Disability Income & Long-Term Care Insurance Flashcards
Learning Objectives 9-1: Identify the risk exposures a client faces related to the loss of earning capacity. 9-2: Identify disability underwriting issues. 9-3: Describe characteristics and essential terms found in disability income policies. 9-4: Describe the operation of disability insurance riders. 9-5: Analyze a given declarations page to determine the disability income insurance coverage that a client has. 9-6: Identify the key considerations that must be taken into account in purc
Disability Income Exposures
Personal
- Loss of income: partial/full
- Long term
- Short term
Disability Income Exposures
Business
- Key employee/owner/partner
- How to keep a disabled employee employed
- Business overhead expense
Disability Income Insurance Considerations
Underwriting
- 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
Disability Income Insurance Considerations
Taxation of Benefits
• 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
Definitions of Disability
“Any Occupation” (most restrictive)
• Considered disabled if unable to engage in any
occupation
o most similar to Social Security definition
Definitions of Disability
“Modified Any Occupation”
• 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
Definitions of Disability
“Own Occupation” (most liberal)
• Considered disabled if unable to engage in own, specific occupation (e.g., brain surgeon)
Definitions of Disability
“Split Definition” (mainly found in group policies)
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.
Definitions of Disability
“Loss of Income”
• 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 1 - Group Classifications
All of the following are differences between typical
blue-collar disability coverage and white-collar
disability coverage, except that
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.
Disability Income Policy Continuance Provisions
Noncancellable (“noncan”)
• 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
Disability Income Policy Continuance Provisions
Guaranteed renewable
• Similar to noncancellable (no premium increase
for individuals), but a company can adjust the
premium rates for an entire policyholder class
Disability Income Policy Continuance Provisions
Presumptive disability benefits
• 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)
Partial & residual disability benefits
• 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)
Disability Income Policy Riders
Guaranteed Insurability Option
• allows purchase of additional benefit
Disability Income Policy Riders
Cost-Of-Living
• benefit increases by percentage of CPI
• AIR (additional insurance rider): benefit
increases by a fixed percentage
Disability Income Policy Riders
Social Insurance
• reduces premium by reducing benefit when
social insurance pays
Disability Income Insurance Analysis
Breadth of the analysis
• Policy comparison
o Exposures
o Features
o Riders
Disability Income Insurance Analysis
• Company comparison o Financial strength o Strength of market presence o Underwriting philosophy o Handling of claims
Levels of Health Care for Long-Term Care
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
Activities of Daily Living (ADLs)
• 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
Important Long-Term Care Policy Provisions
- Prior hospitalization requirement (such policies
are to be avoided) - Level of care required for initial benefit payments
to begin - Elimination period (waiting period from eligibility
until payments begin) - Benefit period
5 Renewability and time of underwriting
Important Long-Term Care Policy Provisions continued
- Pre-existing condition waiting period
- Waiver of premium
- Nursing facility requirements
- Qualification for home health care benefits
- Benefit amounts
- Inflation rider availability
Question 2 - Levels of Long-term Care
Which of the following is considered to be the
highest level of long-term care?
a. custodial care
b. respite care
c. skilled nursing care
d. intermediate care
e. home care
HIPAA Qualification
• 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
LTCI Tax Issues
Premiums
• deductible up to annual limit
LTCI Tax Issues
Benefits
- taxability calculated by formula using an annually indexed per diem amount
- reimbursement for actual expenses not normally taxable
Qualified or Nonqualified?
• 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
Medicare and Long-Term Care
• 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
Medicaid
• 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 3 - Medicare and Long-Term Care
Which of the following stipulations must be met
for Medicare to cover the cost of long-term
care?
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 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.
a. I only
b. II only
c. I and III only
d. I, II, and III
Question 6 - Group Disability Insurance
Which of the following is true regarding group
disability insurance?
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 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
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.
