Life and Health Ch 10 Disability Income

Underwriting Group Disability Plans

-Non-Occupational >workers comp covers on the job Minimum number of employee participation

Unique Aspects of Individual Disability Underwriting

-Occupation is the single most important rating factor. -Other factors are hazardous hobbies, age, gender, and previous health -The amount of benefit purchased and length of benefit determines final rates.

An insured purchases a disability income policy with a 90-day elimination period. If a disability lasts 100 days, the insured would be entitled to receive benefits for:

10 days

If a disabled worker is eligible for a Social Security disability benefits, his or her spouse and children may each also be eligible for a benefit in the amount of ____% of the disabled worker's benefit.

50

Elimination Period

A waiting period that is imposed on the insured from the onset of disability until benefit payments begin. This can be different for sickness than injury

From the insured's perspective, which of the following types of disability coverage would be the most restrictive when considering qualification for benefit payments?

Any occupation

Total Disability

Disability policies will pay benefits according to one of two definitions of total disability.

Partial Disability

Disability resulting in an inability to perform 1 or more of the regular duties of an occupation. The benefit usually pays up to 50% of a total disability benefit for 3 to 6 months.

Non-Disabling Injury Rider

Does not pay disability income, but pays the medical expenses that are related to an injury that does not result in total disability (such as Emergency Room, x-rays, durable medical equipment, etc.). It is a limited form of medical expense coverage added to a disability income policy.

Impairment Rider

Eliminates coverage for preexisting conditions, such as back injuries. Attaching this rider excludes coverage for a condition that would otherwise be covered. The use of this rider may make insurance obtainable for an uninsurable person.

Lifetime Benefit Rider

Extends the benefits for life if total disability begins before a specified age. If disability begins when the insured is older than the age specified, the rider is not in effect.

Guaranteed Purchase Option (Guaranteed Insurability, Future Increase) Rider

Guarantees that on specified dates, ages, or occurrences, such as marriage, birth of a child, etc., the insured may purchase additional monthly benefits, if income justifies it, without proof of insurability. Rates are based on attained age. Some insurers refer to this as a Future Increase Option (FIO).

Disability Reducing Term

Helps a small business that has long-term commitments requiring monthly or other regular payments meet their obligations. The amount of coverage remains the same monthly, but the benefit period reduces.

Waiting Period (5 "full" months)

In general, benefits start with the 6th full calendar month of disability and are not retroactive to the date of disablement. In no event are benefits retroactive prior to the date of application for disability determination. Accordingly, a person should apply for SSDI benefits as soon as possible following their disabling event. To be considered a "full" month of disability, the individual must be disabled prior to the first day of a month and remain disabled through the last day of a month

Pure Loss of Income (Income Replacement) Policy

Insured will receive benefits if loss of income is due to a covered accident or sickness, even if the insured is able to work full-time doing all the same duties as before the loss occurred.

Additional Monthly Benefit (AMB) Rider

Many insurance companies offer a short-term additional benefit in the form of a rider. The rider normally covers the first 6 to 12 months of a disability. Some insurers refer to the rider as a Social Security Rider as it pays benefits while the insured is awaiting Social Security Benefits

Which of the following is NOT classified as an occupational disease under Workers' Compensation? A Sam, a mixer at a paint factory with poor ventilation who develops a nervous disorder related to paint fumes B Michael, an insurance salesperson who gets the flu from one of his clients while visiting the client's home during a service call C George, a coal miner who gets black lung disease D Mary, a technician at a nuclear power plant who gets radiation sickness

Michael, an insurance salesperson who gets the flu from one of his clients while visiting the client's home during a service call

Most group Disability Income contracts are offered on a(n):

Nonoccupational basis *Workers' Compensation is designed to cover occupational or job-related accidents and disease, so the group plan would be designed to cover nonoccupational disabilities.

