Disability income Flashcards
Which of the following terms best describes the maximum length of time that disability income benefits will be paid to the disabled insured?
A
Elimination period
B
Disability period
C
Coverage period
D
Benefit period
D
Benefit period
The elimination period in a disability income insurance policy:
A
Serves as a time deductible before benefits are payable
B
Addresses where accidents and sicknesses must not occur in order for a claim to be payable
C
Defines what causes of loss are eliminated from potential claim payment
D
Describes how long the policy must be in force before claims can be considered
A
Serves as a time deductible before benefits are payable
An insured purchases a disability income policy with a 90 day elimination period. If a disability lasts 100 days, the insured would be entitled to receive benefits for ___days.
A
100
B
10
C
90
D
190
B
10
When an individual pays the full cost of individual disability income insurance, the disabled insured’s benefit will be _____________.
A
Taxable in full, regardless of the employee’s wage
B
Taxable in part, up to 60% of the employee’s pretax wage
C
Nontaxable in full, regardless of the employee’s wage
D
Nontaxable up to 60% of the employee’s pretax wage
C
Nontaxable in full, regardless of the employee’s wage
Since the entire premium is paid by the individual and is not tax-deductible, the entire benefit is nontaxable.
Most group insurance plans cover _____________ disabilities, which are those occurring outside work.
A
Contributory
B
Noncontributory
C
Occupational
D
Nonoccupational
D
Nonoccupational
Which of these statements best describes the difference between the “any occupation” and “own occupation” definitions?
A
An any occupation definition is less restrictive because it is harder to qualify for benefits
B
An own occupation definition is more restrictive because it is harder to qualify for benefits
C
An own occupation definition is less restrictive because it is easier to qualify for benefits
D
An any occupation definition is more restrictive because it is easier to qualify for benefits
C
An own occupation definition is less restrictive because it is easier to qualify for benefits
A disability that is presumed to result from the same or a related cause of prior disability is a _____________.
A
Delayed disability
B
Recurrent disability
C
Residual disability
D
Presumptive disability
B
Recurrent disability
An insured took out a disability income policy while working in a low hazardous occupation. When filing a claim for disability income benefits, the insurance company discovered the insured changed jobs 2 years prior to the loss. If the new job would have been classified as more hazardous, the insurance company will most likely:
A
Reduce the benefit payment dollar for dollar to account for the premium underpayment
B
Pay no benefit since the insured failed to inform the insurance company on a timely basis of the change in occupation
C
Pay the benefit as contracted for since the policy is over 2 years old
D
Reduce the benefit to an amount the actual premium paid would have purchased under the proper job classification
D
Reduce the benefit to an amount the actual premium paid would have purchased under the proper job classification
A group disability plan is issued on a contributory basis and the employer pays 80% of the premium. If an employee is eligible to receive a weekly benefit of $1,000, how much is taxable?
A
$200
B
$800
C
$0
D
$1,000
Excellent!
B
$800
A Business Overhead Expense policy, as a form of disability insurance, provides payments for all of the following, EXCEPT:
A
Taxes, utilities, rent
B
Employee wages
C
Owner’s income
D
Raw materials used to manufacture goods sold
C
Owner’s income
When a disability buyout is funded by the partners, the premiums are:
A
Not deductible and the value of the benefit is not taxable as income
B
Tax deductible and the value of the benefit is not taxable
C
Not tax deductible and the value of the benefit is taxable as income
D
Tax deductible and the value of the benefit is taxable as income
A
Not deductible and the value of the benefit is not taxable as income
Which of the following is a state-mandated benefit?
A
Social Security
B
Group Disability
C
Workers’ Compensation
D
Subrogation
C
Workers’ Compensation
To qualify for Social Security disability, an individual must be unable to:
A
Sit, stand, or lie down for extended periods of time
B
Perform more than 50% of one’s customary duties
C
Perform any substantial gainful activity
D
Qualify for benefits under any personal or state-sponsored disability insurance plan
C
Perform any substantial gainful activity
Penelope received benefits from her disability policy and went back to work. After 30 days she found she was not able to work and began to immediately receive her disability payments. Which of following provisions made this possible?
