Disability Income and Related Insurance, 8 questions

The insurance company may offer a............ rider which will pay a benefit in the approximate amount that Social Security would pay, but if Social Security does in fact pay, the benefit is ....... dollar for dollar by the Social Security benefit payment.

Social Insurance Supplement rider, reduced

Typically, Income replacement contracts are written in accordance with the "................" definition for disability. Many insurers are utilizing this approach to underwriting individual disability income coverage since it minimizes the overinsurance and malingering aspects of a traditional noncancellable, "own occupation to age 65" policies.

any occupation

Residual disability will help pay for loss of earnings. If the person can only work part-time or at a lesser paying position, residual disability will make up the difference between their present earnings and what they were earning ..... to disability.

prior

In case of accidental dismemberment (loss of one hand or one foot) or loss of sight in one eye, a percentage of that principal sum will be paid by the policy, also referred to as the ........ sum. The amount of the benefit will vary according to the severity of the injury.

capital sum

Social Security Disability Insured Status

fully insured or currently insured, depending on the number of coverage credits earned

Most often, benefits are paid ........, but could be paid .... in some policies. The amount of the benefit is stated in the policy and is usually limited to a percentage of one's income at the time of application to prevent overinsurance.

monthly, weekly

Disability benefit payments that are attributed to employee contributions are not ......., but benefits payments that are attributed to employer contributions are ...... to the employee. The premium is ........ to the employer.

not taxable, taxable, deductible

In disability income policies, the insured's .......... is a critical underwriting factor. The more hazardous the applicant's occupation, the ........... the premium the insurance company will charge.

occupation, higher

The ................ will cover a portion of the cost for the insured to enroll in a formal retraining program that will help the insured to return to work. This benefit usually offers a specified sum (several times of the monthly indemnity) to cover costs not paid by other insurance.

rehabilitation benefit

A disability policy may contain an .......................... rider which pays for accidental losses only, and is thus considered a .... form of accident insurance.

Accidental Death and Dismemberment rider, pure

............... means the damage to the body is unexpected and unintended. ........ means indicates that the cause of the accident must be unexpected and unintended. A policy that uses the accidental bodily injury definition will provide ........ coverage than a policy that uses the accidental means definition.

Accidental bodily injury , Accidental, broader

Some insurance companies offer the .............. rider in the approximate amount that Social Security would pay. The benefit only is provided for one year. It is then anticipated that Social Security benefits would commence at the end of one year.

Additional Monthly Benefit rider

......... refers to the length of time over which the monthly disability benefit payments will last for each disability after the elimination period has been satisfied. Most policies offer benefit periods of 1 year, 2 years, 5 years, and to age 65. Some plans offer lifetime benefits. The longer the benefit period, the higher the premium will be.

Benefit period

............... insurance is a unique type of policy that is sold to small business owners who must continue to meet overhead expenses such as rent, utilities, employee salaries, installment purchases, leased equipment, etc., following a disability.

Business overhead expense (BOE)

......, under Social Security, is defined as the inability to engage in any substantially gainful activity by reason of a medically determinable physical or mental impairment that has lasted or is expected to last ... months or result in an early ..... This definition is not as ...... as most definitions of disability found in policies marketed through insurance companies.

Disability, 12 months, early death, liberal

.................. insurance is designed to replace lost income in the event of this contingency, and is a vital component of a comprehensive insurance program. It may be purchased individually or through an employer on a group basis.

Disability income insurance

Serious financial problems can arise in the event that the business owner is totally disabled and unable to operate the business. .............. insurance can be the solution to many of these problems for a business.

Disability reducing term insurance

....... plans usually specify the benefits based on a percentage of the worker's income, while .......... policies usually specify a flat amount.

Group plans, individual policies

..... long-term plans provide maximum benefit periods of more than ... years, with monthly benefits usually limited to ...% of the individual's income.

Group, 2 years, 60%

....... disability plans also have minimum participation requirements. Usually, the employee must have worked for ... to ... days before becoming eligible for coverage.

