Mod 4 set 1 Individual- Disability

Question 1

what is the problem of disability

Answer 1

Extended period(s) of disability can lead to economic insecurity since;
o Person is unable to work (loss of income)
o Person may continue to incur medical and other expenses

– Unless the person has some form of disability insurance coverage (or substantial savings), economic insecurity can soon result
o The top two causes of bankruptcy in Canada are overextension of credit (29%), and 2nd is injury or illness leads to disability (15%)

– those less than aged 65 are 60% more likely to become disabled then they are to die

Question 2

Who buys/needs individual DI?

Answer 2

• self-emplyed
• individuals whose employers don’t provide benefits
• individuals who want supplemental to employer benefits
• IS a popular product (bc ppl change jobs 7 times on avg)

Question 3

accidental bodily injury

Answer 3

• used to determine if injury is covered
• injury has to be unforeseen
• injury tustve occurred while policy was inforce

Question 4

sickness

Answer 4

-sickness must be first contracted after contract takes effect

Question 5

pre existing definition

Answer 5

• exclusions of some pre existing conditions
  example: “DI benefits are not payable for a total disability that occurs within the first 12 months if the disability results from any sickness or injury for which the person was treated or attended to by a doctor, or for which prescribed drugs were taken within 90 days prior to the policy taking effect”

Question 6

Own occupation disability definition

Answer 6

-“An insured is deemed to be totally disabled when he/she cannot perform the major duties of their regular occupation”

Question 7

any occupation disability definition

Answer 7

“An insured is deemed to be totally disabled when he/she cannot perform the major duties of any occupation for which they are reasonably suited for”

Question 8

combination of own occ and any occ in the same policy

Answer 8

“Total disability occurs if due to injury or sickness, the insured cannot perform the major duties of their regular (own)
occupation for the first 2 years and
cannot perform any occupation for which they are
reasonably suited thereafter”

Question 9

presumptive disability clause

Answer 9

an insured is always considered totally disabled (even if still fully employed) if sickness/injury resulted in loss of: sight (both eyes), hearing (both ears), any two limbs, or speech.

Question 10

residual or partial disability benefits

Answer 10

Some plans pay a portion of monthly benefit if part of income lost due to disability

Question 11

recurrent disability

Answer 11

This is when a person becomes disabled, then later goes back to work but, then later becomes disabled again due to the same injury or illness

Question 12

3 key benefit components

Answer 12

Elimination period
Benefit period
Benefit amount

Question 13

Elimination period

Answer 13

-EP = # of days after the injury or sickness occurs during which no benefits are paid(e.g. a waiting period)
-EP is included in all DI policies
-EP helps exclude small illnesses or injuries where the insured is disabled for only a short period of time
– Most insurers have elimination periods ranging from 30 days to one year
– EP is usually the same for disability due to injury or sickness
– Since DI benefits are usually paid at the end of a month, a 3- month EP means the first monthly benefit is paid 4 months after the disability began

Question 14

Benefit period

Answer 14

The benefit period (BP) is the maximum period of time that
disability benefits will be paid (after the end of the EP)
o if still disabled and unable to work after the benefit period has
ended, no further DI benefits are received
o The BP is usually the same for all disability types(e.g. same if disability due to sickness or injury)

Question 15

Benefit Amount

Answer 15

recommended % is 60-70% of taxable earnings (note that
most Individual Disability Income payments are non-taxable)
– The benefit amount for most individual DI policies is a fixed monthly benefit
-amount is not adjusted to insured’s earnings or other DI benefits
Insurers try to limit the amount of DI coverage they will sell to an applicant so that the total of all DI benefits does not exceed certain thresholds (part of U/W process)
oDon’t want disability income to equal (or exceed) a persons income prior to disability-why?
oThresholds are higher for insured’s with lower income (80-85%) and grades down for those with higher income (60-65%)

Question 16

Non cancellable and guaranteed renewable

Answer 16

NC: policy premium can never be raised above amount shown in the policy and benefits may not be reduced – as long as premiums are payable on time
GR: policyholder has right to renew the policies with the same benefits, but insurer can increase premiums-as long as they are increased for all other policyholders in the same class

Question 17

Optional Benefits (Riders) that can be purchased

Answer 17

1. Cost of living adjustments (COLA)
   -provide for annual increase in benefits either a CPI direct link or stipulated % to proxy CPI
   – first adjustment would be after disabled for 1 year
2. Future Purchase Option
   -can purchase additional disability income insurance as ones income increases without being underwritten again
3. Residual Benefit
   -pays portion of disability benefit if you have a drop in income as result of disability (20% loss in income to qualify)

Question 18

Taxation

Answer 18

Individual DI policy benefits are generally non-taxable (given the policy is paid for with after-tax dollars)

Question 19

Individual DI vs Group DI

Answer 19

-Individual more costly
– Individual DI is much more flexible
– Individual DI plans or portable (i.e. job change), Group DI plans are not
– Group DI may have more restrictive disability definition and doesn’t typically offer cover partial disability (which is type of DI claim most likely to occur)
– Group DI benefits are taxable (when er pays premium) and are offset by other plans