Insurance: Chapter 5 Flashcards
In terms of its negative financial effect, what can long term disability be more severe than?
Death
What is total disability for the benefits of own occupation?
The inability of the insured to engage in his or her own occupation
What does total disability for modified any-occupation mean?
The insured is unable to engage in any occupation for which he/she is qualified by reason of training, education or experience.
What is a split definition policy?
Where a policy uses own occupation disability for a certain number of years and then switches to modified any-occupation for the remainder
What is the term totally disabled that is reflected in social security rules?
The insured is unable to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment which is expected to result in death or is continuous or expected to be continuous for no less than 12 months
Loss of income policy pays benefits based on what?
Economic loss following a physical disability event. Partial disability is covered.
What is noncancelable continuance provision contract?
Disability contracts guarantee that the individual can keep the policy in force by paying the state premium and the premium will not increase (normally renewable until age 65)
Can guaranteed renewable disability contracts increase the premium?
Yes, on a class basis not an individual basis. You would buy this instead of a noncancelable contracts for lower premiums now but for the same benefits. Premium however is not guaranteed for the life of the contract
What does a conditionally renewable contract allow?
To continue a noncancelable or guaranteed renewable contract beyond age 65, usually only has a 2 year benefit and the premium is adjusted for age and benefit. Can only be extended if the insured is still employed.
These can also be found in individual medical and long-term care insurance
How long is the pay benefit period for disability income policies written today?
Policies today pay to age 65+, but can have shorter duration of benefits for 2-5 years. These policies no longer offer lifetime coverage.
How is the elimination/waiting period described on disability income insurance?
Acts like a deductible, the longer the waiting period the lower the premium. Waiting periods up to 2 years are available but most policies feature a 90 day wait period
What are the presumptive disabilities that most policies provide total disability benefits being paid for?
Loss of sight, hearing, speech, both hands, both feet or one hand and one foot together.
What is the typical benefit amount for long term disability plans?
50-60% of earnings, a client making $400k or more may only be eligible to insure 40-50% of earnings.
How do disability income plans discourage malingering?
Client’s cannot buy unlimited amounts of disability insurance, most plans only offer up to 50% of employees gross income in order to get them back working.
Why do employers add the partial disability benefit as a rider for free?
They want to encourage the insured to resume work as soon as possible, this benefit usually starts after a period of total disability and lasts up to 6 months. It is usually 50% of the benefit for total disability
What occupation policy can purchase a residual disability benefit rider?
Own occupation. It is an expensive benefit but it is payable in proportion to the insured’s reduced earnings (20-80% range).
Example: If my disability causes my income to be reduced by 60% my total disability monthly amount is payable to that same percentage of 60%.
What is a guaranteed insurability option?
Permits an insured person the right to purchase additional amounts of coverage without new proof of insurability. The increased coverage is subject to financial underwriting and the option is subject to an additional premium.
What do Cost-of-living adjustments (COLAs) provisions address?
Increasing benefits during periods of disability. They provide a fixed percentage increase or a floating percentage increased reflecting an inflation index. They are subject to an additional premium
What is a social insurance substitute benefit (SIS)?
The monthly benefit for total disability will be equal to SIS shown on the policy less any social security disability payments received in the month. If the person receives a social security disability benefit, the SIS will be reduced or terminated. The disability must last for 12 months for social security to pay and there is a 5 month waiting period.
Summarize the taxation of disability insurance premiums and benefits when paid by an employee
Contract is owned by employee, benefits are tax free and premiums are not deductible
Summarize the taxation of disability insurance premiums and benefits when paid by an employer under a bonus arrangement
Contract is owned by employee, benefits are tax free, premium is included on w-2 and premiums are deductible by employer as bonus to employee
Summarize the taxation of disability insurance premiums and benefits when paid by an employer under salary continuation plan
Contract is owned by employee, benefits are taxable and premiums are deductible by employer
Summarize the taxation of disability insurance premiums and benefits when paid by partnership or S corporation
Contract is owned by partner or 2% shareholder of S corp, benefits are tax free (premium is conduit income to partner or shareholder) and premiums are deductible by partnership or s corp
Who generally excludes long term care insurance coverage?
Private medical insurance policies (both group and individual).
Medicare is also inadequate due to many restrictions
What are the requirements to be certified for long term care insurance?
- The individual is expected to be unable to perform (without substantial assistance from another person) at least two activities of ADL’s for a period of 90 days.
~eating, bathing, dressing, using toilet, maintaining continence and transferring from bed to a chair - Substantial services are required to protect the individual from threats to health and safety due to cognitive impairment (alzheimers, strokes or other brain damage)
Why types of services are covered under long term care insurance?
skilled, intermediate, custodial, home health care, and adult day-care. Can be as much as 100% of the nursing home benefit
What are the periods for elimination and benefit for LTC policy?
Elimination: 30 days to 365 days
Maximum benefit period: 2 years to lifetime
What is a common provision of LTC insurance?
Inflation protection. If elected the daily benefit can increase by simple interest (5%) or by compound interest.
What are the limits on the dollar amount for coverage that can be purchased?
There are no limits unlike disability insurance.
What is the underwriting of a LTC contract based on?
The health of the insured, underwriting tends to be much more restrictive as the client gets older
How are premiums and benefits taxed for LTC contracts?
Premiums paid and unreimbursed expenses for qualified LTC services are deductible. Deductions are subject to 7.5% of AGI floor.
If a policy provides cash at surrender is it qualified?
No, it is a nonqualified policy and premiums cannot be deducted.
FSA accounts may not be used to reimburse premiums for LTC, but HSA accounts can be used for LTC expenses and paying premiums in a qualified policy.
To qualify for skilled nursing care benefits, what are all the conditions must the patient meet?
- patients condition requires skilled nursing
- Patient has been in hospital at least 3 days in a row before admission into skilled nursing facility
- The patient is admitted to the skilled nursing facility within a short time after leaving the hospital
- The patients care in the skilled nursing facility is for a condition that was treated in the hospital
- A medical professional certifies that the patient needs and receives skilled nursing care
Skilled nursing facility coverage paid by medicare?
First 20 days are paid in full by medicare. Days 21-100 a co-payment is required by the patient. After day 100 patient must pay full cost.
What does the social security act grant certain states?
Medicaid funds for individuals whose income and resources are insufficient to meet cost of necessary medical care.
Inpatient and outpatient hospital services
Nursing facility services
Physician services
Lab and x-ray services
Home health services
What are the Medicaid lookback rules that make people ineligible?
- If they’ve given money or assets away within five years of incurring nursing home expenses
- If they have more than $636k in home equity
- States must be named as the remainder beneficiary on annuities