Group, 30 to 90 days

....... plans usually make benefits supplemental to any benefits received under workers compensation. Some ........ disability plans limit coverage to only nonoccupational disabilities.

Group, Group

................. Rider, also referred to as the Future Increase Option, allows an insured to increase the benefit level to a specific predetermined amount at certain times or on certain occasions without ................ The times when the benefit may be increased are generally at ages 25, 28, 31, 34, 37 and 40. An increase may also be taken at one's marriage or the birth of a child. In order to exercise this rider, the insured must qualify from an income standpoint to prevent overinsurance.

Guaranteed Insurability, proof of insurability

........... disability is purchased by the employer on the life of a key employee. The key person's economic value to the business is determined in terms of the potential loss of business income which could occur as well as the expense of hiring and training a replacement for the key person.

Key person disability

Workers Compensation laws provide four types of benefits:

Medical benefits; Income benefits; Death benefits; and Rehabilitation benefits.

.......... coverage, on the other hand, only covers claims that result from accidents or sicknesses occurring off the job.

Nonoccupational

........ coverage provides benefits for illness, injury or disability resulting from accidents or sicknesses that occur on or off the job.

Occupational

Social Security, also referred to as ............. is a Federal program enacted in ....., which is designed to provide protection for eligible workers and their dependents against financial loss due to ...., ....., and ...... With a few exceptions, almost all individuals are covered by Social Security.

Old Age Survivors Disability Insurance — OASDI, 1935, old age, disability, or death

........... is often defined as the inability to perform one or more of the regular duties of one's own occupation or the inability to work on a full-time basis, which results in a decrease in the individual's income. T

Partial disability

................ is a provision that is found in most disability income policies which specifies the conditions that will automatically qualify the insured for full disability benefits. Some disability policies provide a benefit when people simply meet certain qualifications, regardless of their ability to work.

Presumptive Disability

The amount of Social Security disability benefits is based upon the worker's.........., which is calculated from their Average Indexed Monthly Earnings over their highest ... years. The lowest .... years of income may be deleted from calculation.

Primary Insurance Amount (PIA), 35 years, 5 years

Social Security uses the ............ system to determine whether or not an individual is qualified for Social Security benefits. The type and amount of benefits are determined by the amount of ....or..... a worker has earned. Anyone working in jobs covered by Social Security or operating his/her own business may earn up to a maximum of .... credits for each year of work.

Quarter of Coverage (QC), credits or QCs, 4 credits

............ is generally expressed in a policy provision that specifies the period of time (usually within ..... months), during which the recurrence of an injury or illness will be considered as a continuation of a prior period of disability. The significance of this feature is that recurrence of a disabling condition will not be considered to be a new period of disability so that the insured is not subjected to another elimination period.

Recurrent Disability, 3-6 months

While the amount of disability income coverage benefit may vary from company to company, the following basic principles must apply to all of them:

The benefit must be large enough to allow the insured to maintain a lifestyle similar to that prior to the disability, and The benefit may not exceed the amount earned by the insured prior to the disability.

........... is usually included in a basic disability income policy. This benefit allows the insured, when disabled, to forego paying the premiums once he/she qualifies for benefits. Premiums that were paid by the insured during the elimination period are usually refunded once the insured qualifies to begin receiving benefits.

Waiver of premium

Social Insurance Supplement (SIS) riders are used to supplement or replace benefits that might be payable under Social Security Disability. These provide for the payment of income benefits generally in 3 different situations:

When the insured is eligible for Social Security benefits but before the benefits begin (There is a usually a 5-month waiting period for Social Security benefits, with the payment of benefits beginning on the 6th month); If the insured has been denied coverage under Social Security (Roughly 75% of the people who apply for Social Security benefits are denied coverage because of their rigid definition of "total disability"); When the amount payable under Social Security is less than the amount payable under the rider. (In this case, only the difference will be paid.)

............ is a benefit offered and regulated by the states, and will vary to some degree from ....... to ........

