Unit 15 Quiz
Benefit periods for short-term disability income policies typically range from A) 6 months to 2 years B) 3 months to 3 years C) 1 to 5 years D) 1 to 12 months
6 months to 2 years Explanation Benefit periods for short-term disability income policies typically range from 6 months to 2 years. In contrast, long-term disability policies carry benefit periods of 2 years and longer.
Which of the following statements pertaining to recurrent disabilities and disability income insurance is NOT correct? A) A recurrent disability is one that the insured experiences more than once. B) A recurrent disability that falls outside of a specific time period may trigger a new elimination period. C) A second period of disability within a certain time frame will provide benefits immediately. D) A recurrent disability policy provision would have no effect on the payment of benefits.
A recurrent disability policy provision would have no effect on the payment of benefits. Explanation Policy provisions dealing with recurrent disabilities determine how and when benefits are payable.
A disabled worker's unmarried dependent child, who is younger than 18, is eligible for monthly benefits equal to how much of the worker's primary insurance amount (PIA)? A) 1 B) 0.5 C) 0.25 D) 0.75
0.5 Explanation A disabled worker's unmarried dependent child who is younger than 18, or who is disabled before reaching age 22, is eligible for monthly benefits equal to 50% of the worker's PIA.
Each unmarried child under age 18 (or 19 if in high school) receives a benefit equal to what percentage of the disabled worker's PIA? A) There is no benefit B) 0.5 C) 1 D) 0.25
0.5 Explanation Each unmarried child under age 18 (or 19 if in high school) receives a benefit equal to 50% of the disabled worker's PIA.
To qualify for Social Security disability benefits, the disability must be the result of a medically determinable physical or mental impairment that can result in blindness or death or last at least A) 24 months B) 48 months C) 60 months D) 12 months
12 months Explanation Disability under the Social Security program must be the result of a medically determinable physical or mental impairment that can result in blindness or death or last at least 12 months.
Assume a dentist is insured with a business overhead expense policy that pays maximum monthly benefits of $3,000. The dentist became disabled and had covered expenses for the month totaling $1,500. The benefits payable would be A) 3150 B) 1500 C) 4500 D) 3000
1500 Explanation Business overhead expense insurance reimburses businesses for actual overhead expenses in the event the business owner becomes disabled. In this case, the actual expenses totaled $1,500.
Disability income benefits for partial disability typically are payable to eligible insureds for a maximum of A) 2 years B) 1 year C) 3 to 6 months D) 1 to 3 months
3 to 6 months Explanation Disability income benefits for partial disability (an inability to perform 1 or more important job duties) typically are payable to eligible insureds for a maximum of 3 to 6 months.
Lee has a Social Security PIA of $800 at the time of his death. How much is payable to his surviving spouse, who is caring for an unmarried child under the age of 16? A) 160 B) 400 C) 800 D) 640
400 Explanation The Social Security spouse benefit for a spouse caring for an unmarried child under age 16 or disabled before age 22 is 50% of the PIA.
Alvin is employed by a construction company to erect a skyscraper downtown. He is injured when the company's crane operator, while lifting an I-beam, accidently strikes Alvin while he is guiding the crane operator. Which of the following statements is CORRECT? A) Alvin is entitled to workers' compensation because he was injured in a work-related activity. B) Alvin is entitled to workers' compensation if he prevails on a lawsuit filed against his employer for negligence. C) Alvin cannot claim workers' compensation because he may have been partially responsible for the crane operator's actions. D) Alvin cannot claim workers' compensation because the injury was accidental.
Alvin is entitled to workers' compensation because he was injured in a work-related activity. Explanation State law provides that an injured employee is entitled to benefits as a matter of right, without having to sue the employer for benefits. In return for this immediate access to benefits, the employee waives the right to sue the employer on other grounds, including negligence.
Ted is disabled and is eligible to receive $1,200 in benefits through his disability policy. He is also covered for benefits under Social Security, with a primary insurance amount (PIA) of $750. Under which circumstances will he receive a total of $1,950 a month? A) If he is unable to do work of any kind B) If his individual policy pays benefits under a percent-of-earnings formula C) If his disability is expected to last at least 9 months D) If his spouse is not eligible to receive disability Social Security benefits
If he is unable to do work of any kind Explanation Under Social Security, being covered does not mean Ted is automatically eligible for benefits, only that he is participating in the system. Ted must be unable to engage in any gainful employment. If his individual disability income policy has a percent-of-earnings provision, his benefits will be reduced by his Social Security benefits. Also, to qualify for Social Security, his disability must be expected to last at least 12 months or end in death or total blindness.
