Disability Income Insurance

Question 1

Any Occupation

Answer 1

is total disability that requires that for disability income benefits to be payable, the insured must be unable to perform any job for which the insured is “reasonably suited by reason of education, training, or experience.”

Question 2

Own Occupation

Answer 2

is total disability that requires that in order to receive disability income benefits the insured must be unable to work at the insured’s own occupation.

Question 3

Nonoccupational

Answer 3

coverage is coverage provided by a Disability Income policy that does not provide benefits for losses occurring as the result of the insured’s employment.

Question 4

Presumptive Disability

Answer 4

is a disability income policy benefit that provides that if an insured experiences a specified disability, such as blindness, the insured is presumed to be totally disabled and entitled to the full amount payable under policy, whether or not the insured is able to work. Presumptive disabilities include total blindness, total deafness, loss of speech, and loss of two or more limbs.

Question 5

Partial Disability

Answer 5

is an Illness or injury preventing insured from performing at least one or more, but not all, of the insured’s occupational duties or the inability to work at that job on a full-time basis, either of which result in a decrease in income.

Question 6

Residual Amount Benefit

Answer 6

is a disability income payment based on the proportion of income the insured has actually lost, taking into account the fact that the insured is able to earn some income. For example of the insured suffered a 20% loss of income because of the partial disability, the residual benefit payable would be 20% of the benefit that the policy would provide for total disability.

Question 7

Accidental Means

Answer 7

is unforeseen, unexpected, unintended cause of an accident. Requirement of an accident-based policy that the cause of the mishap must be accidental for any claim to be payable.

Question 8

Accidental Results

Answer 8

are policies that use the accidental bodily injury provision (sometimes called the results provision) required that the result of the injury has to be unexpected and accidental. This is far less restrictive than the accidental means provision.

Question 9

Probationary Period

Answer 9

is a specified number of days after an insurance policy’s issue date during which coverage is not afforded for sickness. Standard practice for group coverages as well as disability coverage. They probationary period typically does NOT apply to accidents. The real goal of this provision is to prohibit people from buying insurance only when they need it and immediately filling a claim, otherwise known as adverse selection.

Question 10

Elimination Period

Answer 10

is a duration of time between the beginning of an insured’s disability and the commencement of the period for which benefits are payable. The elimination period is often considered the “deductible” for a disability policy and is directly correlated to the premiums of the policy. If an insured wants a lower premium, they will need to settle for a longer elimination period. If an insured want’s a shorter elimination period, they will have higher premiums.

Question 11

Benefit Period

Answer 11

is the maximum length of time during which a benefit is paid. The longer the benefit period, the higher the cost (premium) of the policy. Instead of charging additional premiums or excluding coverage when issuing a disability income policy to a substandard risk, an insurer may shorten the benefit period.

Question 12

Delayed Disability Provision

Answer 12

is a disability income policy provision that allows a certain amount of time after an accident for a disability to result, and the insured remains eligible for benefits. Most policies allow a certain amount of time during which total disability may result from an accident and the insured will still be eligible for benefits.

Question 13

Recurrent Disability Provision

Answer 13

is a disability income policy provision that specifies the period of time during which the reoccurrence of a disability is considered a continuation of a prior disability. Most policies provide for recurrent disabilities by specifying a period of time during which the recurrence of a disability is considered a continuation of the prior disability. During that time period, the insurer will then pay benefits without a new elimination period. If the recurrence takes place after that period it is considered a new disability. This means it will be subject to a new elimination period.

Question 14

The Social Security Rider

Answer 14

provides for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun, have been denied, or have begun in an amount less than the benefit amount of the rider

Question 15

Cost of Living Adjustment Rider

Answer 15

is a rider available with some policies that provides for an automatic increase in benefits (typically tied to the Consumer Price Index), offsetting the effects of inflation.

Question 16

Guaranteed Insurability Rider

Answer 16

is an arrangement, usually provided by rider, whereby additional insurance may be purchased at various times without evidence of insurability. This rider guarantees the insureds insurability giving them the right to purchase additional amounts of disability income coverage at predetermined times in the future without proof of good health.