Workers Compensation, state to state

Benefit period

a period of time during which benefits are paid under the policy

Capital sum

a portion of the principal sum of a health insurance policy; paid for accidental dismemberment or loss of sight in one eye

Waiver

relinquishment of a right or interest

The ............. rider provides a refund of a percentage of premiums at certain times.

return of premium rider

Taxable

subject to taxation

Disability income policies must provide periodic payments of at least $.... per month, payable through age ... The elimination period can be no greater than the following: ... days, for coverage paying benefits for .. year or less; ..... days, if the benefit is at least $.... per month and payable for more than .. years; or .... days in all other cases. The policy's maximum payout period during disability must be at least ... months.

$100, age 62, 90 days, one year, 365 days, $200, 2 years, 180 days, 6 months

There is usually an elimination period of ... to .... days and benefit payments are usually limited to ....... or ....... years. The benefits are usually limited to covered expenses incurred or the maximum monthly benefit stated in the policy. The premiums paid for BOE insurance are tax ..... to the business as a business expense. However, the benefits received are .......... to the business as received.

15 to 30 days, one or two years, tax deductible, taxable

After ... months, if the insured is still unable to perform the duties of his or her own occupation, the definition of disability narrows to mean the inability to perform any occupation for which the insured is reasonably suited by education, training, or experience. This is a dramatic reduction in the insurer's liability because it is very likely that claimants can find something they can do for financial gain. The "own occ" definition is generally used for highly trained, skilled occupations such as surgeons, trial attorneys, etc.

24 months

This definition is usually limited to the first .... months after a loss. It allows insureds (claimants) to receive benefits if, because of disablement, they cannot perform the duties of their normal occupation even though they might be able to earn income from a different occupation.

24 months

Social Security disability benefits will continue for ... months when a person returns to work making more than $.... per month. This is an incentive to get people back to work.

3 months, $850

Sickness or illness is defined as either a sickness or disease contracted after the policy has been in force at least ... days; or a sickness or disease that first manifests itself after the policy is in force.

30 days

The elimination periods found in most policies range from ... days to ..... days. Just as a higher deductible amount results in lower premiums for medical expense insurance, a longer elimination period translates into a .... premium for disability income insurance.

30 days to 180 days, lower

Recent statistics show that there is a ...% chance of a ...-year-old being disabled for more than ... days prior to age .... It is far less likely that the same ...-year-old will suffer a premature death prior to age ...

30%, 25 year old, 90 days prior, age 65, 25 year old, age 65

Disability reducing term insurance may be purchased of any number of years from ... to ...., but cannot extend beyond the owner's age .... As with other disability contracts, the coverage contains an ......... period (from ... month to ..... year).

5 to 30, age 60, elimination, one month to one year

The purpose of the partial disability benefit is to cover a partial loss of income when the insured is disabled to the point that he or she can still report to work, but is not able to perform all of the regular duties of the job. The partial disability benefit is typically ....% of the total disability benefit, and is limited to a certain period of time, as noted in the policy.

50% of total disability

........... is a waiting period that is imposed on the insured from the onset of disability until benefit payments commence. It is a deductible measured in ....., instead of ..... The purpose of the elimination period is to eliminate coverage for short-term disabilities in which the insured will be able to return to work in a relatively short period of time.

Elimination period, days, dollars

............. are policies which replace a certain percentage of the insured's income lost due to a covered accident or sickness, without first requiring a period of total disability.

Income replacement contracts

.............. is the type of disability income policy that provides benefits for loss of income when a person returns to work after a total disability, but is still not able to work as long or at the same level he/she worked before becoming disabled.

Residual disability

The benefits paid on a partial disability policy are paid in a .... amount, or a ..... amount.

flat, residual

Some of the risks well suited for coverage under this type of Disability reducing term insurance program include

Salary contract guarantees Contract performance guarantees Funding of medium term loans Purchase agreements.

