Answer 42

D