V. Disability Income and Related Insurance

Question 1

Once a disability policy is paying a claim, how long will it pay?

Answer 1

designed to provide a reasonable and predetermined income to a disabled party for a set period of time subject to an elimination period (“time deductible”). Most policies offer benefit periods of 1, 2, 5 years and to age 65. Some plans offer lifetime benefits.

Question 2

What is the difference between own occupation and any occupation?

Answer 2

Any Occupation: unable to preform any occupation related to their education, training or experience.

Own Occupation: more liberal definition with better benefits. unable to preform any duties of her own occupation. Usually limited to the first 24 months after a loss then moves to Any Occupation

Question 3

How are Income Replacement Contract typically written?

Answer 3

Written in accordance with Any Occupation definition. They replace a certain percentage of income lost without an elimination period. They take into account other sources of income such s as part-time work and workers comp.

Question 4

What is a probationary period? How is it different form an elimination period?

Answer 4

A waiting period in addition to the elimination period. Typically about 10 to 30 days after the issue date of the policies for which benefits will not be paid. Applies only to sickness.

Question 5

How long does an elimination period typically last? (terms of a range)

Answer 5

30 to 180 days.

Question 6

If an insured in disabled and has the waiver of premium benefit, generally what happens to the premiums paid during the waiting period?

Answer 6

Typically refunded once the insured qualifies to receive benefits.

Question 7

Describe residual disability?

Answer 7

Make up the difference to what the individual was making before once she returns to work but is not able to work as long or at the same level before becoming disabled.

Question 8

What provision can reduce the disability benefit based upon the insured’s current income?

Answer 8

The Relations of Earnings to Insurance provision allows benefits to be limited to match her average income over the last 24 months.

Question 9

When is it okay to discriminate when determining disability income policy premiums?

Answer 9

Hazardous occupation raise premiums

Question 10

What is the purpose of key person disability insurance?

Answer 10

economic value is determined in terms of the potential loss of the business income which could occur as well as the expense of hiring and training a replacement.

Question 11

Key person insurance: who pays premium? who is the beneficiary? the insured?

Answer 11

The employer/ business. The insured is the employee.

Question 12

Purpose of a buy-sell agreement?

Answer 12

Specifies how the business will pass between owners.
Prepared by an attorney.
A business will purchase insurance to provide the cash to accomplish the buyout when an owner dies or is disabled.
Extremely long elimination period possibly one or two years.
Lump sum instead of monthly payments.

Question 13

In regards to Social Security, what does the term “fully insured” mean?

Answer 13

Someone who has earned 40 quarters of coverage (aka 10 years of work) and is therefore entitled to SS retirement, medicare, and survivor benefits.

Question 14

How is the Social Security definition of disability different from that in most disability income policies?

Answer 14

Not as liberal as most definitions.
The inability to engage in any substantially gainful activity by reason of a medically determined physical or mental impairment that has lasted or is expected to last 12 months or result in an early death.

Question 15

In regards to Social Security, what does the term ‘ currently insured’ mean?

Answer 15

An individual qualifies for certain benefits if he has earned 6 credits during the 13 quarter period ending with the quater in which the insured:
Dies
Becomes entitled to disability insurance benfits
Becomes entitled to old-age insurance benefits

Question 16

Waiting period for Social Security?

Answer 16

5 months with benefits beginning in the 6th month and are not retroactive.

Question 17

In order to collect Social Security disability benefits, the claimant must be able to demonstrate that the disability will last at least?

Answer 17

12 months

Question 18

Garrett is involved in a car accident. In addition to general, less serious injuries, he permanently loses the use of his leg and is rendered completely blind. The blindness improves a month later. To what extent will he receive Presumptive Disability benefits?

Answer 18

No Benefits

Presumptive Disability plans offer full benefits for specified conditions. These policies typically require the loss of use of at least two limbs, total and permanent blindness, or loss of speech or hearing. Benefits are paid, even if the insured is able to work. Because Garrett’s blindness was only temporary and the loss of use in only 1 leg, he does not qualify for presumptive disability benefits.

Question 19

If an employer provides long-term group disability insurance for its employees, what percentage of monthly wages are lower-paid employees eligible to collect?

