CLU Disability Income Insurance 2

Question 1

Occupation classes in disability income underwriting are primarily used to:

Accepted Answer

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

Answer

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.

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted 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

Answer

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.

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

CLU - Chartered Life Underwriter Practice Test

CLU - Chartered Life Underwriter Practice Test

CLU Disability Income Insurance 2