Tax deductible

a qualified expense that may reduce the amount of income subject to taxation

This rider incorporates ..................... insurance into the Disability Income policy. The policy now will provide a death benefit in addition to the disability benefits.

annual renewable term life

A policy that has an "................" provision will only provide benefits when the insured is unable to perform any of the duties of the occupation for which they are suited by reason of education, training, or experience. "Own occupation" is the more liberal definition and therefore provides a better benefit for the insured.

any occupation provision

The ....... period begins at the end of the elimination period until the end of the period of coverage or prior recovery from total disability. The minimum term period is .... months during the ..... year of coverage, if the insured is disabled and recovers, the unused benefit term is still available.

benefit, 12 months, last

Unlike decreasing term life insurance which reduces the face amount of coverage over the term of the policy, disability reducing term insurance reduces the ..... period, but the amount of ......... remains the same.

benefit, coverage

Just as an individual purchases disability income insurance to protect his/her ability to earn a living, a business purchases ............. on its key employees to protect it from loss when the employee becomes disabled.

business disability insurance

The key person contract is owned by the ......, the premium is paid by the ........, and the .......... is the beneficiary. The ......... is the insured, and the business must have the key person's consent to be insured in writing.

business, business, business, person

A ....... agreement is a legal agreement prepared by an attorney. The agreement specifies how the business will pass between owners when one of the owners dies or becomes disabled. It is common for the business to purchase insurance to provide the cash to accomplish the buyout when the owner either dies or becomes disabled.

buy-sell

The ..................... rider will help protect against inflation. Under this rider the insured's monthly benefit will be ......... automatically, once claim payments have begun. Generally, the first increase would be at the end of one year to be followed by annual increases for as long as the insured remains on the claim. Some of these riders provide for compound interest adjustments while others provide simple interest adjustments.

cost of living adjustment (COLA), increased

An individual can attain a .......... status (or partially insured), and by that qualify for certain benefits if he or she has earned ... credits (or quarters of coverage) during the ...-quarter period ending with the quarter in which the insured:......

currently insured, 6 credits, 13 quarter, Dies; Becomes entitled to disability insurance benefits; or Becomes entitled to old-age insurance benefits.

if reducing term insurance covers employment or performance contacts, the benefits would be received by the owner on a tax ..... basis and paid out on a tax ........ basis.

exempt, deductible

The term ......... refers to someone who has earned ... quarters of coverage (the equivalent of .... years of work), and is therefore entitled to receive Social Security retirement, premium-free Medicare Part ..., and survivor benefits. If an individual is entitled to premium-free Medicare Part ., they are automatically eligible for Medicare Part B.., but must pay a monthly premium.

fully insured, 40 quarters, 10 years, Part A, Part A, Part B

Short-term ........ plans usually provide maximum benefit periods of .. to ... weeks (with ... weeks being the most common), with weekly benefits of ...% to ...% of the individual's income. ...... short-term plans have maximum benefit periods of .. months to .. years. Short-term plans are not ........

group, 13 weeks to 52 weeks, 26 weeks, 50%, 100%, individual, 6 months, 2 years, renewable

Total disability

inability of the insured to perform any occupation for which he or she is reasonably suited by reason of education, training or experience

An ....................... policy is applied for and paid for by the individual rather than through the employer as for group disability income. Individual Disability Income premiums are paid with after-tax dollars, and benefits are not income taxable.

individual disability income policy

While many ........ health policies are written on an occupational or nonoccupational basis, most ...... plans are nonoccupational only. It is assumed that accidents or injuries occurring on the job will be covered by ............... coverage.

individual, group, workers compensation

Overinsurance

insurance that exceeds in amount the actual value of the person or property insured or insurance in a greater amount than the insured can afford

The policies that fund buy-sell agreements generally have an extremely ..... elimination period, possibly one or two years. Generally, these policies funding buy-sell agreements also provide a large ........... benefit to buy out the business rather than monthly benefits

long, lump sum

Group ......... disability plans are often reserved for ......... employees. The elimination period will usually coincide with the benefit period of the short-term disability plan. The benefit period may be to age .... ........-wage employees are usually limited to ... and ..... % of monthly wage, while .......-wage employees are limited to ....% of monthly wage.