Which of the following statements regarding Social Security disability is NOT correct? A) In order to qualify for benefits, a disability must be expected to end in death or total deafness. B) There is a 5-month waiting period to receive benefits. C) A person who has paid FICA taxes and has earned at least 6 credits during the last 13 quarters is considered currently insured. D) The disability is expected to last for at least 12 months.
In order to qualify for benefits, a disability must be expected to end in death or total deafness. Explanation A person meets Social Security's definition of totally and permanently disabled if she is unable to perform the duties of any occupation and the disability is expected to last for at least 12 months or to end in death or total blindness, not deafness.
Mark has worked for the past 20 years as a construction worker. However, 7 months ago he injured his back and has not been able to work since. Which of the following statements is CORRECT? A) Mark will be eligible for Social Security disability benefits after satisfying a waiting period of 10 consecutive months, during which he must be disabled. B) Mark is not eligible for Social Security disability benefits. C) Mark will be eligible for Social Security disability benefits if he unable to engage in any substantial gainful work and his disability is expected to last at least 12 months. D) Mark will be eligible to receive Social Security disability benefits paid retroactively for as long as 6 months (excluding the waiting period).
Mark will be eligible for Social Security disability benefits if he unable to engage in any substantial gainful work and his disability is expected to last at least 12 months. Explanation To be eligible for Social Security disability benefits, Mark must be unable to engage in any substantial gainful work. In addition, the disability must be expected to last at least 12 months or to result in his earlier death. Benefits begin only after he has satisfied a waiting period of 5 consecutive months, during which he must be disabled. Benefits may be paid retroactively for as long as 12 months (excluding the waiting period) preceding the date an application for benefits is filed.
A third-grade teacher with a congenital hip dislocation wishes to purchase a disability income policy, but she fears she will not be insurable. What option does she have to get coverage? A) She may purchase a limited policy that will cover the disability resulting from accidents that happen at her school. B) She may purchase a policy if she changes her occupation to something less hazardous. C) She will not receive coverage under any circumstances. D) She may purchase a policy with an extra premium to cover any disability that would involve her hip.
She may purchase a policy with an extra premium to cover any disability that would involve her hip. Explanation Policy issuance alternatives may be employed to provide coverage to persons who ordinarily would be considered uninsurable. She may be issued a policy with an extra premium (rate-up) charge or with an exclusion rider that would eliminate coverage for any resulting disability related to her hip.
Which of the following terms best describes the policy provision for the payment of additional income when the insured is eligible for social insurance benefits, but those benefits have not yet begun? A) Guaranteed insurability rider B) Cost-of-living adjustment rider C) Social Security rider D) Interim benefit rider
Social Security rider Explanation The Social Security rider, sometimes called the social insurance substitute rider, provides for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun, have been denied, or have begun in an amount less than the benefit amount of the rider.
Which of the following statements is CORRECT? A) Lester, who is 25 and recently became totally and permanently disabled, may qualify for Social Security benefits even though he has never worked. B) Continuing to work at a new job with different responsibilities does not affect SS disability benefits. C) Social Security only has benefits for the disabled worker; the spouse and unmarried children are never eligible. D) The Social Security program, including SS disability, is funded by a payroll tax.
The Social Security program, including SS disability, is funded by a payroll tax. Explanation Benefits are funded by a payroll tax called FIC A disabled worker's spouse who is caring for unmarried minor children and children under 18 (19 if in high school) are also eligible.
By most insurers' definitions, partial disability is A) the ability of a disabled insured to work at any job for which she is reasonably suited B) the inability of an insured to perform at full capacity C) the loss of 1 or more limbs D) the inability of the insured to work at her own job12
the inability of an insured to perform at full capacity Explanation By most definitions, partial disability is the inability of the insured to perform at full capacity due to an injury or illness. Partial disability may result in lost wages or even a lower rate of pay because the person is still able to work, but not at the same level prior to the injury or illness.
Workers' compensation covers income loss resulting from A) job terminations B) plant and office closings C) work-related disabilities D) job layoffs
work-related disabilities Explanation All states have workers' compensation laws, which were enacted to provide mandatory benefits to employees for work-related injuries, illness, or death.
Workers' compensation covers income loss resulting from A) sickness B) work-related disabilities C) unemployment D) any accidental injury
work-related disabilities Explanation Workers' compensation covers income loss resulting from work-related disabilities. It does not cover injuries unrelated to a person's employment. It does not provide unemployment benefits.
An example of a state-administered disability program is A) workers' compensation B) Medicare C) Medigap D) Social Security
workers' compensation Explanation Workers' compensation is an example of a state-administered disability program. Medicare is a federal social insurance program. Medigap, or Medicare supplement insurance, is a type of insurance policy offered by commercial insurers. Social Security is a federally administered program that provides retirement and disability benefits.
