Chapter 9 - Disability Income & Related Insurance

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?

2 years. Under an Own Occupation plan, if the insured cannot perform his/her current job for a job 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.

What is the number of credits required for fully insured status for social security disability benefits?

40. The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

What is the elimination period for Social Security disability benefits?

5 months.

an insured wants to buy a disability income policy that pays a maximum monthly benefit of $1,200. To make sure that the disability benefit keeps up with inflation, the insured would need to add

A cost of living rider. The cost of living rider is usually tied to the Consumer Price Index (CPI) or another recognized measure of inflation.

Which of the following conditions would a disability income policy most likely NOT require in order to qualify for benefits?

A specified income status prior to the disability. Some disability income policies require that the insured must be under the care of a physician and possibly confined to his or her house in order to be eligible for disability benefits. Even though disability income benefits are limited to a percentage of earned income, to qualify for benefits, a person must meet the disability definition.

Which of the following is not true of Disability Buy-Sell coverage?

Benefits are considered taxable income to the business. The buy-sell coverage benefits are tax free.

All of the following are true regarding key person disability income insurance EXCEPT

Benefits are taxable to the employer. Key person disability income premiums are not deductible to the business, but the benefits are received income tax-free by the business. Key person disability benefits are not considered taxable income to the business.

Which of the following statements regarding Business Overhead Expense policies is NOT true?

Benefits are usually limited to six months. 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 not tax-deductible. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.

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

Broader in General. A policy that uses the accidental bodily injury definition will provide broader coverage than a policy that uses the accidental means definition.

A small business owner is the insured under a disability policy that funds a buy-sell agreement. If the owner dies or becomes disabled the policy would provide which of the following?

Cash to the owner's business partner to accomplish a buyout. If an owner dies or becomes disabled, the disability policy under the buy-sell agreement would provide enough cash to accomplish a buyout of the company.

The rider that may be added to a disability income policy that allows for an increase in the benefit amount under certain conditions

Costs of Living (COLA). The purchasing power of fixed disability benefits may be eroded due to inflation and increases in the cost of living. This rider is used to protect against these trends by increasing the monthly benefits automatically once the insured has been receiving benefits for 12 months, if the cost of living increases.

All of the following are true about group disability income insurance EXCEPT

Coverage applies both on and off the job. Employees who are injured on the job are covered by Workers Compensation insurance. Group Disability Income insurance is designed to cover employees only while they are off the job, so the coverage is considered to be nonoccupational in nature.

Which agreement specifies how a business will transfer hands when one of the owners dies or becomes disabled?

Disability buy-sell. The Disability Buy-Sell agreement specifies how a business will pass between business owners if one of the owners if one of the owners dies or becomes disabled.

If an insured worker has earned 40 quarters of coverage, the worker's status under social security disability is

Fully Insured. A worker is fully insured under social security if the worker has accumulated the required number of credits based on his or her age.

How is the amount of Social Security disability benefits calculated?

It is based on the worker's Primary Insurance Amount (IPA), which is calculated from their Average Indexed Monthly Earnings over their highest 35 years.

In a disability income policy all of the following are considered presumptive disabilities except

Loss of one eye. The definition of a presumptive disability varies by company, but generally includes a total loss of sight, speech, hearing, or the use of any two limbs.

If a business owner becomes totally disabled a Business Overhead Expense policy will pay all of the following EXCEPT

Loss of the owner's income. If a business owner wants coverage for the loss of their own income due to total disability, they need to purchase a separate individual income policy.

Which of the following is considered a presumptive disability under a disability income policy?

Loss of two limbs. Presumptive disability is a provision that is found in most disability income policies which specifies conditions that will automatically qualify the insured for full disability benefits, such as the loss of two limbs.

All of the following are true regarding key person disability income insurance EXCEPT

Premiums are tax deductible as a business expense. In key person disability insurance, the contract is owned by the business, the premium is paid by the business, and the business is the beneficiary. The key person is the insured, and the business must have the key person's consent to be insured in writing.

Which of the following are the main factors taken into account when calculating residual disability benefits?

Present earnings and earnings prior to disability. Residual disability will help pay for loss of earnings by making up the difference between the employee's present earnings and what they were earning prior to disability.

Certain conditions, such as dismemberment or total and permanent blindness, will automatically qualify the insured for full disability benefits. Which disability policy provision does this describe?

Presumptive Disability. Presumptive 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.

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

Residual Disability. A residual disability will pay an amount to make up the difference between what the insured would have earned before the loss.

Workers Compensation benefits are regulated by which entity?

State Government. The state government offers and regulates Workers Compensation benefits, which vary slightly from state to state.

If a business wants to buy a disability income policy on a key employee, which of the following is considered the applicant

The employer. In key person disability insurance purchased by a business, the business is the applicant and the key person is the insured. When the policy is issued, the business is the policyowner and is responsible for paying the premiums.

Income replacement contracts agree

To replace the insured's income up to a stated percentage if the insured suffers a loss due to a covered accident or sickness.

An employee is injured in a construction accident, rendering him unable to work for a year. What plan would provide him with medical expense coverage and income assistance?

Workers compensation. Provides employees with medical, income, death, and rehabilitation benefits in the event of work-related injury.