Chapter 5: Disability Insurance

Question 1

T/F: Americans are far more likely to die prematurely than to suffer a disability

Answer 1

FALSE

It is far more likely for people to suffer a disability than to die early.

Question 2

T/F: If a person is covered by a private disability insurance policy, then they could also receive benefits from Social Security

Answer 2

TRUE

Question 3

T/F: Adequate disability insurance coverage is generally defined as 40% - 50% of a person’s income

Answer 3

FALSE

Generally, people should have 60% - 70% of their income protected by disability coverage

Question 4

T/F: A 30-year-old has a lower morbidity rate than a 50-year-old

Answer 4

FALSE

Morbidity rates fall with age

Question 5

T/F: Disabled insureds generally continue to pay premiums while they receive benefits to avoid cancellation of the policy

Answer 5

FALSE

Generally, once an insured becomes disabled and the elimination period has passed, future premiums are waived

Question 6

T/F: The “own-occupation” policy is the most widely sold disability insurance policy

Answer 6

FALSE

Own occupation disability insurance is the least sold type of disability insurance

Question 7

T/F: A COLA rider will increase the benefit based on increases in the insured’s income

Answer 7

FALSE
A COLA rider will increase the benefit payments once payments have begun based on increases in inflation. There are other riders that increase coverage based on increases in income

Question 8

T/F: Generally, an own occupation policy will be slightly less expensive than an any occupation policy

Answer 8

FALSE
An own occupation policy will be more expensive than an any occupation policy because it is more defined in terms of the duties the insured cannot perform

Question 9

T/F: The premium and the elimination period are generally inversely related

Answer 9

TRUE

Question 10

T/F: Incontestability clauses protect the insurance company from misstatements or misrepresentations by the insured

Answer 10

FALSE

Incontestability clauses protect the insured from unintentional misrepresentations or errors generally after two years

Question 11

T/F: Generally, it is more effective to pay disability insurance premiums with after-tax dollars, to avoid paying income tax on disability benefits

Answer 11

TRUE