Chapter 11 - Disability Income and Related Insurance

Question 1

What is a Presumptive Disability plan? (2)

Answer 1

• It offers full benefits for specified conditions. It typically requires the loss of use of at least two limbs, total and permanent blindness, or loss of speech or hearing.
• It pays benefits, even if the insured is able to work.

Question 2

For group long-term disability, the maximum benefit is based upon a % of what?

Answer 2

Monthly income.

Question 3

What is business overhead disability insurance?

Answer 3

• A policy often purchased by small employers to pay the ongoing business expenses (such as payroll) in the event the owner of the business becomes disabled.
• Premiums paid are tax-deductible as a business expense but proceeds paid are taxable as income.

Question 4

Employees who are injured on the job are covered by what?

Answer 4

Workers Compensation Insurance

Question 5

Employees who are injured off the job are covered by what?

Answer 5

Group Disability Income Insurance

Question 6

Individual disability policies specify payouts based on what?

Answer 6

Based on flat amounts (unlike % of income for group)

Question 7

Short-Term group plans usually provide maximum benefit periods of what?

Answer 7

13 to 52 weeks (26 is most common)

Question 8

Short-Term group plans usually pay out how much?

Answer 8

Weekly benefits of 50% to 100% of the individuals income

Question 9

Individual short term disability policies have maximum benefit periods of what?

Answer 9

6 months to 2 years.

Question 10

Group long-term disability plans provide maximum benefit periods of how long?

Answer 10

More than 2 years

Question 11

Group long-term disability plans monthly benefits are usually limited to what?

Answer 11

60% of the individual’s income.

Question 12

What is the typical minimum participation requirements to be eligible for coverage under a short-term group disability plan?

Answer 12

The employee must have worked for 30 to 90 days

Question 13

Group plans usually make benefits supplemental to any benefits received under what?

Answer 13

Workers compensation

Question 14

Under what type of disability income plan would the benefits be subject to income tax?

Answer 14

Group disability insurance (unlike individual, key person, partnership buy-out plans)

Question 15

What are the characteristics of an Own Occupation disability plan?

Answer 15

• If the insured cannot perform their current job for a period of up to two years, disability benefits will be issued, even if the insured would be capable of performing a similar job during that two-year period.
• After that, if the insured is capable of performing another job utilizing similar skills, benefits will not be paid.

Question 16

What will happen if it is impossible for an injured insured to produce proof of disability in the time specified in a contract that provides disability benefits?

Answer 16

Claims will be paid as contracted provided the proof is furnished as soon as possible.

Question 17

What are the exclusions for disability policies that aren’t covered? (5)

Answer 17

Losses arising from:

• War
• Military Service
• Intentional self-inflicted injuries
• Overseas residence
• Injuries suffered while committing or attempting to commit a felony.

Question 18

Define Capital Sum

Answer 18

A portion of the principal sum of a health insurance policy; paid for accidental dismemberment or loss of sight in one eye.

Question 19

Define Total Disability

Answer 19

The inability of the insured to perform any occupation for which they are reasonably suited by reason of education, training, or experience.

Question 20

There is a __% chance that a 25-year-old will become disabled for more than 90 days prior to age 65.

Answer 20

There is a 30% chance that a 25-year-old will become disabled for more than 90 days prior to age 65.

Question 21

A policy that has an “any occupation” provision will only provide benefits when the insured is unable to perform any of the duties of what type of occupation?

Answer 21

One for which they are suited by reason of education, training, or experience. (Not actually any duties)

Question 22

What is the Proof of Loss provision?

Answer 22

• Establishes when and how the insured must prove the disability.
• They must allow for regular examinations of the insured by the insurer.
• Except in the absence of legal capacity, proof of loss must be provided no later than 1 year of the time proof would otherwise be required.

Question 23

What is the taxation of premiums and benefits for individual disability policies?

Answer 23

• Premiums are paid with after-tax dollars

- Benefits are not income taxable

Question 24

The elimination period if the deductible measured in what instead of dollars?

Answer 24

Days.

Question 25

What is important when picking an elimination period?

Answer 25

Payments are made in arrears. So if the insured selects a 90-day elimination period, the insured will be eligible for benefits on the 91st day, but payments will not begin until the 121st day. The insured must determine how long they can go without benefit payments following disability.

Question 26

For disability insurance, the elimination period is measured from which date to which date?

Answer 26

From the onset of disability until benefit payments commence.

Question 27

Define Benefit Period

Answer 27

• The length of time over which the monthly disability benefit payments will last for each disability after the elimination period has been satisfied.
• Doesn’t have to be the same for sickness and injuries.

Question 28

What is the accidental bodily injury definition?

Answer 28

The damage to the body is unexpected and unintended. (This definition of injury provides broader coverage than a policy that uses the accidental means definition).

Question 29

What is the accidental means definition (type of injury definition)

Answer 29

Indicates the cause of the accident must be unexpected and unintended.

Question 30

Define Sickness as eligible for coverage under disability policies

Answer 30

Sickness or disease contracted after the policy has been in force at least 30 days; or sickness or disease that first manifests itself after the policy is in force.

Question 31

What is Recurrent Disability? What is the significance?