A Business Overhead Expense policy, as a form of disability insurance, provides payments for all of the following except __________. A Utilities B Employee wages C Owner's income D Office rent

Owner's income *A Business Overhead Expense policy will not pay the wages of the business owner. By paying the other expenses of the business, the business can remain financially stable until the owner is able to return to work.

Buy-Sell Agreement

Pays a lump sum, enabling a partnership or business to buy out the totally disabled party's interest in the business. Policy proceeds are normally received tax-free.

Recurrent disability:

Protects an insured who becomes disabled for the same loss and does not have to meet a new waiting period

Residual Disability

Provides benefits for loss of income after the insured returns to work usually following a total disability. Benefits are based on the reduction of earnings as a result of the disability.

To reduce the risk of insuring a substandard disability applicant, an insurer may take all of the following actions, except: A Reduce the amount of benefit B Remove all of the exclusion riders C Increase the elimination period D Charge additional premium

Remove all of the exclusion riders *The underwriter might add, not remove, exclusions for conditions that appear certain to result in claims.

Annual Renewable Term

Some companies will allow an insured to add a life insurance rider to a disability income policy in the form of annual renewable term. This provides additional death benefits if the insured dies due to a disability.

Any Occupation

Some policies are stricter and require the insured to be unable to perform the duties of any occupation for which he/she is reasonably suited by education, training, and experience. This definition is more restrictive and harder to qualify for benefits.

All of the following are false statements regarding group disability plans, except: A The plans usually cover work-related disabilities B There is individual medical underwriting C The plans are typically written on a non-occupational basis D Benefits are not available to individuals employed beyond age 65

The plans are typically written on a non-occupational basis *There is no individual underwriting, plans usually don't cover work-related disabilities, and those employed beyond 65 are protected under The Age Discrimination in Employment Act. The plans are written on a nonoccupational basis.

Occupational Disability Policy

The policy covers a disability due to injury and sickness which occurs either on or off the job.

Benefit Period

The time period the insured is eligible to receive payments after the elimination period has been met. The benefit period may be written for a specified number of year (2, 5, or 10 years), to age 65 or for life.

Cash Value (Surrender) Rider

This form of a return of premium begins building values equal to a percentage of premiums paid for a disability policy. The values start building around the third year and build to 100 percent at age 65, which can be returned to the insured at that time, less any claims.

Definition of Disability

To collect Social Security disability benefits, an employee must be unable to engage in any substantial gainful activity due to a medically determined physical or mental condition that has lasted or is expected to last at least 12 months or result in an early death.

What is the function of disability income insurance?

To replace income when disability prevents a person from working to earn a living

Income Benefits (Disability Benefit)

Total Disability - The benefit amount is subject to maximum and minimum weekly limits. Partial Disability - Benefits restore a percentage of lost wages. Scheduled Injury - There is a schedule of benefits for specific permanent partial injuries, such as a specific amount for loss of an eye or a specific amount for loss of a hand.

Permanent Disability

Total disability that reduces or eliminates the insured's ability to work for the rest of his/her life.

In addition to language similar to the any occupation definition of total disability, Social Security's definition of disability also includes which of the following statements?

Unable to perform any substantial gainful activity *Social Security's definition of disability includes the statement about unable to perform any substantial gainful activity, which makes qualifying for SSDI benefits difficult in many cases.

All of the following are scenarios in which an insured would automatically qualify for total disability benefits whether or not they could actually continue working EXCEPT: A A small business owner contracts a throat disease that causes the inability to speak B A truck driver is involved in an accident and loses both legs C A dancer slips and falls and sprains an ankle D A drummer in a band loses hearing

A dancer slips and falls and sprains an ankle *Presumptive disability includes loss of use of any two limbs, total and permanent blindness, and loss of speech or hearing.