To be considered currently insured, and therefore eligible for disability benefits under Social Security, a worker must have earned a minimum of A) 6 credits in the last 13 quarters B) 40 credits in the last 10 years C) 6 credits in the last 10 years D) 40 credits in the last 13 quarters
6 credits in the last 13 quarters Explanation To be eligible for disability benefits under Social Security, a worker must be currently insured. To qualify as currently insured, the worker must have earned at least 6 credits during the last 13 quarters.
What do insurers offer as an optional benefit to guard against inflation with disability policies? A) A guaranteed insurability rider B) A cost-of-living (COLA) rider C) A future increase option (FIO) rider D) An AD&D rider
A cost-of-living (COLA) rider Explanation To keep pace with inflation which will erode the value of disability benefits over time, insurers offer an optional cost-of-living (COLA) rider. Adjustments are made every 12 months and respond automatically to increases in the Consumer Price Index (CPI).
Which of the following statements about workers' compensation is NOT true? A) Workers' compensation laws are designed to return injured persons to work. B) All states have workers' compensation laws. C) Benefits include medical care costs and disability income. D) A worker receives benefits only if the work-related injury was not her fault.
A worker receives benefits only if the work-related injury was not her fault. Explanation All states have workers' compensation laws that are designed to help injured workers recover and return to work. They are based on the principle that the employer should compensate the injured employee for work-related injuries, regardless of fault.
Which of the following terms best describes the maximum length of time that disability income benefits will be paid to the disabled insured? A) Disability period B) Benefit period C) Elimination period D) Coverage period
Benefit period Explanation The benefit period is the maximum length of time that disability income benefits will be paid to the disabled insured. The longer the benefit period, the higher the cost of the policy.
To be eligible for Social Security disability benefits, one of the requirements is that the person A) be totally disabled for at least 5 months B) be totally and permanently disabled for at least 3 months C) be totally and permanently disabled for at least 5 months D) be totally disabled for at least 3 months
be totally and permanently disabled for at least 5 months Explanation One of the requirements to be eligible for Social Security benefits is that the person be totally and permanently disabled for at least 5 months. The other requirements are that the disability must be expected to last for at least 12 months or end in death, and the person must be fully insured and disability insured as defined under Social Security regulations.
Which of the following is NOT a component of a basic total disability plan? A) Probationary period B) Indemnity benefit C) Benefit period D) Elimination period
Probationary period Explanation A probationary period is not one of the 3 elements of a basic total disability plan.
Which of the following terms relates to disability income insurance? A) Coinsurance B) First dollar C) Residual basis D) Service basis
Residual basis Explanation Disability income insurance contracts may be written on a residual basis, which means that they will provide benefits for loss of earnings without regard for occupational status and even if the insured is able to return to work on a full-time basis. The benefit is payable if the insured's earnings are reduced by a specified percentage below her pre-disability earnings.
Under Barbara's individual disability income policy, she has been receiving $700 a month for the last 3 years. This year, her benefit increased to $728. Which of the following is the most likely reason her benefit amount has gone up? A) The severity of her disability has increased. B) She has a cost-of-living (COLA) rider on her policy. C) The Social Security Administration increased its benefits. D) Her policy contains a step-rate benefit that increases every 3 years.
She has a cost-of-living (COLA) rider on her policy. Explanation The most likely reason for the increase is that she has a cost-of-living rider and the Consumer Price Index has increased by 4%. If she is receiving Social Security, this would not increase the benefit under her individual disability policy.
Which of the following statements regarding Social Security disability is NOT true? A) A spouse caring for the disabled worker's unmarried child under age 16 or disabled before age 22 receives a benefit equal to 50% of the worker's PIA. B) The total family benefit is capped by a family maximum benefit amount based on the worker's average earnings. C) A disabled worker receives benefits equal to her primary insurance amount. D) Benefits are based on the U.S. average monthly income, indexed for inflation.
Benefits are based on the U.S. average monthly income, indexed for inflation. Explanation Benefits are based on the worker's primary insurance amount, which is a calculation using the percentage of the person's income over her working years.
Which statement regarding the return of premium rider for a disability income policy is NOT correct? A) The refund is made every 10 years and at age 65 or when the policyholder dies. B) The rider is usually effective for a specific number of years. C) A percentage of the premiums the policyholder has paid will be returned in claims, premium refunds, or a combination of both. D) Benefits are paid during the time period the rider is in effect.
Benefits are paid during the time period the rider is in effect. Explanation The amount of any benefits paid during the period the return of premium rider is in effect is subtracted from the refund amount.