Answer 31

Generally expressed in a policy provision that specifies the period of time (usually within 3-6 months), during which the recurrence of an injury or illness will be considered as a continuation of a prior period of disability.
-The significance of this feature is that recurrence of a disabling condition will not be considered to be a new period of disability so that the insured is not subjected to another elimination period.

Question 32

What does the Coordination of Benefits provision do? (5)

Answer 32

• Purpose is to avoid duplication of benefit payments and overinsurance.
• Limits the total amount of claims paid from all insurers covering the patient to no more than the total allowable medical expenses.
• Establishes which plan is the primary plan, or the plan that is responsible for providing the full benefit amounts as it specifies.
• Once the primary plan has paid its full promised benefit, the insured submits the claim to the secondary, or excess provider for any additional benefits payable (including deductible and coinsurance).
• Loss minus Amount covered by Primary Plan = Amount covered by the Secondary Plan

Question 33

If all policies have a COB provision, the order of payments is determined how for:

1. A married couple that both have group coverage in which they are named as dependents on the other’s policy?
2. Children if both parents name them as dependents under both of their group policies?
3. Children of divorced parents if named as depends under both of their group policies?

Answer 33

1. If a married couple both have group coverage in which they are each named as dependents on the other’s policy, then the person’s own group coverage will be considered primary. The secondary coverage comes from the spouse’s policy.
2. If both parents name their children as dependents under their group policies, then the order of payment will usually be determined by the birthday rule (i.e. the coverage of the parent whose birthday is earlier in the year will be considered primary). Occasionally the gender rule may also apply, according to which the father’s coverage is considered primary.
3. If the parents are divorced or separated, the policy of the parent who has custody of the children will be considered primary.

Question 34

What is the Additional Monthly Benefit (AMB) Rider?

Answer 34

It provides the approximate amount that Social Security would pay. The benefit is only provided for one year. It is then anticipated that Social Security benefits would commence at the end of one year.

Question 35

What is the Social Insurance Supplement (SIS) Rider? (2) In what situations would it be payable? (3)

Answer 35

• Will pay a benefit in the approximate amount that Social Security would pay, but if Social Security does in fact pay, the Social Insurance Supplement benefit is reduced dollar for dollar by the Social Security benefit payment.
• Used to supplement or replace benefits that might be payable under Social Security Disability.

These provide for the payment of income benefits generally in 3 different situations:

1. When the insured is eligible for Social Security benefits but before the benefits begin (there is usually a 5-month waiting period for Social Security benefits, which the payment of benefits beginning on the 6th month)
2. If the insured has been denied coverage under Social Security (roughly 75% of the people who apply for Social Security benefits are denied coverage because of their rigid definition of “total disability”)
3. When the amount payable under Social Security is less than the amount payable under this rider (In this case, only the difference will be paid).

Question 36

What is Occupational Coverage?

Answer 36

provides benefits for illness, injury, or disability resulting from accidents or sicknesses that occur on or off the job.

Question 37

What is Nonoccupational Coverage?

Answer 37

Covers claims that result from accidents or sicknesses occurring off the job. (Group plans are usually this. Individual plans could be either.)

Question 38

How long does the insurer have the right to cancel an individual accident and health policy?

Answer 38

They must do it within 90 days as long as the insurer provides a 10-day notice to the insured. The insurer must return any unearned premium on a pro-rata basis.

Question 39

What is the Future Increase Option (FIO) Rider?

Answer 39

• Guaranteed Insurability rider, aka FIO, allows an insured to increase the benefit level to a specified predetermined amount at certain times or on certain occasions without proof of insurability.
• The times when the benefit may be increased are generally at ages 25, 28, 31, 34, 37, and 40. An increase may also be taken at one’s marriage or the birth of a child.

Question 40

What is the Accidental Death and Dismemberment rider?

Answer 40

• One that pays for accidental losses only, (considered pure form of accident insurance).
• The Principal Sum is paid for accidental death or loss of both hands, both feed, or both eyes. This amount is usually equal to the coverage under the insurance contract.
• In case of accidental dismemberment (loss of one hand or one foot) or loss of sign in one eye, a percentage of that principal sum will be paid by the policy, also referred to as the Capital Sum.

Question 41

What is a Rehabilitation Benefit?

Answer 41

• Covers a portion of the cost for the insured to enroll in a formal retraining program that will help the insured return to work.
• This benefit usually offers a specified sum (several times of the monthly indemnity) to cover costs not paid by other insurance.

Question 42

What is the taxation of Group Disability Income Insurance?

Answer 42

Benefit payments that are attributed to employee contributions are not taxable, but benefit payments that are attributable to employer contributions are taxable to the employee.

Question 43

What % of income is LT Disability plans usually pay up to?

Answer 43

For lower-income workers - 66.6%

For higher-income workers - 50%

Question 44

Who are the parties in Key Person Disability insurance

Answer 44

Owner - The Business
Premium Paid By - Business
Beneficiary - Business
Insured - Key Person (and their consent must be in writing)

Question 45

What is the probationary period?

Answer 45

The period after the policy starts during which benefits won’t be paid for illness-related disabilities.