Question 17

The Rehabilitation Benefit

Answer 17

facilitates vocational training to prepare insured for a new occupation. With some disabilities, insureds may not be able to return to their normal occupation but still be able to work at some kind of job. Under the rehabilitation benefit the insurer will pay the approved cost of a rehabilitation program to help the disabled return to work.

Question 18

The Percent-of-Earnings Approach

Answer 18

determines the benefit using a percentage of the insured’s pre-disability earnings and takes into account other sources of disability income.

Question 19

The Flat Amount Approach

Answer 19

specifies a flat income benefit amount that will be paid if the insured becomes totally disabled. Normally, this amount is payable regardless of any other income benefits the insured may receive. This amount is usually 50% of the full disability benefit.

Question 20

Change of Occupation Provision

Answer 20

allows the insurer to reduce the maximum benefit payable under the policy if the insured switches to a more hazardous occupation or to reduce the premium rate charged if the insured changes to a less hazardous occupation. If the insured changes to a less hazardous job, the insurer will return any excess unearned premium.

Question 21

Nondisabling Injuries

Answer 21

are injuries that may have resulted from an accident but are not necessarily disabling. Many disability policies include a provision for medical expense benefits that pay the actual cost of medical treatment for nondisabling injuries that result from an accident.

Question 22

Elective Indemnity Options

Answer 22

may be selected by the insured when applying for a disability policy. These are typically for short-term disability income policies and provide for an optional lump sum payment for certain named injuries.

Question 23

The Waiver of Premium Rider

Answer 23

allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent (as defined by the policy) and have sustained through the waiting period (as defined by the policy but typically, 90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void. This is NOT a loan. The insurance company is “waiving” the premiums” it’s just as if the premiums were paid on time each month.

Question 24

Purpose of Disability Income Insurance

Answer 24

• The insuring agreement of a disability income is designed to provide an individual with a specified income benefit in the event of a disabling accident or sickness or accident and sickness combined
• The financial impact of total disability may be worse than the financial impact of death
• Disability income policies are available as individual plans and group plans
• They also serve a very important function for businesses and business owners
• The most common type of individual disability income policy is the guaranteed renewable policy, which typically adjusts the premium on an annual basis and provide benefits for nonoccupational illnesses and injuries

Question 25

DISABILITY INCOME BENEFITS

Answer 25

• The insured’s income limits the amount of the monthly benefit that an insured may select in a Disability Income policy
• The benefits paid under a disability income policy are in the form of monthly income payments.
• The highest premium under the disability income policy is a 14-day waiting period with a 10-year benefit period
• Insurers typically place a ceiling on the amount of disability income protection they will issue on any one applicant, defined in terms of the insured’s earnings
• Insurers use two methods to determine the amount of benefits payable under their disability income policies: percent-of-earnings approach and the flat amount method.
• The first method is called the percent-of-earnings approach, which determines the benefit using a percentage of the insured’s pre-disability earnings and considers other sources of disability income
• The second method used to establish disability benefits is the flat amount method. Under this approach, the policy specifies a flat income benefit amount that will be paid if the insured becomes totally disabled. Normally, this amount is payable regardless of any other income benefits the insured may receive.
• In the event the insured dies because of the disability, any earned but unpaid benefits will be paid to the insured’s estate
• Group long-term disability benefit amounts are typically limited to 60% of a participant’s income

Question 26

Disability Defined

Answer 26

• With one exception (partial disability), an insured must be totally disabled before benefits under a disability income policy are payable
• What constitutes total disability varies from policy to policy
• The insured must meet the definition set forth in her policy
• In disability income insurance, the definition of total disability often considers the insured’s education, training, and experience
• There are two definitions: any occupation or own occupation

Question 27

Any Occupation

Answer 27

Any Combination or also known as “Combination Definitions”, requires the insured to be unable to perform any occupation for which he is reasonably suited by reason of education, training, or experience to qualify for disability income benefits

Question 28

Own Occupation

Answer 28

The “own occupation” definition of total disability requires that the insured be unable to perform the insured’s current occupation because of an accident or sickness.