Which of the following statements pertaining to disability income policies is NOT correct? A) Benefits are payable as specified, weekly, or monthly. B) In some policies, the (residual) benefit payments are tied directly to the percentage of actual earnings lost. C) Benefits may be payable for disabilities resulting from either accidental injury or sickness, and there are no exclusions. D) Some policies use an own occupation definition of total disability.
Benefits may be payable for disabilities resulting from either accidental injury or sickness, and there are no exclusions. Explanation Disability income policies, like all insurance policies, have coverage exclusions.
What disability policy indemnifies the business for certain expenses incurred when the business owner is disabled? A) Cash value policy B) Business overhead expense policy C) Disability buyout policy D) Key-person disability policy
Business overhead expense policy Explanation The business overhead expense policy indemnifies the business for certain expenses incurred when the business owner is disabled. These expenses, known as overhead, include rents, utilities, and other expenses related to the daily operation of the business.
What disability policy can be used to fund buy-sell agreements between partners or stockholders in a closely held corporation? A) Business overhead expense policy B) Key-person disability policy C) Disability buyout policy D) Long-term care disability policy
Disability buyout policy Explanation The disability buyout policy is used to fund buy-sell agreements between partners or stockholders in a closely held corporation should a partner or stockholder become disabled.
Monthly or weekly benefits payable under a disability income policy can be tied to changes in the Consumer Price Index through what type of rider? A) Guaranteed insurability B) Waiver of premium C) Social Security D) Cost-of-living adjustment
Cost-of-living adjustment Explanation The cost-of-living adjustment (COLA) rider provides for indexing the monthly or weekly benefit payable under a disability income policy to changes in the Consumer Price Index (CPI). The benefit amount is usually adjusted on each disability anniversary date to reflect changes in the CPI, subject to a minimum change that triggers an increase in the benefit.
A waiver of premium provision may be included with which kind of health insurance policy? A) Hospital indemnity B) Major medical C) Disability income D) Basic medical
Disability income Explanation A waiver of premium rider is generally included with guaranteed renewable and noncancelable individual disability income policies. It is a valuable provision because it exempts the policyowner from paying the policy's premiums during periods of total disability.
A guaranteed insurability rider may be attached to which of the following policies? A) Disability income B) Group health C) Medical expense D) Accidental death and dismemberment
Disability income Explanation The guaranteed insurability rider may be attached to a disability income policy. This rider is sometimes also referred to as the future increase option or guaranteed purchase option.
Harry, the owner of a convenience store, is the insured under a business overhead policy. Were Harry to become disabled, the policy would cover all of the following EXCEPT A) the rent B) the store manager's salary C) utility bills D) Harry's salary
Harry's salary Explanation Business overhead expense policies do not include any compensation for the disabled owner.
Eduardo has been back on the job for 2 weeks when he falls ill again and is unable to work. He is likely to receive benefits immediately for which of the following reasons? A) He is covered under an accidental death and dismemberment (AD&D) policy. B) He is covered under his disability income insurance policy's recurrent disability provision. C) He is covered under his disability income insurance policy's partial disability provision. D) He is eligible for coverage under Social Security.
He is covered under his disability income insurance policy's recurrent disability provision. Explanation Under a recurrent disability provision in a disability income policy, disabled individuals are encouraged to return to work on a part-time basis. If they become disabled again with the same disability, there is generally no second elimination period. AD&D policies generally do not pay benefits for illness. Social Security requires a waiting period before the start of benefits. Also, with most disability income policies, partial disability, when available, pays benefits only after a period of full disability.
Julie has just received a lump-sum payment from her individual disability income policy provider. Which of the following is the best explanation for this payment? A) Her Social Security benefit has been terminated. B) Her policy includes a return-of-premium provision. C) The elimination period has ended. D) The definition of disability in her policy has been changed from any occupation to own occupation.
Her policy includes a return-of-premium provision. Explanation Some individual disability income policies include a partial refund of premiums if no claims are made after a certain period of time. The termination of Social Security benefits will not result in a lump-sum benefit payment. Monthly benefits begin when a policy's elimination period ends.
Steve has an individual disability income policy that pays $600 a month if he becomes disabled. After he became disabled, he received a lump-sum payment of $10,000 in addition to his base benefit. Which of the following disabilities would result in this additional benefit? A) His disability resulted from a fall at home and is covered by his homeowners insurance. B) His disability, which resulted in blindness, occurred in a car accident and is covered under the accidental death and dismemberment rider attached to his disability policy. C) His disability was caused by diabetes, and the additional benefit was paid under his medical insurance plan to cover the cost of special treatments. D) His disability involved a back injury that occurred while he was at work, and the additional benefit is paid under workers' compensation.