A
Residual Disability Provision
B
Presumptive Disability Provision
C
Recurrent Disability Provision
D
Second Injury Provision
C
Recurrent Disability Provision
In which of the following circumstances was the small business owner able to deduct the premiums they paid for insurance?
A
The partners purchase a policy to fund a buyout plan
B
The sole proprietor of a small firm buys an overhead expense policy
C
The employer buys a key employee policy on their top sales executive
D
The sole proprietor buys a policy on him or herself
The sole proprietor of a small firm buys an overhead expense policy
Which of the following should be put in place by two business partners who want to be assured that the business will not be lost should either one of them become disabled?
A
A Business Overhead Expense Contract
B
An Errors & Omissions Policy
C
A Business Disability Buyout Policy
D
A Guaranteed Purchase Option
C
A Business Disability Buyout Policy
Under which business-related use of Disability Income Insurance would the premiums be tax-deductible?
A
Business Overhead Expense Coverage
B
Disability coverage purchased to fund an entity purchase plan
C
Disability coverage purchased to fund a cross purchase plan
D
Key Person Disability Income
A
Business Overhead Expense Coverage
Own occupation is the:
A
Inability to perform all duties of one’s own occupation
B
Inability to perform all duties of any occupation for which one is qualified based upon education, training, and experience
C
Presumption an individual is disabled due to the loss of sight, hearing, speak, or the loss of 2 limbs
D
Inability to perform one or more duties of one’s occupation
A
Inability to perform all duties of one’s own occupation
Regarding disability income policies, which of the following benefit periods would have the lowest premium?
A
6 months
B
2 years
C
1 year
D
6 weeks
D - 6 weeks
A long benefit period corresponds with a higher premium–a shorter benefit period means a lower premium. A policy that provides 6 weeks of benefits would be cheaper than a policy that provides 2 years of benefits.
Which statement is true regarding taxation of health insurance?
A
The benefits received from a group Disability Income Policy paid entirely by the employer are fully taxable as income to the employee
B
The benefits received from a personally owned Disability Income Policy are subject to federal income taxes
C
The benefits received from a group Accidental Death and Dismemberment Policy are taxable to the recipient
D
The benefits received from a Major Medical Insurance Policy are usually subject to federal income tax
A
The benefits received from a group Disability Income Policy paid entirely by the employer are fully taxable as income to the employee
Pete is a valuable veteran of 21 years at Joe’s Garage working with 24 people and filling in for Joe when he is not in. Joe wants to insure Pete to offset any losses and the costs of trying to find, recruit and train a replacement, should Pete become disabled. What type of policy should Joe purchase?
A
Employee Impairment Insurance
B
Business Overhead Insurance
C
Key Employee Insurance
D
Special Insurance Supplement
C
Key Employee Insurance
Under a Key Employee Disability Income Policy, the employer is all of the following, except:
A
Policyowner
B
Premium payor
C
Insured
D
Recipient of the proceeds
C
Insured
An evaluation of Simon’s past earnings reveals his average earned monthly income to be about $4,000. The greatest amount of benefit that Simon will likely be able to purchase under a Disability Income Policy, in order to reduce malingering in the event of a claim, is:
A
$2,500 monthly
B
$2,000 monthly
C
$1,000 monthly
D
$4,000 monthly
A
$2,500 monthly
Benefits are usually determined as a percentage of the insured’s current earnings, normally 60 to 70%. Simon would be unlikely to obtain 100% of his income as a disability benefit.
A Disability Income Policy has a period of deductibility immediately following a disability during which time benefits are not payable. This period is called a(n):
A
Elimination Period
B
Loss of Time
C
Probationary Period
D
Loss of Income
A
Elimination Period
What type of disability income insurance provides funds to cover business expenses when the business owner becomes disabled?
A
Buy-sell
B
Key employee
C
Business overhead expense
D
Reducing term
C
Business overhead expense
Under which business-related use of Disability Income Insurance would the premiums be tax-deductible?
A
Business Overhead Expense Coverage
B
Key Person Disability Income
C
Disability coverage purchased to fund a cross purchase plan
D
Disability coverage purchased to fund an entity purchase plan
A
Business Overhead Expense Coverage
Which statement is false concerning Social Security disability benefits?
