Unit 25: Disability Income Insurance Flashcards
Page 342
Define total disability
insured’s inability to perform any or all duties of occupation
Define Own Occupation
the insured’s OWN occupation at time disability begins
Define Any Occupation
an alternative/more restrictive def of total disability
means insured’s inability to perform duties of ANY occupation for which he is reasonably qualified (by education, experience, training…)
Which “Occupation” definition is more favorable to the insured?
OWN occupation – less restrictive and more commonly used
What do long-term disability policies use to cover diff periods of time of disability?
Use both “own” and “any” to cover diff periods during the insured’s disability
Page 340
Why is disability often called the living death?
earning power dies while life and expenses (increase) go on
How much of income does disability income insurance typically replace?
A portion of earnings while an insured is disabled.
What is the purpose of disability income insurance?
to replace income when disability prevents a person from working/earning a living
What two ways is disability income insurance available?
- Individual policies
- Group benefits pkg
Are INDIVIDUAL disability policy benefits taxable (from handwritten note)?
No
Are GROUP coverage disability benefits taxable (from handwritten note)?
Yes
Why are group disability income policies more favorable than individual?
- generally more liberal than indiv
- few limitation/exclusions
- easier to acquire coverage
- usually less costly
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What are some practical considerations in determining disability income needs?
- establish minimum income required if income stops (due to disability)
- consider the need for retirement plan maintenance (in even of long-term disability)
- include enough long-term disab coverage for both occupational and nonoccupational sickness/injury
- include short-term disability coverage to provided income during social security waiting period or to supplement workers’ compensation
What are 4 alternatives to disability income insurance that people might consider and what are the concerns?
- Using savings (one long disability could wipe out savings)
- Borrowing (no one going to lend you money if you’re not working)
- Depending on spouse’s income (will it be enough when used to 2)
- Liquidating assets (can you get a fair market price when forced to liquidate?)
When looking at total disability, what 2 types of work activities do insurers look at?
- The insured’s OWN occupation
- ANY occupation the insured may be qualified to perform
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Page 343
What is presumptive disability?
a condition that automatically qualifies the insured for total disab. classification whether or not he/she can work
What 3 conditions are generally considered presumptive?
- loss of use of any two limbs
- total and permanent blindness
- loss of speech and hearing
How else can presumptive disability also be determined?
Using a loss of earnings test
What other 2 ways is disability defined?
By its cause
The disability can be caused by total accident (or injury) OR
total sickness disability
What 2 types of disability do most long-term plans cover?
Occupational and nonoccupational accidents
and sickness
Occupational benefits often reduced by what is received from worker’s comp or social security
What is a probationary period for some disabil income policies?
A period that begins when policy goes into effect.
often 15 or 30 days or 60 dyas for longterm policies.
This period is usually for sickness not accidents
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What is the purpose of the probationary period?
Relieves insurance co from having to pay benefits for pre-existing conditions
Define the elimination period in disability income policies?
also called a “waiting” period.
Time between onset of a disabil
and the beginning of benefit payments
Can insureds choose the length of elimination periods?
Yes depending on how long they can manage without addition income after being disabled.
How does length of elimination period/waiting period affect premiums?
Shorter wait = higher premium
Longer wait = lower premium
What are the 3 benefits to the insured for including the elimination period?
- keeps premiums down (the longer the period)
- it can work together with any continuation of salary/wages an employer might provide
- the proper elim period allows insured to use premium dollars to purchase a benefit tailored to their needs
What are the Benefit periods for disability income policies?
Handwritten note:
Short-term = 13-104 weeks
Long-term = longer than 2 yrs
Page 346
What is partial disability?
Person can’t perform EVERY duty of job but can perform ONE of more important duties.
How does length of benefit period affect premium?
longer the benefit period = higher the premium
Is partial disability typically a factor in sickness disability?
No
Partial disability typically applies to what?
Accident disability
What is the usual partial disability indemnity?
50% of monthly/weekly indemnity for total disability
For how long are partial disability benefits usually paid
Typically 3-6 months
What term has recently replaced partial disability benefit?
Residual disability benefit
Define residual disability
a % of the total disability benefit for periods of partial disability as defined in the policy
How do earnings come into play in the residual benefit provision?
Earnings during partial disability must be at least a stated percentage LESS than earnings before disability.
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What is recurrent disability?
When a second period of disability arises as a result of same or related cause of prior disability
How does returning to work for a specific period after original disability affect policy? In relation to recurrent disability
Most policies say that this situation must be handled as a NEW claim for a NEW period (requiring a new elimination period) rather than a continuation of old claim. (read example)
What is delayed disability?
Situation where person is not disabled immediately but after time passes person becomes totally disabled (like whiplash)
Page 348
What are nondisabling injuries regarding disability policies?
Most policies don’t allow for injury that is not disabling.
A few policies do provide a benefit to cover cost of time lost due to need for medical consultation/minor surgery
Short-term Benefits
NOTE: there is nothing highlighted here but hand written note says…
These are like riders. You don’t have to have them, will cost extra money to get them added on.
- Supplemental income
- Hospital income
- Elective benefits or indemnities
Page 350
What is “key person disability insurance?”
Replaces income lost when an essential employee (maybe owner) is unable to work.
What is “business overhead expense” (BOE) disability insurance?
sold to business owners to cover business overhead in case owner becomes disabled
covers routine overhead only
purpose to keep business in tact until owner can return to work
What is “reducing term disability” insurance?
If owner/key employee were to become totally disabled, this insurance pays for ongoing expenses like loan repayment, purchase agreements to keep, salary contracts to honor
How long is “reducing term disability” in effect?
for a fixed term, the length of the loan/other commitment, with the amt of the coverage gradually reducing as each year passes and amt is paid off
Total accident disability refers to what?
It is connected with the injury or sickness total disability and total accident disability is disability caused by an accident
Total sickness disability is caused by what?
It is connected with the injury or sickness. Total disability, and total sickness. Disability is total disability caused by a sickness.