His disability, which resulted in blindness, occurred in a car accident and is covered under the accidental death and dismemberment rider attached to his disability policy. Explanation An AD&D rider can be added to some individual disability income policies. Because Steve was disabled in an accident that resulted in blindness, he is entitled to the capital sum, which in this case is paid in a lump sum of $10,000. This benefit will not be paid for a disability resulting from illness, nor would workers' compensation generally pay a lump-sum benefit.
Which of the following statements best describes the purpose of key-person or key-executive disability insurance? A) It indemnifies the business to cover expenses and losses incurred when a key person is disabled. B) It indemnifies the business to cover losses when an owner or partner dies. C) It provides health benefits to a group of employees. D) It provides tax-favored disability income benefits to a key person should she become disabled.
It indemnifies the business to cover expenses and losses incurred when a key person is disabled. Explanation The purpose of key-person disability insurance is to indemnify a business for expenses and losses incurred while a key employee is disabled. It does not benefit the key person. Typically, these expenses are those incurred while finding, hiring, and training a replacement for the disabled key employee. As a disability policy, it insures against disability, not death.
Which of the following statements regarding the waiver of premium provision is NOT correct? A) It refunds any premiums paid during the waiting period. B) It pays policy premiums when the insured becomes disabled after a defined waiting period. C) It is frequently included with both individual and group policies. D) The waiver may apply retroactively to the original date of disability following a waiting period.
It is frequently included with both individual and group policies. Explanation A waiver of premium provision does not apply to group insurance.
Of the following workers, who would qualify for the most favorable terms and rates on a disability income policy? A) Derek, age 19, who is working at his first job as an auto mechanic. B) Jeremy, who is 56 years old and is a financial advisor. C) Eileen, age 37, who travels weekly for work as a consultant. D) Brenda, who is 26 and a bulldozer operator.
Jeremy, who is 56 years old and is a financial advisor. Explanation Jeremy would most likely have the lowest rates and most liberal definitions of disability on his policy based on his occupation. While the other people are younger, their jobs are considered more hazardous, including Eileen, who has more opportunity for injury or illness since she is constantly traveling.
Under many disability income insurance policies, which of the following is generally NOT considered a presumptive disability? A) Loss of speech B) Blindness C) Loss of 1 leg D) Loss of 1 arm and 1 leg
Loss of 1 leg Explanation Presumptive disability generally requires the loss of 2 limbs to qualify automatically for full benefits. The loss of 1 leg would not qualify.
Katrina is working in London for a year. She was injured in a car accident and is now unable to work. Will she be able to receive benefits from the disability income insurance policy she purchased while she was living in New York? A) No, because she will be covered by workers' compensation B) Yes, she will receive residual disability benefits C) Yes, because her policy provides occupational coverage D) No, the policy specifically excludes coverage when living overseas
No, the policy specifically excludes coverage when living overseas Explanation No, Katrina will not receive any benefits from her disability income policy because she was living overseas at the time of the accident. The policy specifically excludes living overseas.
From the insured's perspective, which of the following types of disability coverage would be the least restrictive as to qualifying for benefit payments? A) Any occupation B) Own occupation C) Social Security D) Workers' compensation
Own occupation Explanation From the insured's perspective, qualifying for disability benefits would be the least restrictive under an own occupation policy, which requires that the insured be unable to work at his own occupation because of a disabling sickness or injury from any cause. Such a policy is more expensive and difficult to qualify for. An any occupation policy requires that the insured be unable to work at any job for which he is qualified; Social Security requires that the insured be unable to perform any gainful employment; and workers' compensation provides benefits only if the individual is disabled because of an employment-related injury or illness.
A fully insured retired worker is entitled to full Social Security disability benefits. This equals 100% of which of the following? A) PIA B) AMW C) AIME D) MFB
PIA Explanation The primary insurance amount (PIA) is equal to the fully insured worker's disability benefits.
Which of the following statements regarding partial disability is INCORRECT? A) Partial disability benefits are generally paid for 3 to 6 months. B) Partial disability benefits pay 50% of the total disability benefits. C) Partial disability means a person is unable to perform any part of the job for 9-12 months. D) Partial disability benefits are paid for a short period of time.
Partial disability means a person is unable to perform any part of the job for 9-12 months. Explanation Partial disability means a worker is unable to perform all of the duties of their occupation. The benefit is usually limited to between 3 to 6 months and is 50% of the total disability benefit.
Jackie is injured at a construction site. Which of the following statements best explains why she will be eligible for workers' compensation benefits? A) The employer was found to have been negligent. B) She is an independent contractor and was hired by the construction company. C) She was performing work that is required for her job. D) She has agreed to participate in the employer's workers' compensation program.
