Disability Income Flashcards
Define accidental injury
Unintentional or unexpected
Define sickness
Illness or disease that manifests itself over time
Define disability income
Used to cover income lost due to a disability caused by an illness or accident
Does disability income cover medical?
No
Define accidental death and dismemberment (AD&D)
Cover loss of life, limb or sight caused by an accident, not an illness.
Define integration of benefits
The insurer will take into account other benefits that may pay out in situations, such as worker’s comp, social security, Medicare and state disability
Define disability income insurance
Monthly payments (indemnity) to replace income which the insured cannot work due to disability
What are other examples of disability income insurance benefits
- Lump sum payments
- Rehab benefits
- Medical reimbursement for nondisabling injury
- Periodic payments to cover loan payments
- Daily benefits paid while someone is hospitalized
What are 4 types of disability income policies
- Individual disability income policies
- Group disability income policies
- Business overhead expense policies
- Business disability buyout policies
Define “own occupation” policy definition for disability insurance
Insured qualifies for benefits if they are unable to perform the major duties of his “own occupation”
Define “any occupation for which the insured is reasonably suited” policy definition for disability insurance
Insured qualifies for benefits only if they are unable to perform the duties of any occupation for which they are reasonably suited by education, training or experience. (The person may be a doctor and they may still be able to work, but only at McDonalds - this job is not reasonably suited)
Define “any occupation” policy definition for disability insurance
Insured qualifies for benefits if they are unable to work at any gainful occupation
Can you have a combination of disability policy definitions?
Yes - you could have a policy pay based on “own occupation” for the first two years and then after the insured has time to heal and go to therapy, then the policy could move to a more restrictive “any occupation which the insured is reasonably suited” policy for the rest of the benefit period.
Define income replacement policies
They will replace a percentage of the insured’s lost income due to disability using the “any occupation” definition.
Define presumptive disability
Insurer will presume that a total loss of sight, hearing, speech or use of two limbs is a total and permanent disability. Also, they do not care how long the insured is unable to work.
How will presumptive disability pay
It will either pay a lump sum or a monthly income (even if the insured is still able to work)
Define an elective indemnity
When a policy allows the insured to choose a lump-sum payment for certain types of injuries (amputation of a finger) instead of periodic payment
Define partial disability
Inability to perform one or more of the major duties of your job (you can handle some tasks, but not all)
What are three important things to know about partial disability
- Benefits are only paid if the insured was first eligible for total disability
- Benefits are paid up to 50% of the total disability benefit
- Generally limited to a benefit no more than 6 months
Define residual disability income benefits
Provide benefits for partial disabilities without requiring an initial period of total disability.
How do benefits pay in a residual disability income policy
They are based on a percentage of earnings (if the loss of income due to the disability is 40%, then the benefit would be 40% of the total disability benefit)
When will a residual disability benefit generally pay
When the income loss exceeds a certain percentage (i.e. 20% or 25%)
For residual disability benefit, when will the policy usually provide payment for the total disability
When the loss of income is at least 80%
Define the “loss of earnings” test
The insurer may require the disabled insured to have a physical exam every one to 6 months
In disability insurance, what do perils include
Accident and sickness
Can you have a disability policy that only covers certain types of accidents
Yes, you can have a policy that covers both accidents and certain types of accidents (like an accident resulting from a certain airplane flight)
How does disability insurance define sickness
Sickness or disease that first manifests itself after the effective date of the insurance and while the insurance is active
Define a probationary period
Specified period that insurance will not pay - purpose is to avoid paying claims for people who only buy coverage because they know that they are sick
Will an injury be covered during a probationary perido
Yes, an injury will be covered. The probationary period is only for sick people.
What are four things you need to know about occupational disability
- Not usually provided by group as they have worker’s comp
- Provides 24-hour coverage, so they will pay disability for accident or illness on or off the job
- Reduces disability income benefits when the insured also received worker’s comp
- Bases premiums on the insured’s most hazardous occupation, regardless of the amount of time spent in that occupation
What are three things you need to know about nonoccupational coverage
- Pays only for a disability caused off the job
- Excludes occupational hazards
- Only covers losses resulting from illness or injury that is not work related
What are four limits on policy benefits (help manage costs and premiums)
- Policy exclusions
- Benefit period
- Maximum benefit payment amount
- Deductible in the form of a waiting period
Provide some examples of policy exclusions
Military service, illegal use of substances, attempted suicide, etc.
Define benefit period
The maximum period that benefits will be paid (policy that lasts a few months all the way to a lifetime)
How long do short-term disability policies last
Usually one year or less
How long do long-term disability policies last
Usually two years or more
Define maximum benefit payment amount (when benefit is tied to earnings)
When the benefit is tied to the amount of earnings a person makes, then the policy will usually limit the disability income to 60% to 80% of earnings (the employer wants you to have a reason to come back to work and you don’t pay taxes on this amount)
Define deductible in the form of a waiting period
Sets a minimum period of time that the disability must last before benefits are paid
What is the waiting period for short-term disability
Usually 0, 7 or 14 days (usually the illness waiting period will last longer, 3-14 days)
What is the waiting period under long-term disability policies
30, 60, 90 or 180
Define a recurrent disability
When a person is disabled by the same illness or injury that caused them to become disabled in the first place
What is the time period between a new disability and a reoccurring disability
Usually six months, if a disability reoccurs and the person has already returned back to work, then it is usually treated as a reoccurring disability, if the disability happens after 6 months, then it is treated as a new claim with a new elimination period
Define assignment of benefits
When benefits are paid to another person to ensure that the insured’s financial obligations are being met
Define credit accident and health insurance
Form of coverage that will make loan payments to a creditor while the person is disabled
Define hospital income insurance
Disability income policy that will provide a set daily benefit amount while a person is in the hospital
Are stocks, rents and dividends taken into consideration when establishing benefits
No, they are not considered
Are disability income benefits taxable
No
Define the accidental death and dismemberment rider
Policy would pay a lump sum and/or disability income benefits in the event of death or dismemberment resulting from an accident
Define a waiver of premium rider
The insured does not need to pay premiums while they are totally and permanently disabled.