The two primary definitions of disability are "any occupation" and "own occupation." Which of these statements best describes the difference between the two definitions? A An own occupation policy is more restrictive because it is harder to qualify for benefits B An any occupation policy is less restrictive because it is harder to qualify for benefits C An own occupation policy is less restrictive because it is easier to qualify for benefits D An any occupation policy is more restrictive because it is easier to qualify for benefits

An own occupation policy is less restrictive because it is easier to qualify for benefits *An "own occupation" policy is less restrictive because one must only be unable to perform the essential duties of their occupation at the time of disability. An "any occupation" would not pay benefits if the insured could perform the duties of any occupation for which he/she was suited by reason of education, training, or prior experience, and is considered more restrictive.

Return of Premium Rider

At specified policy years (typically after 10 years) the insurer will provide a refund of 80% of premiums paid in to that point less any dollar amounts paid out in claims. This optional rider has a premium requirement which can be an additional 40 - 60% of the base policy's premium.

Disability Income Benefits

Based on the employee's average indexed monthly earnings on which Social Security taxes have been paid. This is referred to as the Primary Insurance Amount (PIA). -Benefits cease when the employee reaches age 65, dies, or is no longer disabled. The benefit received at age 65 is the retirement benefit. -An employee must be currently insured to receive a Social Security disability benefit. The benefit is computed using the Primary Insurance Amount (PIA). -When an employee age 31 or older has been credited with at least 20 of the 40 quarters required under Social Security, the employee is considered fully insured. This requirement reduces for employees under age 31.

Which of the following terms best describes the maximum length of time that disability income benefits will be paid to the disabled insured? A Elimination period B Coverage period C Disability period D Benefit period

Benefit period *The benefit period determines the amount of time a benefit will be paid. Benefits are limited by the policy's elimination period, duration of benefit, definition of disability, and any age limitations.

Waiver of Premium Provision

Disability Income policies require that Waiver of Premium automatically be included in the policy. Benefits do not start on the first day. The disability must run for 3 to 6 months before benefits begin. Most companies will retroact the benefits during the 3 to 6 month period that the premiums are not initially waived

Under a Key Employee Disability Income Policy, the employer is all of the following, except: A Premium payor B Recipient of the proceeds C Policyowner D Insured

Insured *As in Key Employee or Key Person life insurance (Chapter 1), the employer is the owner, premium payor, and recipient of the proceeds. The key employee or person is the insured.

Second Injury Fund

Limits employer's liability for previously disabled employees. Promotes employers to hire people with prior disabilities. All W/C Insurers' in the state are assessed a certain percentage of incoming premiums and must contribute them to the states second injury fund. The Second Injury Fund is not used to relieve the state of any burden for Workers' Compensation benefits.

Which of the following is NOT one of the categories of benefits incorporated by State Workers' Compensation Laws? A Medical benefits B Long-term care coverage C Disability benefits D Rehabilitation benefits

Long-term care coverage

Presumptive Disability

Loss is presumed to be total and permanent due to the loss of sight, hearing, speech, or the loss of 2 limbs. The loss of one limb, eye, hand, or foot, would also be a presumptive disability, but not likely to be considered total disability. The insurer does not require the insured to submit to periodic examinations to prove continued disability.

All disability policies cover ___________ disabilities, which are those occurring outside work.

Nonoccupational

One of the most important underwriting factors in disability income insurance is ________.

Occupation

Rehabilitation Benefits

Paid while the insured is totally disabled and receiving benefits, if the insured elects to participate in some form of vocational rehabilitation approved by the insurer. Total disability benefits will be continued as long as the insured is actively participating in the training program and remains totally disabled.

Rehabilitation

Paid while totally disabled and receiving benefits, if the insured elects to participate in some form of vocational rehabilitation approved by the insurer. Total disability benefits will be continued as long as the insured is actively participating in the training program and remains totally disabled.

Key Employee Insurance

Pays a benefit to the business when a key employee becomes disabled by helping pay for a replacement, training a new employee, or loss of revenue due to the disabled employee's lack of work. The employer has the option of using the money to offset the cost of training or replacing the employee or use the money as a salary continuation vehicle for the key employee during the disability.