• From a policyowner’s point of view, an “own occupation” disability income policy is more advantageous
• It is more expensive and difficult to qualify for

Question 29

Presumptive Disability

Answer 29

• This provision specifies certain conditions that automatically qualify the insured for the full benefit because the severity of the conditions presumes the insured is totally disabled even if he can work
• Presumptive disabilities include blindness, deafness, loss of speech, and loss of two or more limbs (in this case it is presumed you are disabled)
• A presumptive disability provision typically waives the usual requirements for total disability benefits

Question 30

Partial Disability

Answer 30

• The inability of the insured to perform one or more important duties of the job or the inability to work at that job on a full-time basis. Either of which results in a decrease in income.
• Normally, partial disability benefits are payable only if the policyowner has first been totally disabled
• Permanent Partial disability would be less than total impairment and equal to permanent impairment
• This benefit is intended to encourage disabled insureds to get back to work, even on a part-time basis, without fear that they will lose all their disability income benefits
• The amount of benefit payable when a policy covers partial disabilities depends on whether the policy stipulates a flat amount or a residual amount

Question 31

Flat Amount Benefi

Answer 31

• A flat amount benefit is a set amount stated in the policy
• This amount is usually 50% of the full disability benefit
• For example, let’s assume Helen, who has a disability income policy with an own-occupation definition, is severely injured after falling down a flight of stairs. She is unable to work for four months during which time her disability income policy pays a full benefit. After four months she can return to work, but only on a part-time basis earning substantially less than she did before her injury. If her policy did not contain a partial disability provision, her benefits would cease entirely because she no longer meets the definition of totally disabled. However, if her policy provides for partial disability benefits to be paid as a flat amount, she will be able to work on a part-time basis and continue to receive half of her disability benefits.

Question 32

Residual Amount Benefit

Answer 32

• Normally used after a full disability payment have been paid and the insured is back to work, however with a reduced workload
• A residual amount benefit is based on the proportion of income lost due to the partial disability, considering the fact that the insured is able to work and earn some income
• The benefit is usually determined by multiplying the percentage of lost income by the stated monthly benefit for total disability.
• For example, let’s say your job was to wash 10 cars a day. You broke your arm, were still able to work, but could only wash 6 cars a day because of the residual impact of the broken arm.
• If the insured suffered a 40% loss of income because of the partial disability, the residual benefit payable would be 40% of the benefit that the policy would provide for total disability.
• A Residual Disability benefit is usually a percentage of the total disability benefit for when the insured is working, but unable to perform some of the duties of his/her occupation

Question 33

Rehabilitation Benefit

Answer 33

• An insured may not be able to return normal occupation because of a disability, but still be able to work at some kind of job. The rehabilitation benefit facilitates vocational training to prepare insureds for a new occupation.
• Under the rehabilitation benefit in a disability income policy, the insurer will pay the approved cost a of a rehabilitation program to help a disabled return to work

Question 34

Cause of Disability

Answer 34

• Policies that use the accidental means provision require that the cause of the injury must have been unexpected and accidental
• Policies that use the accidental bodily injury provision (or results provision) require that the result of the injury has to be unexpected and accidental
• For example, Jim took an intentional dive off a high, rocky ledge into a lake. He struck his head on some rocks and ended up partially paralyzed. If his policy had an accidental means provision, the benefits would probably not be payable because the cause of his injury (the dive) was intentional. However, if his policy had an accidental bodily injury (or results) provision, benefits would be payable because the result of the accident (his injury) was unintentional and accidental.
• Today, most disability income policies use the accidental bodily injury or results provision, which is far less restrictive than the accidental means provision

Question 35

DISABILITY INCOME POLICY PROVISIONS Probationary Period

Answer 35

• The probationary period specified in a disability insurance policy is the period of time that must elapse following the effective date of the policy before benefits are payable.
• It is a one-time-only period that begins on the policy’s effective date and ends 15 or 30 days after the policy has been in force.
• Purpose of the probationary period is to exclude preexisting sicknesses from coverage and provide a guidepost in borderline cases when there is a question as to whether an insured became ill before or after the effective date of the policy.
• Helps protect the insurer against adverse selection because those who know they are ill are more likely to try to obtain insurance coverage.
• Probationary period does not apply to accidents because you cannot anticipate an accident