She was performing work that is required for her job. Explanation The primary reason Jackie will receive benefits is that she is an employee of the company and she was injured on the job. The employer's negligence is not a factor. An independent contractor is not covered under a business's workers' compensation plan. Employees cannot defer coverage, which is mandatory and automatic by virtue of their employment.
Which of the following statements regarding the medical reimbursement benefit available in some individual disability income policies is CORRECT? A) The benefit is paid in addition to other benefits under the policy. B) The benefit is a percentage of the monthly income benefit. C) The benefit is only paid if the insured is still able to continue working. D) The benefit is paid for a disabling illness.
The benefit is a percentage of the monthly income benefit. Explanation The medical reimbursement benefit is a percentage of the income benefit specified in the policy. It is only paid for injuries and in lieu of other benefits under the policy.
Which of the following statements regarding Social Security disability benefits is CORRECT? A) The disabled employee must be unable to perform the duties of any occupation. B) Social Security does not pay benefits for total disability. C) Benefits are paid based on the CPI. D) Social Security taxes are payable on all of an individual's income from any source.
The disabled employee must be unable to perform the duties of any occupation. Explanation Social Security was designed to provide benefits to individuals and their families in the event of death, disability, or retirement. It can cover all members of an eligible worker's family, whether or not they themselves have paid into the system. Social Security is funded by a tax on a worker's pay, which is shared equally by the worker and the employer. The amount paid is based on the primary insurance amount (PIA).
Which of the following statements regarding an accidental death and dismemberment rider for a disability insurance policy is NOT correct? A) The dismemberment feature provides insureds with periodic payments to help them during a rehabilitation period. B) The life insurance feature of this rider does not pay a death benefit if the death is due to natural causes. C) Once a sum has been paid under the dismemberment feature, the disability income payments stop. D) The sum payable under the dismemberment feature is typically expressed as a multiple of the disability policy's weekly indemnity.
The dismemberment feature provides insureds with periodic payments to help them during a rehabilitation period. Explanation The intent of the dismemberment feature is to provide insureds with a lump-sum payment to assist them while they are going through any rehabilitation or other applicable training. This rider does not provide periodic benefit payments. All of the other statements are correct.
What is one of the primary considerations of a disability buyout policy? A) The effective date B) The elimination period C) The premium D) The beneficiaries
The elimination period Explanation Once the buyout begins, it cannot be stopped. If the elimination period begins too quickly, the disabled partner or owner may recover and no longer have a business interest or job.
Tanya has lost both legs as the result of complications caused by diabetes. Previously a horse trainer, she has taken a position as a computer programmer. Nonetheless, her insurance company pays her benefits under her disability income insurance policy under which of the following provisions? A) The presumptive disability provision B) The own occupation provision C) The flat amount benefit provision D) The partial disability provision
The presumptive disability provision Explanation Even though Tanya can work, she will receive her disability income benefits for the stated term because of the severity of her condition. The nature of her disability raises the presumption that she is totally disabled.
Social Security disability benefits are characterized by which of the following? A) Benefits are based on a percentage of the recipient's preretirement income. B) Reduced benefits are paid for partial disability. C) There is a 12-month waiting period to qualify for benefits. D) The recipient must be unable to engage in any gainful employment.
The recipient must be unable to engage in any gainful employment. Explanation If the individual is able to find any work, regardless of education or experience, she is not eligible to receive disability benefits under Social Security.
Which of the following statements regarding an individual disability income policy's rehabilitation benefit is CORRECT? A) The rider helps pay the cost of at-home medical equipment for a disabled insured. B) The rider helps pay nursing home costs for a severely disabled insured. C) The rider helps pay the cost of rehabilitation treatment for alcohol and drug abuse. D) The rider helps pay the cost of therapy and retraining.
The rider helps pay the cost of therapy and retraining. Explanation The rehabilitation benefit is provided to encourage persons who are disabled to get treatment and retraining to enable them to return to work as soon as possible. The benefit is not always applicable to alcohol and drug abuse, especially in individual policies.
Dan is 25, and he expects his income to increase over the next 10 years. Under the disability income insurance policy, he is considering, why might he add a guaranteed insurability rider? A) The rider will allow him to increase his benefit amount every time his income increases. B) The rider will allow him to increase his benefit amount periodically without being required to show evidence of insurability. C) If he becomes disabled, the rider will pay benefits in addition to any Social Security benefits he might receive. D) The rider will increase his benefits to reflect increases in the cost of living.
The rider will allow him to increase his benefit amount periodically without being required to show evidence of insurability. Explanation The future increase option provided under a guaranteed insurability rider has 2 key features: (1) increases to coverage amounts can be made at predetermined times, and (2) no evidence of insurability is required.