Answer 19

66 2/3%:
If an employer provides long-term group disability insurance for its employees, the benefit period may be limited to age 65, and benefits will be limited to 50% of the monthly wages for higher-paid employees and 66 2/3% of the monthly wages for lower-paid employees.

Question 20

Under a disability income policy, the insurer pays a monthly benefit that is less than the insured’s income. What is the reason for that?

Answer 20

To prevent over utilization and malingering.

Question 21

An insured severely burns her hand, but is not classified as disabled. Which of the following types of coverage would cover at least a portion of the insured’s medical expenses?

Answer 21

Medical Reimbursement Benefits help to pay medical costs for accidental injuries that are not considered to be disabling.

Question 22

Describe BOE Insurance

Answer 22

Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability. Premiums are tax-deductible for a business, but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.

Question 23

John owns a medical expense policy that he purchased for his family. John’s employer purchased a Group Disability Income policy for John and all eligible employees. John subsequently suffered an accident on the job that left him unable to work for four months. If John receives benefits from his disability income policy how would this effect his taxes?

Answer 23

Group disability income premium payments are considered tax-deductible by the business as an ordinary business expense. In a plan funded entirely by the employer, income benefits are included in the employee’s gross income and taxed as ordinary income.

Question 24

If an individual is covered under a disability income policy that includes an Accidental Death & Dismemberment rider, what are the maximum benefits he will receive from the policy, if he loses sight in both eyes as a result of a fire?

Answer 24

f the insured dies, the insurer pays the full amount, also known as the “principal sum”. Principal sum will most likely be paid out if the insured loses sight in both eyes or loses two limbs. If the insured lives but loses a hand or foot or the sight in one eye, the insured will be paid a percentage of the principal sum, called the “capital sum.”

Question 25

An insured was involved in an accident and could not perform her current job for 3 years. If the insured could reasonably perform another job utilizing similar skills after 1 month, for how long would she be receiving benefits under an “own occupation” disability plan?

Answer 25

2 years
Under an Own Occupation plan, if the insured cannot perform his/her current job for a period of up to two years, disability benefits will be issued, even if the insured would be capable of performing a similar job during that two-year period. After that, if the insured is capable of performing another job utilizing similar skills, benefits will not be paid.

Question 26

An applicant is considered to be high-risk, but not so much that the insurer wants to deny coverage. Which of the following is NOT true?

A. The insurer will issue a conditional coverage.
B. The insurer can increase the premium.
C. The insurer can add exclusions to the policy.
D. The insurer can rate-up the policy.

Answer 26

A. The insurer will issue a conditional coverage.

Question 27

A business wants to make sure that if a key employee becomes disabled, the business will be protected from any resulting loss. Which kind of insurance will protect the business?

Answer 27

A business can purchase Business Disability Insurance in order to protect itself from losses resulting from the disability of key employees.

Question 28

Disability income policies can provide coverage for a loss of income when returning to work only part-time after recovering from total disability. What is the benefit that is based on the insured’s loss of earnings after recovery from a disability?

Answer 28

Residual Disability

Question 29

What is the maximum period that an insurer would pay benefits in accordance with an Additional Monthly Benefit rider?

Answer 29

1 year: The Additional Monthly Benefit rider stipulates that the insurer will pay benefits comparable to what Social Security would pay. After a year’s time, the insurer ends the benefit and assumes that Social Security will then begin benefit payment.

Question 30

Group plans usually specify the benefits based on a percentage of the worker’s _______. Short-term group plans usually provide maximum benefit periods of ______. Group long-term plans provide monthly benefits usually limited to ______ of the individual’s income. Group disability plans also have ______ requirements. Usually the employee must have worked for _____ days before becoming eligible for coverage.

Answer 30

Income
13 to 26 weeks
60% 
Minimum Participation
30 to 90 days

Question 31

In comparison to a policy that uses the accidental means definition, a policy that uses the accidental bodily injury definition would provide a coverage that is
A. Broader in duration.
B. Broader in general.
C. More limited in general.
D. More limited in duration.

Answer 31

B. Broader in general.