Disability Income Insurance Flashcards

What distinguishes the 'own occupation' definition of disability from the 'any occupation' definition?

Answer: Under 'own occupation,' benefits are paid if the insured cannot perform the material duties of their specific occupation, even if able to work in another field

The 'own occupation' definition pays benefits when the insured cannot perform the material and substantial duties of their own specific occupation, even if they are capable of working in a different field.

The elimination period in a disability income policy serves a function most similar to which feature found in other insurance lines?

Answer: A deductible

The elimination period is a waiting period the insured must satisfy before benefits begin, functioning like a time-based deductible that reduces premium cost and eliminates short-term claims.

A 'noncancelable and guaranteed renewable' disability income policy guarantees that:

Answer: The insurer cannot increase premiums or reduce benefits as long as premiums are paid on time

A noncancelable and guaranteed renewable policy locks in both the coverage terms and the premium rate, preventing the insurer from making any adverse changes as long as the insured continues paying premiums on time.

Under the Social Security Disability Insurance (SSDI) program, an individual qualifies as disabled when they:

Answer: Are unable to engage in any substantial gainful activity due to a medically determinable impairment expected to last at least 12 months or result in death

SSDI uses a strict 'any occupation' standard requiring inability to perform any substantial gainful activity due to a severe medical condition expected to last at least 12 months or result in death.

A 'residual disability' benefit provision in a disability income policy pays:

Answer: A proportional benefit based on the percentage of income lost when the insured can work but suffers a loss of income due to disability

Residual disability benefits compensate insureds who return to work at a reduced capacity by paying a proportional benefit corresponding to their percentage of pre-disability income lost.

Which disability income policy provision allows the insured to increase coverage at specified future intervals without providing new evidence of medical insurability?

Answer: Future insurability (future purchase option) rider

The future insurability rider permits the insured to purchase additional disability coverage at designated option dates based solely on financial evidence of increased income, without any medical underwriting.

When an individual pays disability income insurance premiums entirely with after-tax dollars, which tax treatment typically applies?

Answer: Premiums are not deductible; benefits received are generally income tax-free

Because the individual paid premiums with after-tax dollars, the tax has already been borne, so disability benefits received are generally excluded from gross income under IRC Section 104.