A
The employee must only be unable to engage in his/her own occupation to be considered disabled
B
To be fully insured for disability benefits, the employee must be either fully or currently insured under the Social Security system
C
Benefits may only start after 5 full calendar months of disability, and are not retroactive to the date of disablement
D
The amount of the benefit is based on the employee’s Primary Insurance Amount
A
The employee must only be unable to engage in his/her own occupation to be considered disabled
Which of the following disability policies would be considered a deductible business expense?
A
A policy which funds a disability buyout plan
B
A business overhead expense policy
C
A disability income policy purchased by an entrepreneur on him or herself
D
A key employee policy
B
A business overhead expense policy
What type of disability income insurance pays a benefit to a business to help in the search, cost, and hiring of a replacement when an employee becomes disabled and is unable to work for the company?
A
Buy-sell
B
Reducing term
C
Business overhead expense
D
Key employee
D
Key employee
An insured may find it more difficult to qualify for benefits, but will enjoy a lower premium, when a more restrictive definition of _________ is found in a Disability Income policy.
A
Disability
B
Transplant
C
Benefit
D
Rehabilitation
A
Disability
Which of the following will be covered under a business overhead expense policy?
A
Business property rental
B
Income to the disabled owner
C
Weekly income to a disabled employee
D
Business profit losses
A
Business property rental
The type of disability coverage purchased by a small business owner, to cover ongoing overhead in the event of the owner becoming disabled, would be called:
A
Key Employee Insurance
B
Business Overhead Expense
C
Buy-Sell Agreement
D
Disability Reducing Term
B
Business Overhead Expense
Which of the following is needed to qualify for a Social Security Disability Benefit?
A
Fulfill a 4-month waiting period, and have paid into Social Security
B
Have less than $1,000 in assets
C
Be fully insured
D
Be age 60, widowed, and have one dependent
C
Be fully insured
E paid a $700 annual premium for a business overhead expense policy that paid a monthly benefit of up to $4,000 for a benefit period of 6 months. When E became disabled, E used the entire benefit for 3 months, which covered $8,000 of employee salaries, as well as $4,000 in rent and utilities. This means that the amount of the benefits reported as income equaled:
A
Zero
B
$8,000
C
$3,000
D
$12,000
D
$12,000
All benefits are considered taxable income in a business overhead expense policy
An insured may find it more difficult to qualify for benefits, but will enjoy a lower premium, when a more restrictive definition of _________ is found in a Disability Income policy.
A
Rehabilitation
B
Transplant
C
Disability
D
Benefit
C
Disability
Which of the following should be put in place by two business partners who want to be assured that the business will not be lost should either one of them become disabled?
A
A Guaranteed Purchase Option
B
A Business Disability Buyout Policy
C
An Errors & Omissions Policy
D
A Business Overhead Expense Contract
B
A Business Disability Buyout Policy
Which of these statements about income received from an individually-owned disability income policy is CORRECT?
A
Benefits are sometimes taxable
B
Benefits are always taxable
C
Premiums are deductible up to a certain amount
D
Benefits are not taxable and premiums paid are not deductible
D
Benefits are not taxable and premiums paid are not deductible
Which of the following disability income benefit periods will result in the highest premium?
A
Age 65
B
Life
C
5 years
D
2 years
B
Life
Social Security uses which of the following definitions to determine total disability?
A
Any occupation
B
Any substantial gainful activity
C
Own occupation
D
Loss of income
B
Any substantial gainful activity
Most group Disability Income contracts are offered on a(n):
A
Contributory basis
B
Noncontributory basis
C
Nonoccupational basis
D
Occupational basis
C
Nonoccupational basis
All of the following are correct concerning partial disability, except:
A
Partial disability payments are usually 75% of the total disability benefit
B
Partial disability is an inability to perform one or more of the regular duties of an occupation
C
Partial disability benefits are typically paid for 3 to 6 months
D
Partial disability benefits are referred to as “at-work” benefits
A
Partial disability payments are usually 75% of the total disability benefit
Partial disability is an inability to perform one or more of the regular duties of an occupation. Partial disability benefits are referred to as “at-work” benefits, since the insured is still able to work and receive benefits. The benefit usually pays up to 50% of a total disability benefit for a period of 3 to 6 months.