What will a waiver of premium rider include in the policy language
The policy will specify an age limit for this coverage and define total and permanent disablity
Does the waiver of premiums start after the waiting period
Yes, but any premiums paid during the waiting period would be refunded if the disability lasts beyond the waiting period.
Define accident medical expense rider
Will pay to cover medical expenses incurred when an insured has to take time off to receive medical treatment (only applies to injury and if only treated by physician)
Define guaranteed insurability rider (future increase option)
Allows the insured to buy additional coverage without proof of insurability
What does the guaranteed insurability rider set a limit on
It places a limit on the amount of insurance that can be purchased at one time (You can only buy $500 worth of additional coverage every five years up to age 45)
Define return of premium rider
Promises to return a percentage of the premium (usually 80%) at certain intervals (usually every 10 years) reduced by the amount of claims paid during that interval
Define cash surrender value
When the insured leaves the refund premium with the insurer, the amounts left on the deposit will earn interest and can be collected when the policy terminates or you can apply it to future premium payments
What are 4 things you need to qualify for Social Security disability benefits
- Must have a definition of “disabled”
- Have “disability insured” status or “special insured” status
- Have a disability that is expected to last 12 months or the end of death
- Wait a 5 month waiting period before benefits are payable
Define a person that is “disability insured”
They have 20 quarters of credit during the 40-quarter period ending in the quarter of disability and is fully insured
Define “fully insured”
Has at least one quarter of credit for each calendar year after age 21
Define “special insured”
Applies to certain persons disabled before age 31
What are Social Security benefits based on
The worker’s primary insurance amount (benefits may be reduced if the insured is receiving worker’s comp)
Define transplant benefit under SS
If a person has an organ transplant, then they are automatically eligible for SS Disability for a period of 12 months after surgery ( this benefit can continue if the person is unable to work after 12 months)
Define social insurance rider
Add coverage to make up for any benefit that a person would be expected to receive from Social Security or Worker’s comp (person was disabled but didn’t qualify to receive SS due to not meeting the waiting period - this rider will make up for it)
Define additional monthly benefit (AMB)
Provide benefit during the first year of disability, because it usually takes a year before SS actually pays benefits
What is the typical waiting period for a waiver of premium for life insurance
Usually a 6 month waiting period before premiums are waived, but premiums will be refunded during those six months if the disability lasts six months
What is important to know about waiver of premium for life insurance
It usually expires at a specified age (i.e 60, 65 or 70), so you will not be able to receive a premium rider if you have a disability after this age, only before.
Define disability income rider for life insurance
Will provide a monthly income based on the face amount of the insurance policy (i.e $10 per $1,000 of the face amount) but it cannot exceed the percentage of the insured’s earnings. (usually has a 3 to 6 month waiting period)
Define a multiple (double/triple) indemnity rider
Double or triple the death benefit if the insured’s death is caused by an accident
For group disability income policies, how much will pay out
Usually less than 70% of the employee’s earnings
For group disability income policies, are employees taxed on what the employer contributes
No, they are not taxed
For group disability income policies, when is the employee taxed
The employee is taxed on any benefit that they receive
For group disability income policies, what if the employee paid for part of the premiums
Then their part of the benefit will not be taxed (they will only be taxed on the benefit that the employer paid for)
Define a buy-sell agreement
Co-owners purchase the interest of an owner at a prearranged price if certain events occur, such as the disability of one of the owners (you have to buy out the owner at a predetermine price if one of the owner has a disability)
Define a cross purchase arrangement
Each co-owner owns a disability buyout policy on each other and is paid the necessary income to buy out each other if one of them becomes disabled
Define an entity plan buyout policy
The partnership or corporation owns disability buyout policies on each co-owner and is paid the funds to buy out the disabled owner’s interest
Define key employee disability insurance
Provide income to a business to cover the cost of hiring and training a replacement when a key employee or key partner is disabled
Under key employee disability insurance, could the payout be greater than the salary for the person that they are replacing
Yes, because training and salary for the new person could be higher than the salary than the person that they are replacing
Define business overhead expense coverage
Provide income to pay for ongoing routine overhead expenses (rent, salaries, phone bills) up to a specified amount when the business owner is disabled
What are four things that are not covered under business overhead expense coverage
- Insured’s own lost income or salary
- Increased expenses caused by the insured’s disability
- The cost of capital goods
- The cost of new inventory
Define an elimination period (same as a waiting period)
Specific period of time starting from the onset of the disability during which disability benefits are not payable (you have to wait 30 days before you get your benefits)
When will a disability income policy generally only pay
It usually only pays if the disability is caused by an injury (usually a sickness causes only a total disability)
Will a disability income rider on a life insurance cover both partial and total disabilities?
No - it will only cover total disabilities
Does a waiver of premium cover partial disability
No - it is only for people that are totally and permanently disabled
Are hospital income policies directly based off of expenses
No, it doesn’t care how much your hospital bills are, it is only there to pay you a set amount
During your probationary period, will a illness be covered
No, an illness will not be covered (only an injury)
