Unit 15 Disability Income Insurance

Question 1

____ is defined as the inability to work.

Work can be categorized as:
- One’s own occupation, or
- ____ occupation

Answer 1

Disability

Any

Question 2

Under the ____ definition, disability is defined as an insured’s inability to perform any or all of the duties of their occupation at the time the disability begins.

Answer 2

Own Occupation

Question 3

With the ____ definition, an insured is disabled if they are unable to perform the duties of ANY occupation for which they are reasonably qualified by education, training, or experience.

Answer 3

Any Occupation

Question 4

Is Own Occupation or Any Occupation harder to qualify for?

Answer 4

Any Occupation

Some policies use both definitions - own occupation for a few years, then any occupation for the remainder of the disability period.

Question 5

An ____ contract pays a benefit if the insured experiences a loss of income as a result of suffering a covered illness or injury. The benefit trigger is the amount of income the insured is receiving at the time of the claim.

Answer 5

Income Replacement Contract

Question 6

____ disability is a condition that automatically qualifies insureds for disability benefits whether or not they can work. Conditions generally considered to be presumptive disabilities include: (4)

Answer 6

1. Loss of or loss of use of any two limbs
2. Total and permanent blindness in both eyes
3. Total loss of speech
4. Total loss of hearing in both ears

Question 7

Presumptive disability may also be determined using the loss of earnings test. The insured’s level of earnings before disability is compared to the level of earnings after disability. If post-disability earnings fall below pre-disability earnings by a certain ____, the insured is considered totally disabled and eligible for a full benefit even if they are earning some income.

Answer 7

Percentage

Question 8

Some older policies required that the insured be confined to the house and under the treatment of a doctor. This is called ____ disability.

Answer 8

Medically defined disability

Question 9

The ____ or ____ is the time period an insured must be disabled before benefits begin. This period may be thought of as kind of deductible - a TIME deductible rather than a dollar deductible. This period keeps the insurance company from paying claims for short term or temporary disabilities. When this period is satisfied, benefits begin and they are NOT paid retroactively.

These periods may be 30, 60, 90, or 180 days or longer, depending on the time period selected. A longer ____ period would reduce the insurance premium.

Answer 9

Elimination or Waiting Period

Question 10

Benefits are paid during the disability period or until the end of a specified period of time called the ____ period. Typically, these periods are ____ year(s), ____ year(s), ____ year(s), and to age ____.

Answer 10

Benefit Period

1 Year
2 Years
5 Years

65

Question 11

The ____ feature eliminates the need to pay premiums during any period of disability. This feature becomes effective after the waiting period is satisfied. The waiver premium is retroactively effective to the beginning of the waiting period and any premium paid during this period of time will be refunded once benefit payments begin.

Answer 11

Waiver of Premium

Question 12

Disabled insureds may also receive benefits from Workers’ Compensation or other government programs. During the planning process, the agent/producer must account for the possibility of an insured receiving too many benefits because this can encourage ____. The other possibility is receiving benefits that do not meet the individual’s income needs.

Answer 12

Malingering

Question 13

Government programs have long waiting periods and take a long time to process disability claims. The ____(AMB) rider pays an additional benefit amount with the regular monthly benefit for a limited period of time, usually ____ or ____ months. This additional benefit is paid even if the insured is getting government benefits during that period of time.

Answer 13

Additional Monthly Benefit Rider

6 or 12 Months

Question 14

The ____ rider is a monthly benefit. For those receiving a benefit for total disability, this rider pays for additional benefits, less any legislated benefits like Social Security or Workers’ Compensation for the same period of time. The payment is in addition to other benefits payable under the insurance policy.

Translation:
-Pays when social benefits are not being paid. Makes up the difference between the government benefit and the amount of the rider. Pays only during the policy benefit period.

Answer 14

Social Insurance Supplements (SIS) Rider

Question 15

____ - both job-related and non-job-related coverage.

____ - only non-job-related coverage.

Answer 15

Occupational

Non-occupational

Question 16

Insurers offer ____ benefits for individuals who are impaired, but not totally disabled, and return to work.

