Chapter 33 - Disability Income Flashcards
Disability Income policies
Main characteristics…
- usually pay only for TOTAL disability from accident or illness but not from intentional harm. If they can perform some aspects of their job, it wouldn’t cover them.
-not tax deductible for individual but for the employer can deduct the premiums but the employee will have to pay income taxes on the benefits received.
-may only be purchased by people who have income
-stated value policies because it covers a value benefit for income
-at least guaranteed renewable or non concealable.
-can be obtained through a group policy but the vast majority are individual policies.
-they only REPLACE A PORTION usually 2/3 of the income lost
-have a 30 day probationary period where there is no coverage
-have a 6 month elimination period which acts like a deductible expressed in time rather than dollars. Have to be disabled for 6 months to satisfy the elimination period.
- DI benefits must be paid at least monthly, daily is ok, weekly is ok, but ever other month is a NO.
- paid in arrears, so even after the 6 months, the insured may have to wait another month before the DI benefits are paid.
- only pay benefits to age 65
Short Term vs Long Term - short term pays for a max 2 years where as Long can go tell 65 and even to 75 for those that work FT past 65.
Short term requires PTO to be exhausted, then STD kicks in, and then LTD kicks in.
How the income is calculated
Bonnies earns 80K a year. 2/3s would be 54K roughly that she qualifies for through DI. The insurer estimates that her Social Security benefit would be 24K per year, leaving another 30K for the DI policy to pay per year. She would get the 54K from the insurer, social security is just a way to determine how much.
The DI policy will have a total dollar limit, that is an OUTSIDE LIMIT, once that is reached (say 1 million dollars) the DI policy ceases.
Presumptive Disability Provision - circumstances that are so tragic that they can be classified as totally disabled. Such as deaf, blind, loss of speech, loss of two or more limbs.
Relation of Earnings to Insurance provision - if earnings for your type of position go down, the insurer can adjust the benefit.
Guaranteed Insurability (Future Income) Ride - if you are worried you wont purchase enough coverage, you can purchase this rider that allows you to buy additional insurance WITHOUT proof of insurability at specific times in the future, such as marriage, having children and birthday divisible by 5.
Social Insurance Rider - if the disability doesn’t meet the social security or workers comp definition of total disability, this rider will make up the difference.
Waiver of Premium Provision Rider - refund premiums paid during the first 6 months of disability during those months and then continue until they are 65.
Lifetime Extension Rider - extends coverage past age 65. They may need to do this if they wont meet the 10 year working requirement set by social security.
Cost of Living Rider (COLA)- triggers periodic increases in the DI benefits, tied to inflation and government pricing index. Calculated annually.
Recurrent Disability Provision - waives the elimination period if a relapse involving the same injury or illness as the original disability occurs within 6 months after returning to work.
Partial Disability Benefits provision - if you can go back to work partially, not start partially disabled, the policy will pay 50% for 6 months.
Residual Disability provision - pay partial benefits for partial disability, no need to have been totally disabled until they are 65.
Business Overhead Expense Policy - if a key employee becomes disabled this policy will cover the overhead for a business, such as rent, utilities, leased equipment, employee comp, ect. Not based on the employee income.
Rehabilitation Benefit - if a worker attends a training for a different or new job, this benefit would ensure they don’t cancel the disability income for trying to get a new or different job.
Medical Reimbursement Benefit - an injury that doesn’t qualify as disabled but results in substantial medical expenses, this will help pay medical expenses.
Any Occupation vs Own Occupation - any occupation will pay if the insured is able to perform any gainful occupation for which the insured is suitable. The own occupation is more expensive but will pay the say surgeons full benefits.