Which of the following statements does NOT apply to an elimination period? A) The shorter the elimination period, the lower the premium for comparable disability benefits. B) Elimination periods reduce claims for short-term disabilities. C) Elimination periods usually range from 1 week to 1 year or longer, but most are at least 30 days. D) Depending on the policy, elimination periods may apply only to disabilities caused by sickness, not to disabilities caused by accident.
The shorter the elimination period, the lower the premium for comparable disability benefits. Explanation The longer the elimination period, the lower the premium for comparable disability benefits. An elimination period can be compared to a deductible because both are cost-sharing devices that can have a direct bearing on the amount of premium required of the policyowner.
Which of the following statements pertaining to business key-person disability insurance is NOT correct? A) Benefits from the policy are used to indemnify a business for the loss of the services of a key employee or partner who becomes totally disabled. B) These policies are used to indemnify a business in the case of a merger with another company. C) Premiums are not tax deductible as a business expense. D) Benefits, when paid, are tax-free.
These policies are used to indemnify a business in the case of a merger with another company. Explanation Business disability insurance is a form of key-person insurance used to indemnify a business for the loss of the services of a key employee or partner who has become totally disabled. The business is the owner and the premium payor. The premium is not tax deductible, but when received the benefits are tax-free. It is not designed to address mergers.
Rachel added a Social Security rider to her individual disability income plan. This rider provides an additional monthly benefit for what purpose? A) To ensure that her Social Security benefits are not reduced once her disability benefits begin. B) To ensure that her total benefits remain level, even if her disability is determined not to be a total disability. C) To pay benefits while her Social Security disability application is pending. D) To ensure that a projected level of benefit is received.
To ensure that a projected level of benefit is received. Explanation The additional monthly benefit is paid when the insured is eligible for Social Security, but those benefits have not yet begun, have been denied, or have begun in an amount less than the benefit amount of the rider. After the actual Social Security benefit amount is determined, the difference between the actual benefit and the expected benefit in the rider is payable as an additional disability income benefit.
When does a surviving family have the greatest need for income? A) After the children are independent B) During the surviving spouse's old age C) During the final illness of the death of the breadwinner D) While the children are growing up
While the children are growing up Explanation When a covered worker dies, a surviving spouse with small children usually will be eligible for Social Security benefits. However, Social Security cannot (nor was it designed to) meet all of the needs of the family when the breadwinner dies.
In disability income insurance, an elimination period is A) a period preceding the benefit period in cases of disabilities caused by accidents rather than illness B) a period when benefits being paid are temporarily discontinued to encourage the insured to return to work C) a 30-day period following the end of a disability before benefits for a recurrent disability would be payable D) a period of days following the start of a disability during which benefits are not payable
a period of days following the start of a disability during which benefits are not payable Explanation In disability income insurance, an elimination period is a period of days following the start of a disability during which benefits are not payable. Elimination periods range from 1 week to 1 year; the longer the elimination period, the smaller the premium.
Under Social Security, a fully insured worker is A) a worker who has paid in to Social Security for 10 years, earning 40 credits B) a worker who has a death benefit of $1 million C) a worker who pays her premiums monthly for the coverages selected D) a worker who has been working for 1 year
a worker who has paid in to Social Security for 10 years, earning 40 credits Explanation To be eligible for disability benefits, a worker must be fully insured, which means that the worker has earned 40 credits, or worked about 10 years while contributing to Social Security.
Under Social Security, a worker's primary insurance amount (PIA) is A) the total benefits received during the first year of retirement B) larger than the combined insurance benefit payable to the worker and the worker's spouse at age 62 C) the amount the worker's surviving spouse will receive upon the worker's death D) an amount equal to the worker's full retirement benefit at the full retirement age or disability benefit
an amount equal to the worker's full retirement benefit at the full retirement age or disability benefit Explanation The primary insurance amount (PIA) is calculated using the percentage of the person's income over her working years.
If a worker is killed in an industrial accident, workers' compensation insurance will cover all of the following EXCEPT A) compensation to the employer for loss of the employee's services B) compensation for the surviving spouse C) compensation for dependents of the deceased worker D) payment of burial expenses
compensation to the employer for loss of the employee's services Explanation Workers' compensation is designed to help workers and their families in the event of a work-related injury, illness, or death. It is not intended to compensate employers. If a worker is killed in an industrial accident, workers' compensation insurance provides compensation to the surviving spouse and any persons who were dependent on the worker at the time of death. It also covers burial expenses.
All of the following are common exclusions under a disability contract EXCEPT A) injuries suffered in the commission of a crime B) disabilities resulting from accidents C) self-inflicted injuries D) pre-existing conditions
disabilities resulting from accidents Explanation Self-inflicted injuries, pre-existing conditions, and injuries suffered in the commission of a crime are common exclusions found in disability income insurance contracts.
