Chapter 16 : Disability Income Insurance Flashcards
Any Occupation
A total disability that requires that for disability income benefits to be payable, the insured must be unable to perform any job for which the insured is “reasonably suited by reason of education, training, or experience”
Own Occupation
A total disability that requires that in order to receive disability income benefits the insured must be unable to work at the insured’s own occupation
Presumptive Disability
A disability income policy benefit that provides that if an insured experiences a specified disability, the insured is presumed to be totally disabled and entitled to the full amount payable
Partial Disability
An illness or injury preventing insured from performing at least one or more, but not all, of the insured’s occupational duties
Residual Amount Benefit
A disability income payment based on the proportion of income the insured has actually lost
Accidental Means
The unforseen, unexpected, unintended cause of an accident
Accidental Results
Policies that use the accidental bodily injury provision required that the result of the injury has to be unexpected and accidental.
Far less restrictive than the accidental means provision
Elimination period
Period between the beginning of the insured’s disability and the payable benefits.
AKA. Deductible for the disability
Social Security Rider
Provides for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun
Cost of Living Adjustment Rider
A rider available with some policies that provides for an automatic increase in benefits (typically tied to the consumer price index)
Rehabilitation Benefit
Facilitates vocational training to prepare insured for a new occupation.
Flat Amount Approach
Specifies a flat income benefit amount that will be paid if the insured becomes totally disabled.
Usually 50% of the full disability benefit.
Elective Indemnity Options
Selected when applying for a disability policy.
For short term disability and provide for an optional lump sum payment
Total Disability
Insured cannot be engaged in gainful employment or occupation for wages or profit.
Pure Loss of Income
AKA Income replacement contracts
Ones earned income must decrease by at least 20%
Partial disablity
Flat amount
Maximum 6 months
50% of total disability benefits
Presumptive disability
Identifies certain condition that automatically qualify an insured for the total benefit.
Double dismemberment
Total and permanent loss of the following- Loss of sight
Loss of hearing
Loss of speech
Delayed Disability
The amount of time allowed is 20, 30, 60, 90
Credit Disability
Purchased to help make loan payments if the insured were ever to become disabled.
Social Security Disability
The inability to perform any substantial gainful work/any occupation.
You are not able to do the work you did before.
You cannot adjust to the other work.
Your disability will last 1 year or result in death.
40 quarters/10 years
100% of PIA, dependents can receive payments as well.
Workers’ Compensation
First coverage when paid, then group disability insurance and other social insurances.
A form of liability insurance that guarantees medical, disability, and survivor benefits for workers harmed by work-related accidents or occupational diseases.
Weekly benefit.
Excluded: Seasonal or casual workers
Short Term Disability Insurance
6 months - 2 years
Long-term Disability Insurance
2, 5 or up to age 65
Elimination Period Timing
30,60,90,180 and 365 days.
Short term disability: 7 or 10 days.
Probationary Period
Occurs only once at the policy’s inception
15, 30, 60 days after inception
Premium rates are based on? (6)
- Length of waiting period
- Monthly income benefit amount
- Length of the benefit period
- Age, sex, income and health of applicant
- Insured’s occupation
- Whether or not the insured owns other disability income insurance
Annually Renewable Disability Income (ARDI)
Lower premium that increases with age.
Personal underwriting critiera
- Age
- Sex
- Occupation
Disability Income Exclusions: (5)
- War
- Self-harm
- Aviation
- Military
- Illegal
Impairment Rider
AKA Exclusion Rider
AKA Waiver for impairments
Insurers use this rider to exclude certain losses for coverage, and allows them to cover an applicant for a standard premium.
Medical Reimbursement Benefit
AKA Nondisabling injury benefit
Pays up to a specified amount if the insured suffers an injury and no other claim is filed under the policy.
Must provide proof of treatment.
Accidental Death and Dismemberment
Catastrophic loss, defined as death, loss of limbs or permanent loss of one or more sense.
Death Benefit = Principal sum
Dismemberment benefit = Capital sum, 50% of principal sum
Multiple indemnity coverage
Hospital Confinement Rider
Indemnity Type Rider
An additional benefit is paid over and above the regular monthly disability benefit based on the number of days the insured is confined to a hospital.
6-12 months
Lifetime Extension Rider
Extends beyond age 65
Social Secuirty Rider
AKA Social Insurance Supplement
AKA Social Insurance Substitute
Pays a monthly benefit whenever worker’s comp denies the claim.
Beneficial for middle-income individuals that might benefit from most SI
Additional Monthly Benefit
A short-term benefit that addresses the insured’s needs during the 6-12 months of disability.
May help cover gaps during the 5 month SSDI waiting period.
Group Disability Characteristics (4)
- Natural Group
- Premiums based on aggregate risk
- Employer may offer more than one coverage plan
- Minimum degree of participation to avoid adverse selection
Group Short-term Disability Income Plan
13 weeks or 26 weeks
50-100% of income
Group Long-term Disability Income Plan
2+ years
50-70%of participant’s income.
Business Overhead Expense Policies
Pays a maximum monthly amount rather than a fixed indemnity.
Expenses include:
- Rent
- Utilities
- Telephone and internet
- Leased equipment
- Employee wages
- Cost of hiring someone as temporary replacement
Social Security Disability Insurance Taxes
25K individual
32K married
If exceeds above, 50-85% of benefits will become taxable.
Workers’ Compensation Taxes
Not subject to state or federal income tax
Exception: if insured receives both worker’s comp and social security benefits.
Individual Disabilty Income Insurance Taxes
Premiums non deductible
Benefits not taxable
Group Disability Income Insurance Taxes
Employers = premiums paid by employers are tax-deductible
Employees =
- If employer paid, benefits received are taxable.
- If employee contributes through a cafeteria plan or pre-tax vehicle, IRS will tax as income.
