Disability Income and Related Insurance (CH 8)

Question 1

Accidental Means

Answer 1

The unexpected cause of an accidental bodily injury. under an accidental means definition, the mishap itself must be accidental. If a person does something to contribute to the accident, the claim would not be paid under this restrictive definition.

Question 2

AD &D

Answer 2

Accidental Death and Dismemberment

Question 3

Cash Surrender Value

Answer 3

The value reposing in a policy that is the legal property of the policy owner and that may be expected should the policy be surrendered for cash. Synonymous with cash value.

Question 4

Disability Income Insurance

Answer 4

A form of Health Insurance that provides periodic payments to replace income, actually or presumptively lost, when the insured is unable to work as a result of sickness or injury.

Question 5

Guaranteed Renewable

Answer 5

A contract that gives the insured continued coverage in return for the timely payment of premiums for a substantial period of time. During that period of time the insurer has no right to make any change in any provision of the contract other than a change in the premium rate for all insureds in the same class.

Question 6

Indemnity

Answer 6

Insurance is designed to restore the policy owner to the same financial condition enjoyed prior to a loss. The intent is to cover the amount of the actual loss only; the insured should not profit from a loss situation.

Question 7

Key Employee (Person) Disability Insurance

Answer 7

Insurance designed to protect a business against financial loss in the event that a specified important employee became disabled.

Question 8

Long-Term Disability

Answer 8

A disability having duration longer than a short-term disability, which generally pays benefits from 13 weeks, 6 months, or 2 years. A 5 year payout would be called long term.

Question 9

Non-cancelable

Answer 9

A contract of Health Insurance that the insured has a right to continue in force by payment of premiums, as set forth in the contract, for a substantial period of time, and the insurer has no right to change.

Question 10

Non-occupational Clause

Answer 10

A Health policy that covers off-the job accident and sickness.

Question 11

Partial Disability

Answer 11

A condition in which, as a result of injury or sickness, the insured cannot perform all of the duties of his occupation. Partial disability follows a period of total disability.

Question 12

Permanent and Total Disability

Answer 12

Total disability from which the insured does not recover. When used as a definition of disability in a policy, permanent is presumed after a stated period of time.

Question 13

Presumptive Disability

Answer 13

A disability involving loss of sight, hearing, speech, or any two limbs, which is presumed to be a permanent and total disability. The insured is not required to have periodic medical examinations to prove continuing disability.

Question 14

Reducing Term Policy

Answer 14

Pays long-term fixed monthly business obligations by providing a specific amount of coverage each month if the insured suffers long term disability.

Question 15

Relationship to Earnings

Answer 15

The connection between earnings and some other construct. In the case of DI insurance, the relationship is that as earnings increase, the DI coverage should also be increased. However, coverage should never be increased disproportionately to earnings.

Question 16

Short-Term Disability (STD) Insurance

Answer 16

A type of insurance coverage that provides net income continuation for up to six months for any employee disabled by illness or accidental in a non-job situation.

Question 17

Waiting Period

Answer 17

A period of time between the beginning of a disability and the date benefits begin.

Also known as the Elimination Period.

Question 18

Disability policy exclusions

Answer 18

• injuries or illness resulting from work related injury
• act of war
• participation in a riot or insurrection
• drug addiction or alcoholism
• during the act of committing a felony or conviction for a felony
• an act of fraud or misrepresentation involving a disability
• not consulting a licensed practitioner for necessary treatment

Question 19

ERISA

Answer 19

Employee Retirement Income Security Act

Question 20

What policy rider allows the future purchase of insurance without evidence of insurability based on attained age when written?

Answer 20

Future increase option rider.

Question 21

Which rider would pay the difference between the monthly benefit amount of the policy and any monthly benefit payable by Social Security or Workers Compensation?

Answer 21

Social Insurance Supplement Rider.

The Social Insurance Supplement Rider (SIS) will pay the monthly benefit selected LESS any monthly amount received from Social Security or Workers Comp.

Question 22

Which of the following would provide benefits during the first year to supplement government or employment short term disability payments?

Answer 22

Additional Monthly Benefit Rider.

The Additional Monthly Benefit Rider (AMB) will pay additional benefits in the first year of a disability to supplement an employer disability plan that may be short term or government benefits that are low.

Question 23

A plan that provides payment to a corporation for the disability of a principal stockholder after one year and is paid to the corporation so that it can purchase the stock of the disabled principal is

Answer 23

disability buy/sell insurance.

The disability buyout policy is designed with a relatively long elimination period to give the disabled owner an opportunity to recover. Most companies offer 12-, 18-, or 24-month elimination periods. The benefit is usually paid in a lump sum, so the non-disabled owners can buy out the disabled owner and end the relationship as easily as possible.

Question 24

The own occupation definition of a total disability means you cannot perform any duties

Answer 24

of your own job for 2 years.

Own occupation means you cannot do any of the duties of your own job for at least 2 years. The other choices define the “any occupation” definition.

Question 25

Which determines the amount of benefits you are entitled to under OASDI?

Answer 25

PIA.

Under FICA (Federal Insurance Contribution Act), our retirement benefits, survivor benefits, and disability income benefits from Social Security are all based on the PIA, which is your primary insurance amount. The PIA is what you would receive for your retirement benefit based on your AIME (average indexed monthly earnings) at your FRA (full retirement age), which is based on your date of birth and is currently increasing from the former full retirement age of 65 to 67.

Question 26

Residual Disability Benefits

Answer 26

based on loss of earnings.The loss of earnings may be caused by the fact the insured is not able to work full-time, or may work full-time but is not be able to perform all normal job duties, or the insured may work full-time, but still suffer a loss of income due to her disability. Most companies pay residual benefits for a loss of earnings between 20% - 80%. Below 20%, the company will consider the insured totally disabled and pay 100% of the benefit; above 80%, the company considers the insured fully recovered and pays nothing. If the insured continues to suffer a loss of earnings, residual benefits may be paid for the policy’s benefit period.

Question 27

What statement is true concerning waiver of premium on an accident and health contract?

Answer 27

waiting period is typically 90 days.

Question 28

Under the waiver of premium provision of a disability income policy, when does the insured resume paying premiums?

Answer 28

When the insured returns to work and is no longer disabled.

Question 29

Which of the following best follows the Social Security definition of a total disability?

Answer 29

Unable to perform any substantial gainful work and the disability will last for 1 year or result in an early death.