Disability Income & Long-Term Care Insurance

Question 1

Disability Income Exposures

Personal

Answer 1

• Loss of income: partial/full
• Long term
• Short term

Question 2

Disability Income Exposures

Business

Answer 2

• Key employee/owner/partner
• How to keep a disabled employee employed
• Business overhead expense

Question 3

Disability Income Insurance Considerations

Underwriting

Answer 3

• Occupational classes: blue collar, white collar, professional
• Can replace (purchase coverage) about 2/3 of earned income
• Benefit amount/term available can vary by class

Question 4

Disability Income Insurance Considerations

Taxation of Benefits

Answer 4

• Employee pays premium: benefits
are not taxable to the recipient
• Employer pays premium: benefits received are taxable to employee
• Employee pays premiums with pre-tax dollars: benefits are taxable to employee

Question 5

Definitions of Disability

“Any Occupation” (most restrictive)

Answer 5

• Considered disabled if unable to engage in any
occupation
o most similar to Social Security definition

Question 6

Definitions of Disability

“Modified Any Occupation”

Answer 6

• Considered disabled only if unable to engage in
any occupation for which the insured is reasonably
fitted by education, training, and experience
will frequently incorporate “prior economic status”
o status as well

Question 7

Definitions of Disability

“Own Occupation” (most liberal)

Answer 7

• Considered disabled if unable to engage in own,
specific occupation (e.g., brain surgeon)

Question 8

Definitions of Disability

“Split Definition” (mainly found in group policies)

Answer 8

For a specified period, the insured is considered disabled if he or she is unable to engage in his or her own occupation, then is considered disabled only if he or she cannot engage in any occupation (any-occ or modified any-occ). Often a retraining program may be stipulated during the first part of the disability period.

Question 9

Definitions of Disability

“Loss of Income”

Answer 9

• Benefits are payable following the elimination period when there is a loss of income due to reduced capacity to work caused by illness
or injury. Neither time nor duties are considered.
• Income loss must generally exceed 20% to 25%. Recognized income may be either income received or income earned.
• This type of policy completely avoids having to define disability.

Question 10

Question 1 - Group Classifications
All of the following are differences between typical
blue-collar disability coverage and white-collar
disability coverage, except that

Answer 10

a. the definition of disability becomes
progressively more liberal when approaching
the white-collar level.
b. the duration of benefit payable becomes
progressively longer when approaching the
white-collar level.
c. benefit payments become progressively lower
when approaching the white collar-level.
d. the availability of other policy riders increases
when approaching the white-collar level.

Question 11

Disability Income Policy Continuance Provisions

Noncancellable (“noncan”)

Answer 11

• Continuous policy guaranteeing the insured the

right to renew for a stated number of years or to a stated age, with the premium guaranteed at each renewal

Question 12

Disability Income Policy Continuance Provisions

Guaranteed renewable

Answer 12

• Similar to noncancellable (no premium increase
for individuals), but a company can adjust the
premium rates for an entire policyholder class

Question 13

Disability Income Policy Continuance Provisions

Presumptive disability benefits

Answer 13

• Total disability benefits paid when the insured suffers loss of use of two bodily members (both hands, arm and a leg, etc.), or loss of sight, hearing, or speech, regardless of whether or not the insured can do work for pay (specifics vary)

Question 14

Partial & residual disability benefits

Answer 14

• Benefits paid when the insured is partially disabled; the amount paid is generally based on the percentage of income lost (or may be a fixed benefit such as 50% of the fully disabled amount)

Question 15

Disability Income Policy Riders

Guaranteed Insurability Option

Answer 15

• allows purchase of additional benefit

Question 16

Disability Income Policy Riders

Cost-Of-Living

Answer 16

• benefit increases by percentage of CPI
• AIR (additional insurance rider): benefit
increases by a fixed percentage

Question 17

Disability Income Policy Riders

Social Insurance

Answer 17

• reduces premium by reducing benefit when

social insurance pays

Question 18

Disability Income Insurance Analysis

Breadth of the analysis

Answer 18

• Policy comparison
o Exposures
o Features
o Riders

Question 19

Disability Income Insurance Analysis

Answer 19

• Company comparison
o Financial strength
o Strength of market
presence
o Underwriting philosophy
o Handling of claims

Question 20

Levels of Health Care for Long-Term Care

Answer 20

1. Skilled Care (SNC)
24-hour registered nurse available;
supervision of a doctor
2. Intermediate Care
Less intensive nursing or
rehabilitative care
3. Custodial Care
Assistance necessary for health
and maintenance of individual
4. Home Care
Care in patient’s home; first level
9-18
of care that is not institutional
5. Respite Care
Allows the primary caregiver a
break from caregiving duties