Answer 16

Reduced

Question 17

____ disability means the person can perform some, but not all, of the essential duties of his or her occupation. The partial disability benefit is ____% of the total disability benefit. These benefits are commonly paid for ____ or ____ months. An individual may qualify for these benefits either as a result of suffering a partially disabling illness or injury and returns to work in a reduced capacity.

Answer 17

Partial Disability

50%

3 or 6 Months

Question 18

____ disability benefits are another alternative for partial disability. These benefits are paid when the insured cannot perform some of the duties of their occupation and are based on the amount of income lost. To receive these disability benefits, the insured’s earnings must be reduced by a stated percentage due to the disability. If the reduced income is less than the stated percentage, no benefit is payable. If earnings meet or exceed the stated percentage, then the loss is multiplied by the total disability benefit to determine the benefit payment. For example, if earnings are reduced by 40% and the monthly disability benefit is $1000, the insured would receive $400 each month.

Answer 18

Residual Disability

Residual disability benefits can be paid if the insured is working full-time, however, income needs to be reduced.

Question 19

The ____ disability provision protects employees who return to work but become disabled again for the same or a related cause. If this situation occurs within a certain period of time, the insured is considered still disabled from the ____ disability and is not subject to a new elimination period. This provision encourages employees to return to work without fear of losing benefits if their disability continues.

Answer 19

Recurrent Disability

Original Disability

Question 20

Inflation will impact the purchasing power of disability benefits over time and for this reason most insurers offer an optional ____(COLA) rider. The benefit received by a disabled insured is increased automatically to match increases in the CPI. Typically, cost-of-living adjustments are made every ____ months for as long as the insured receives disability benefits.

Answer 20

Cost-Of-Living Adjustment Rider

12 Months

Question 21

The ____(FIO) rider allows insureds to buy additional amounts of disability income insurance coverage at stated future times without having to provide evidence of insurability. The rate for the additional coverage will be based on attained age. The insured is able to only buy a predetermined amount of additional coverage at each option date. The Insured’s income must have increased to the point that additional coverage is needed.

The number of purchase option dates is also limited. Usually, the rider provides option dates every ____ years from ages ____ to ____.

Answer 21

Future Increase Option Rider

3 Years

25 to 50

Question 22

Under the ____ insurance provision, the insurer can reduce the benefit paid to a disabled insured if the insured’s income is less than when they bought the policy. The insurer will base the amount of the benefit on the insured’s average income over a previous ____ month period.
Benefit Reductions are made in proportion to the drop in the insured’s earnings. If earnings have fallen by 20% that’s how much the benefits will be reduced. The insurer will refund a portion of the insured’s premium representing the decrease in coverage.

Answer 22

Relation of Earning to Insurance Provision

24 Months

Question 23

The ____ rider pays the principal sum, the full benefit, if the insured dies or loses two limbs or the sight in both eyes in an accident. The capital sum, one-half of the principal sum, is paid if the insured loses one limb or the sight in one eye.

When attached to a disability income insurance policy, the benefit is usually expressed as a multiple of the monthly indemnity amount. For example, the death benefit might be stated as a sum equal to 48 times the monthly disability benefit.

Answer 23

The Accidental Death and DSismemberment Rider (AD&)

Question 24

The ____ benefit pays for vocational training to prepare insureds for a new occupation when they are totally disabled and unable to return to their normal occupation.

If the insured decides to get into an insurer-approved vocational program, then total disability benefits will continue as long as the insured actively participates in the program and remains disabled.

Answer 24

Rehabilitation Program

Question 25

This benefit does not pay a disability benefit but instead reimburses the insured for medical expenses incurred to treat a non-disabling injury.

Answer 25

Medical Reimbursement Benefit (Non-Disabling Injury)

Question 26

The ____ rider provides for the return of a percentage of premiums paid (usually ____%) for a stated time period (usually every ____ years). The amount of any benefits paid during that period is subtracted from the refund amount.

The refund is made every ____ years and at age 65 or the date of death. Essentially, for an additional premium, the policyholder is guaranteed to get back ____% of their premium either in claims, premium refunds, or a combination of both.