long-term, management, age 65, lower, 66 and 2/3%, higher, 50%

Income replacement contracts have ......... premium costs than traditional disability policies because they take into consideration other sources of income, including income from part-time work, other disability income policies and workers compensation benefits.

lower

Professionals like attorneys and doctors pay the ........ premiums and get the superior definitions of disability. More hazardous occupations, like construction workers, pay ......... premiums and receive poorer definitions of disability because of a greater risk of disability.

lowest, higher

The............... benefit provides for the payment of medical expenses incurred due to an accidental bodily injury when the insured is not disabled.

medical reimbursement benefit

An ................ policy will provide benefits when the insured is unable to perform any duties of his/her own occupation because of sickness or accident.

own occupation policy

If the underwriter feels that applicant is too great of a risk, the applicant could be declined. However, if the risk is more than standard but less than a decline, the underwriter could offer the policy on a rated-up basis or issue the contract with an exclusion rider. If the policy is rated up, the ....... will be increased. If a policy contains an exclusion rider, then the loss related to that exclusion would not be .........

premium, covered

The ...... sum is paid for accidental death or loss of both hands, both feet, or both eyes. This amount is usually equal the amount of coverage under the insurance contract, or the face amount.

principal sum

The................ provision allows the insurance company to limit the insured's benefits to his/her average income over the last .... months. If the total monthly amount of loss-of-time benefits promised under all valid coverages exceeds the monthly earnings of the insured at the time of disability, or the average monthly earnings for the previous ... years (whichever is greater), the insurer will only be liable for a proportionate amount of benefits. If necessary, the benefits are reduced on a ........ basis.

relation of earnings to insurance, 24 months, 2 years, pro-rata basis

Earned income

salary, wages, or commissions; but not income from investments, unemployment benefits, and similar sources of income

It is not uncommon for an employer to provide ........ disability benefits for all of the company's employees. The elimination period could be as short as .. days and the benefit period not longer than .. years, but the benefit period could be .. months or .. year.

short-term, 0 days, 2 years, 6 months, 1 year

Principal sum

the amount of coverage paid for an accidental death under a health insurance policy

The........... rider creates a cash value of around ....% of the premiums paid in excess of claims. This cash value is often only available to the owner at the ............ of the contract.

the cash surrender rider, 70%, termination

A ............ plan protects the family or an individual against the economic loss that comes with the total disability of the wage earner.

total disability plan

The business overhead expense policy reimburses the business owner for the actual overhead expenses that are incurred while the business owner is ......... This policy does not reimburse the business owner for his or her salary, compensation, or other form of income that is lost as a result of disability.

totally disabled.

Disability Income policies are ..... contracts (or stated amount contracts). The amount of benefit that the insurance company will issue is based upon the applicant's net earned income. Most companies will set a maximum percentage of the applicant's earned income, such as ...% for ..... incomes or ...% for ....... incomes, that the company will pay in benefits to prevent malingering and overutilization. Others use a ........method, in which a policy specifies a flat amount that will be paid.

valued, 65%, higher, 85%, lower, flat amount

The ........... period for Social Security disability benefits is ... months. Benefits begin at the beginning of the ...th month and are not retroactive to the beginning of the disability.

waiting, or elimination period, 5 months, 6th month

Generally, disability income policies do not cover losses arising from ........................

war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony.

The insured must determine how long he or she can go ......... benefit payments following disability in selecting the duration of the elimination period.

without

To be eligible for Workers Compensation benefits, the worker must work in an occupation covered by Workers Compensation and have had an accident or sickness that is ........ Workers Compensation benefits are payable when a worker is injured by a work-related injury, regardless of fault or negligence.

work related

For ........ workers, the number of quarters required to qualify for the benefits differs by age according to a table established by Social Security.

younger