A social insurance supplement (SIS) rider pays a monthly benefit A) for partially and totally disabled insureds B) until the insured begins receiving Social Security benefits C) in addition to workers' compensation benefits D) during the policy's benefit period while the insured remains disabled
during the policy's benefit period while the insured remains disabled Explanation The social insurance supplement (SIS) rider pays benefits to an insured who is totally disabled while the insured remains disabled and only as long as regular benefits are payable. It does not pay in addition to Social Security or workers' compensation for the period the insured is disabled.
Durwood is hospitalized with leukemia and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. His policy probably has a 60-day A) elimination period B) benefit period C) disability period D) probationary period
elimination period Explanation An elimination period is the time following an illness or disability during which benefits are not payable.
Pedro is hospitalized with a back injury and, upon checking his disability income policy, learns that he will not be eligible for benefits for at least 60 days. His policy probably has a 60-day A) disability period B) elimination period C) blackout period D) probationary period
elimination period Explanation Similar in concept to a deductible, the elimination period is the time immediately following the start of a disability when benefits are not payable.
A state's workers' compensation program is designed to provide benefits to employees for all of the following EXCEPT A) employment-related compensation packages B) employment-related injury C) employment-related death D) employment-related illness
employment-related compensation packages Explanation All states have workers' compensation laws that provide mandatory benefits to employees for work-related injuries, illness, or death.
Ron is eligible for full death, retirement, and disability benefits under Social Security. His work status is A) currently insured B) partially insured C) fully insured D) completely insured
fully insured Explanation Fully insured is a status of complete eligibility that provides benefits for retirement, disability, and death. A worker who is currently insured is not eligible for all Social Security insurance benefits.
An eligible applicant for Social Security disability benefits must meet all of the following qualifications EXCEPT A) enjoy a fully insured status under the Social Security program B) be unable to perform the duties of any occupation C) have had surgery within 30 days before applying for benefits D) be unable to engage in gainful work for at least 5 months before the benefit payout, with the disability expected to last at least 12 months or result in death or blindness
have had surgery within 30 days before applying for benefits Explanation An eligible applicant for Social Security disability benefits must enjoy a fully insured status and be unable to engage in gainful work for at least 5 months before the start of the benefits, with a disability that is expected to last at least 12 months or result in the loss of sight or death.
Health policies classified as non-occupational normally provide coverage for A) losses due to sickness or accidents that are not work-related B) losses both on and off the job C) sickness but not for accidental injuries D) persons in nonhazardous jobs
losses due to sickness or accidents that are not work-related Explanation Policies classified as non-occupational normally provide coverage for losses due to sickness or accidents that are not work-related.
Many disability buyout plans are characterized by all of the following EXCEPT A) relatively short elimination periods ranging from 3-6 months B) the option to have benefits paid in a lump sum C) the option to have benefits paid in periodic installments D) the requirement that the nondisabled owners purchase the disabled owner's share of the business
relatively short elimination periods ranging from 3-6 months Explanation The elimination period for business disability buyout plans is generally longer than that for individual plans and may be as long as 2 years. Many plans include the option to have benefits paid either periodically or in a lump sum at the end of a specified period.
Workers' compensation benefits cover all of the following EXCEPT A) rehabilitation B) loss of income due to disability or death C) relocation D) medical treatment
relocation Explanation Workers' compensation insurance provides medical benefits and wage replacement for employees who are injured during the course of employment.
Elimination (waiting) periods in disability income policies are designed to A) help keep premium rates at a profitable level B) specify a limited period of time at the start of disability when benefits are not payable C) generally last for 1 year D) eliminate claims for long-term disabilities
specify a limited period of time at the start of disability when benefits are not payable Explanation Waiting periods in disability policies specify a limited period of time at the start of a disability when benefits are not payable.
Social Security defines disability as the inability to engage in A) work for which the worker was trained or educated B) work of the worker's preference C) any government employment D) the duties of any occupation
the duties of any occupation Explanation To qualify for Social Security disability benefits, a worker must meet Social Security's definition of disability, which is the inability to perform the duties of any occupation. The disability must be the result of a medically determinable physical or mental impairment that can be expected to last at least 12 months or to result in an earlier death or blindness.
To provide compensation to individuals who have sustained job-related injuries is the primary purpose of A) OSHA B) disability income insurance C) workers' compensation insurance D) medical expense insurance
workers' compensation insurance Explanation Workers' compensation insurance is designed to compensate employees in the event of job-related injuries, illness, or death. To be covered, the injury, illness, or death must arise out of and occur in the course of the individual's employment.