Answer 26

Return of Premium Rider
80%
10 Years
10 Years
80%

Question 27

Common exclusions for disability income insurance: (5)

Answer 27

1. War or military service
2. Attempted suicide or other self-inflicted injuries
3. Non-commercial aviation
4. Felony
5. Living overseas

Question 28

Insurers will generally limit the amount of coverage they offer to an individual to ____% or ____% of net income or after-tax income. Existing coverage from another policy will be subtracted from the amount an insurer is willing to issue.

Answer 28

65% or 70%

Question 29

Insurers have two tools to deal with uninsurable individuals:

Answer 29

1. Increased premiums
2. Impairment rider (eliminates coverage for a particular condition that makes the individual uninsurable)

Question 30

True or false: Group disability insurance is cheaper but has less in terms of benefit.

Group plans often state the benefit amount as a ____ of the employee’s compensation while individual plans pay a specific dollar amount

Answer 30

True

Percentage

Question 31

____ disability policies have short elimination periods - sometimes just a few days or perhaps no elimination period at all. The benefit period is normally ____ to ____ months. Benefit amounts are generally ____% or ____% of the employee’s compensation.

Answer 31

Short-term Disability

6 to 24 Months

60 to 70%

Question 32

____ disability plans are designed to begin paying a benefit when the short-term disability benefit ends. The elimination period of the long-term plan is usually the same as the benefit period of the short-term plan. Benefit periods are from ____ years up to age ____ and benefits are usually with benefit payments from workers’ compensation and Social Security.

Answer 32

Long-term Disability

2 Years to Age 65

Question 33

____ insurance pays a monthly benefit to a business to cover expenses for additional help or outside services when an essential person is disabled. The benefit amount may be paid in a lump sum or in monthly installments. Generally, the elimination period will be ____ to ____ days, and the benefit period will be ____ or ____ years.

Answer 33

Key Person Disability Insurance

30 to 90 Days

1 or 2 Years

Question 34

The purpose of a ____ policy is to cover certain overhead expenses that continue when the business owner is disabled. The policy will indemnify the business for such business expenses as rent, taxes, insurance premiums, utility bills, and employees’ compensation, but not the owner’s or a partner’s salary. This policy just allows the business to keep operating.
Generally, these policies have elimination periods of ____ or ____ days and benefit period of ____ or ____ years. The average eligible overhead expense of the business determines the benefit amount of the policy.

Answer 34

Business OVerhead Expense (BOE)
15 or 30 Days
1 Year or 2 Years

Question 35

Disability Buy-Sell Insurance: …If the policy provides a monthly benefit, usually the benefit period will not exceed ____ years…

…The elimination period for disability buyout insurance will normally be ____ or ____ years…

Answer 35

5 Years

1 or 2 Years

Question 36

Qualifying for Benefits: To qualify for Social Security disability benefits, someone must have paid Social Security payroll (FICA) taxes to earn at least ____ credits during the last 13 quarters to be currently insured. The number of needed credits increases with age up to ____. Fully insured status is achieved when someone has paid into Social Security for ____ years, earning ____ credits.
Social Security definition of TOTALLY AND PERMANENTLY DISABLED:
- The person is unable to perform the duties of ANY occupation
- The disability is expected to last for at least ____ months or end in death or total blindness

Waiting period is ____ months.

Answer 36

6 Credits
62
10 years
40 Credits
12 Months
5 Months

Question 37

Social Security disability benefits are based on the individuals’s ____(PIA). Eligible beneficiaries receive a benefit expressed as a percentage of the worker’s PIA
1. A disabled worker receives a benefit equal to 100% PIA
2. A spouse caring for the worker’s unmarried child under 16 or disabled before age 22, receives a benefit, equal to ____% of the worker’s PIA; or
3. Each unmarried child under 18 (19 if in high school) or disabled before age 22 receives a benefit equal to ____% of the worker’s PIA
The total family benefit is capped by a maximum family benefit amount based on the worker’s average ____.

Answer 37

Primary Insurance Amount

50%

50%

Earnings

Question 38

Workers’ Compensation: The law considers workers’ compensation benefits to be the employee’s ____ remedy - in most cases, employees cannot sue the employer for damages if an injury or illness occurs.

Benefits cover: (4)

Answer 38

1. Medical treatment
2. Rehab
3. Income lost due to disability
4. Income lost due to death