Question 36

Elimination Period

Answer 36

• The elimination period is the time immediately following the start of a disability when benefits are not payable
• Elimination periods eliminate claims for short-term disabilities
• The longer the elimination period, the lower the premium for comparable disability benefits
• The elimination period is sometimes called the waiting period

Question 37

Benefit Period

Answer 37

• The benefit period is the maximum length of time that disability income benefits will be paid to the disabled insured
• The longer the benefit period, the higher the cost of the policy
• Individual short-term policies provide benefits for six months to two years
• Individual long-term policies are characterized by benefit periods of more than two years, such as 5, 10, or 20

Question 38

Delayed Disability Provision

Answer 38

• In some cases, total disability does not occur immediately after an accident but develops some days or weeks later
• Most policies allow a certain amount of time during which total disability may result from an accident and the insured will still be eligible for benefits
• The amount of time allowed for a delayed disability may be 30, 60, or 90 days etc.

Question 39

Recurrent Disability Provision

Answer 39

• It is not unusual for a person who experienced a total disability to recover and then, weeks or months later, undergo a recurrence of the same disability
• Most policies provide for recurrent disabilities by specifying a period of time during which the recurrence of a disability is considered a continuation of the prior disability
• The insurer will then pay benefits without a new elimination period • If the recurrence takes place after that period, it is considered a new disability and will be subject to a new elimination period before benefits are again payable
• If the recurrence takes place after that period, it is considered a new disability and will be subject to a new elimination period before benefits are again payable
• For example, say you were recovering from a serious illness and missed 2 months of work. Then you went back to work and 2 weeks later the disability came back or recurred and you were forced to miss more work while you recovered again.

Question 40

Change of Occupation Provision

Answer 40

Under the change of occupation provision, if an individual covered under a disability income policy is injured while engaged in an occupation that is more hazardous than the occupation stated in the policy, the result will be the benefit level is reduced. If the insured is engaged in a less hazardous occupation than that was originally stated in the policy, the benefits will likely be increased

Question 41

Nondisabling Injury

Answer 41

• Frequently, a person covered by a disability income policy will suffer an injury that does not qualify for income benefits
• Many such policies include a provision for a medical expense benefit that pays the actual cost of medical treatment for nondisabling injuries that result from an accident or sickness

Question 42

Elective Indemnity

Answer 42

• Some short-term disability income policies provide for an optional lump- sum payment for certain named injuries
• The insured may sometimes select this elective indemnity option when applying for the policy

Question 43

Waiver of Premium Rider

Answer 43

• A waiver of premium rider generally is included with guaranteed renewable and noncancelable individual disability income policies.
• It exempts the policyowner from paying the policy’s premiums during periods of total disability.
• To qualify for the exemption, the insured must experience total disability for more than a specified period, commonly three or six months.
• The waiver of premium generally does not extend past the insured’s age 60 or 65
• Premiums are waived beginning at the date of disability

Question 44

Disability Benefits in a Life Insurance Contract

Answer 44

Many insurers offer a waiver of premium rider that also includes a disability income benefit. Most riders provide a benefit of one-percent of the face amount of the policy which is payable if the insured is totally disabled.

Question 45

Social Security Rider

Answer 45

The Social Security rider provides for the payment of additional income when the insured is eligible for social insurance benefits, but those benefits have not yet begun, have been denied, or have begun in an amount less than the benefit amount of the rider

Question 46

Cost-of-Living Adjustment (COLA) Rider

Answer 46

• The cost-of-living adjustment (COLA) rider provides for indexing the monthly or weekly benefit payable under a disability policy to changes in the Consumer Price Index (CPI)
• Typically, the benefit amount is adjusted on each disability anniversary date to reflect changes in the CPI

Question 47

Guaranteed Insurability Rider

Answer 47

This option guarantees the insured the right to purchase additional amounts of disability income coverage at predetermined times in the future without evidence of insurability

Question 48

Exclusion Rider

Answer 48

An exclusion rider on a disability income policy means that a specified disease or body part is not afforded coverage