Disability Income (Loss of Income or Time) Policy

Pays an income benefit when the insured is unable to work due to illness or injury (even if injured on vacation). Benefits are paid weekly or monthly and determined as a flat benefit or a percentage of the insured's current earnings (normally 60% - 70%). The full income is not paid in order to reduce malingering. In other words, if the insured received 100% income replacement, he/she would not be very motivated to recover and return to work.

Social Insurance Supplement (SIS) Rider

Pays in addition to regular disability policies until Workers' Compensation or Social Security payments begin. If either benefit stops, the SIS will pay benefits. The SIS, which was developed by private insurers to reduce over insurance by matching Social Security as closely as possible, is normally written for a specified period of time.

An insured owns a disability income policy that has a waiver of premium rider in the event they suffer a total disability. 5 years after the issuance of the policy, the insured suffers a disability and is unable to work for 18 months before returning to work. The rider has a 3-month waiting period. Which of the following best describes the benefits of the waiver of premium rider? A The first 3 months' premium waived B Premiums will be waived retroactively to the beginning of the disability C All premiums will be waived during the period of disability, except for the first 3 months D Since the disability was not permanent, no benefits are received from the rider

Premiums will be waived retroactively to the beginning of the disability *The insured would have had to have paid the first three months premium until he/she was on claim, then the company would have refunded those premiums and waived the rest of the premiums while he was still on claim.

Business Overhead Expense

Provides the funds to cover the overhead expenses of a business when the owner becomes disabled. The benefits include expenses such as office rent, utilities, and employee labor. The owner cannot collect loss of income under this policy, however

The Old Age, Survivors, and Disability Insurance - OASDI

Qualification for Social Security disability benefits is contingent upon the employee having the proper insured status, either "fully" insured (40 credits) or "currently" insured (a sliding scale based on age, beginning with 6 credits in the past 13 quarters for persons age 21 to 24), and satisfying the waiting period.

Which statement is false regarding Social Security Disability benefits? A Qualification for benefits is contingent only upon the employee's having 45 work credits and being unable to perform his or her usual job B To collect disability benefits, an employee must be unable to engage in any kind of gainful work because of a medically determined physical or mental condition that has lasted, or is expected to last, at least 12 months or to result in death C The waiting period is 5 months D The benefit for a qualifying disabled worker is a percentage of the PIA

Qualification for benefits is contingent only upon the employee's having 45 work credits and being unable to perform his or her usual job *To be 'fully' insured for Social Security Disability benefits, an individual must have 40 quarters of credit and the disability must last 12 months, or be expected to result in death. In addition to satisfying the 5-month waiting period, the person must be unable to perform 'any substantial gainful activity.'

Penelope received benefits from her disability policy and went back to work. After 30 days she found she was not able to work and began to immediately receive her disability payments. Which of following provisions made this possible? A Recurrent Disability Provision B Presumptive Disability Provision C Residual Disability Provision D Second Injury Provision

Recurrent Disability Provision

A disability that is presumed to result from the same or a related cause of prior disability is a __________.

Recurrent disability

An insured took out a disability income policy while working in a low hazardous occupation. When filing a claim for disability income benefits, after a job related accidental injury, the insurance company discovered the insured changed jobs 2 years prior to the loss. The new job would have been classified as more hazardous. The insurance company will most likely:

Reduce the benefit to an amount the actual premium paid would have purchased under the proper job classification

Which of the following are alternatives for an insurer to issue disability income coverage for a substandard risk? A Add a rider to cover preexisting conditions B Reduce the premiums, increase the benefit, shorten the elimination period C Reduce the benefit, increase premiums, apply an impairment rider D Assign a longer benefit period

Reduce the benefit, increase premiums, apply an impairment rider *Reducing the benefits, increasing premiums, and excluding or limiting coverage for known risks (preexisting health conditions, vocational/avocational risks) are three of the ways in which insurers deal with substandard risk.

