Disability Income Insurance Flashcards

Occupation classes in disability income underwriting are primarily used to:

Answer: Reflect the relative risk and physical demands of various occupations for rating and policy terms

Insurers assign occupations to classes based on injury risk, physical demands, and historical loss experience, which directly determines premium rates, available benefit periods, and policy definitions offered.

A 'presumptive disability' clause in a disability income policy typically provides:

Answer: Immediate full disability benefits—waiving the elimination period—for specified catastrophic losses such as total loss of sight, speech, hearing, or two limbs

The presumptive disability provision grants immediate full benefits without requiring the insured to satisfy the elimination period for severe, objectively verifiable losses such as loss of both hands, both feet, sight, speech, or hearing.

The 'recurrent disability' provision in a disability income policy is designed to address a situation where:

Answer: The insured returns to work but becomes disabled again from the same or related cause within a specified period, allowing the new period to be treated as a continuation of the original claim

The recurrent disability provision prevents the insured from having to re-satisfy a new elimination period if they return to work briefly but then become disabled again from the same or related cause within the policy's recurrence period, commonly three to six months.

In a group long-term disability plan where the employer pays 100% of the premium, disability benefits received by an employee are:

Answer: Taxable as ordinary income to the employee, since the employer's premiums were paid with pre-tax dollars

When an employer pays LTD premiums and deducts them as a business expense, those amounts are never included in the employee's taxable income, so any benefits received by the disabled employee are fully taxable as ordinary income.

A 'rehabilitation' provision in a disability income policy typically:

Answer: Provides continued or modified benefits to encourage and support the insured's participation in an approved vocational rehabilitation program

Rehabilitation provisions incentivize recovery by allowing the insurer to pay for approved rehabilitation programs while continuing modified disability benefits, serving the long-term interests of both the insured and the insurer.

Which elimination period option in a disability income policy would result in the LOWEST premium for the insured?

Answer: 180 days

A longer elimination period reduces the insurer's risk exposure by requiring the insured to self-insure for a greater initial period; insurers reward this assumption of risk with a significantly lower premium for a 180-day elimination period.

A 'cost of living adjustment' (COLA) rider in a disability income policy is specifically designed to:

Answer: Increase disability benefits periodically during a claim to help offset the impact of inflation on the insured's purchasing power

The COLA rider increases the monthly benefit amount annually during an active claim—typically tied to CPI or a fixed percentage—protecting the disabled insured's purchasing power against inflation over a prolonged disability.