Question 21

Activities of Daily Living (ADLs)

Answer 21

• Dressing
• Transferring
• Toileting
• Eating
• Bathing
• Maintaining continence plus
• Cognitive impairment/ dementia (e.g., Alzheimer’s)
Should cognitive impairment
o occur, it supersedes policy
requirements for inability to
perform two ADLs

Question 22

Important Long-Term Care Policy Provisions

Answer 22

1. Prior hospitalization requirement (such policies
   are to be avoided)
2. Level of care required for initial benefit payments
   to begin
3. Elimination period (waiting period from eligibility
   until payments begin)
4. Benefit period
   5 Renewability and time of underwriting

Question 23

Important Long-Term Care Policy Provisions continued

Answer 23

6. Pre-existing condition waiting period
7. Waiver of premium
8. Nursing facility requirements
9. Qualification for home health care benefits
10. Benefit amounts
11. Inflation rider availability

Question 24

Question 2 - Levels of Long-term Care
Which of the following is considered to be the
highest level of long-term care?

Answer 24

a. custodial care
b. respite care
c. skilled nursing care
d. intermediate care
e. home care

Question 25

HIPAA Qualification

Answer 25

• Limited ADLs or cognitive impairment required as
benefit triggers
• Nonforfeiture benefits (examples)
o Reduced paid-up insurance
o Extended term insurance
o Shortened benefit period
o May not include cash refund
• Guaranteed renewable
• Conforms with NAIC LTCI model regulation

Question 26

LTCI Tax Issues

Premiums

Answer 26

• deductible up to annual limit

Question 27

LTCI Tax Issues

Benefits

Answer 27

• taxability calculated by formula using an annually indexed per diem amount
• reimbursement for actual expenses not normally taxable

Question 28

Qualified or Nonqualified?

Answer 28

• Qualified policies have potential (HIPAA-related)
tax benefits
• However, LTC expenses now qualify as a medical expense for income tax purposes
• Choose the best policy: qualified or non qualified, to meet the client’s needs
• Tax issues should be a secondary consideration

Question 29

Medicare and Long-Term Care

Answer 29

• Limited (if any) LTC benefits from Medicare
• Requirements
o Must spend at least three days in a hospital as an
admitted patient (not for observation)
o Must enter a Medicare-approved skilled nursing
facility within 30 days of hospital release
• Benefits
o First 20 days paid in full
o Days 21-100 paid with a daily deductible ($144.50)
o Days 100+ no benefit
o Limited home health care

Question 30

Medicaid

Answer 30

• LTC benefits for the impoverished
• Rules vary from state-to-state
• General Requirements
o Must be medically certified as needing care
o Must “spend down” assets (be impoverished)
o Specific asset/income requirements also vary state-by-state
• Considerations
o Quality of care
o Impoverishment issues
o Potential penalties for improper asset transfer
o Availability of Medicaid patient beds

Question 31

Question 3 - Medicare and Long-Term Care
Which of the following stipulations must be met
for Medicare to cover the cost of long-term
care?

Answer 31

a. The care can be needed either full or part
time.
b. The patient’s condition must be expected to
improve.
c. The need for care can be determined by the
patient’s family.
d. The care can be either skilled or unskilled.

Question 32

Question 5 - HIPAA and LTC Guidelines
HIPAA requires qualified long-term care policies
to adhere to which of the following guidelines?
I. They must recognize five or six ADLs.
II. They must cover cognitive impairment.
III. Reinstatement must be possible if a policy
lapses due to cognitive impairment.

Answer 32

a. I only
b. II only
c. I and III only
d. I, II, and III

Question 33

Question 6 - Group Disability Insurance
Which of the following is true regarding group
disability insurance?

Answer 33

a. Group policies are usually offered with
riders.
b. Most policies provide an own occupation
definition of disability to age 65.
c. A group policy often has a more stringent
long-term definition of disability than an own
occupation individual policy.
d. Group policies are usually issued after
asking the individuals in the group healthrelated
questions

Question 34

Question 7 - How Much LTC Insurance to Buy
When determining how much long-term care
insurance to buy, all of the following should be
considered except

Answer 34

a. the cost of long-term care in the client’s
area.
b. marital status of the client.
c. HIPAA qualification.
d. daily benefit amount offered by the policy.