Social Security Disability Income Limitation

SSDI benefits are secondary to Workers' Compensation and any other public insurance benefits. If the total of SSDI, Workers' Compensation, and other public disability benefits exceeds 80% of the worker's pre-disability earnings, the SSDI benefit will be reduced dollar-for-dollar until the 80% limitation is reached.

The elimination period in a disability income insurance policy:

Serves as a time deductible before benefits are payable

What type of disability plan only provides coverage for 2 years or less?

Short-Term Disability Income *The only plan that provides coverage for 2 years or less is the Short-Term Disability (STD) plan. STD normally provides benefit periods of short term duration such as: 13, 26 or 52 weeks. The benefit plan is always less than 2 years.

What type of disability income policies are most likely used to cover only nonoccupational disability as opposed to both occupational and nonoccupational?

Short-term disability policies *Short-term disability policies often exclude occupational disability because Workers' Compensation provides for occupational disabilities and they only provide income for a maximum of 2 years, while long-term disability policies generally cover both occupational and non-occupational disability.

Own Occupation

Some policies require the insured's inability to perform the main duties of his/her own occupation. The own occupation definition often applies for the first 2 years of a disability, then changes to any occupation. This definition is the least restrictive and is easier to qualify for benefits. It is typically reserved for more skilled occupations and may result in a higher premium

All of the following statements about the future increase option rider are true EXCEPT: A To guard against overinsurance the insurer will limit that amount of additional coverage that can be applied for on each option date B It enables an insured to purchase additional disability insurance protection, regardless of insurability, at specified future dates C Additional coverage obtained will be at premium rates based on the insured's attained age D The additional coverage is available at each option date regardless of the insured's current earned income

The additional coverage is available at each option date regardless of the insured's current earned income *The insured's current earned income must warrant the additional coverage applied for on the option date otherwise it will not be issued. This is to guard against overinsurance.

Which of the following would be considered a presumptive disability? A The partial loss of hearing in an ear B The loss of a leg below the knee C The loss of sight in an eye D The loss of the ability to speak

The loss of the ability to speak *The only response that reflects complete loss of a function is the ability to speak. 'The loss of a leg below the knee does not represent loss of two limbs, and loss of sight in an eye or hearing in an ear does not reflect loss of all sight or hearing.

Nonoccupational Disability Policy

The policy covers a disability due to injury and sickness which occurs off the job only.

Medical Benefits

Unlimited as to time, dollar amounts payable may be limited by law.

Hospital Confinement Rider

Waives the elimination period if insured is hospitalized during the period of elimination and only pays when being treated as an inpatient.

Recurrent Disability

When a second disability is suffered due to the same cause within a certain period of time (usually 6 months), the elimination period will not apply and the disability will be considered continuous.

Temporary Disability

When an insured continues to work at a reduced efficiency or is unable to work at all for a period of time, but is expected to fully recover, such as broken limbs, surgery, etc.

Transplant Donor Benefit

When an insured is totally disabled because of the transplant of an organ to another individual, the company will deem the insured to be disabled as a result of sickness

State Workers' Compensation Benefits

Workers' Compensation coverage applies to bodily injury and or occupational diseases that arise from and in the course of employment. -There are 4 "statutory claims" for benefits under most states' Workers' Compensation laws: MDDR Medical Disability Death/Survivor Rehabilitation

Age Discrimination in Employment Act (ADEA)

affects both the short- and long-term group disability benefits for the people employed after age 65. This, in turn, will have some effect on premium determination by the insurer when underwriting a particular group.

Cost Of Living Rider

allows the policyholder to purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability

Workers' Compensation

is primary to either individual or group disability income benefits. The individual or group benefit will usually be reduced dollar-for-dollar by the amount of Workers' Compensation or SSDI benefits paid, so that the total disability income benefit payable from all sources combined will not exceed the amount that would be payable by the individual or group disability policy on its own.