DC DC Disability and Long-Term Care Insurance 1 — Questions and Answers
Question 1: Individual disability income insurance sold in DC is designed primarily to:
- Pay medical bills when the insured is sick or injured
- Replace a portion of the insured's earned income if they become unable to work due to disability (Correct answer)
- Cover long-term nursing home costs
- Provide a lump-sum death benefit if the insured dies from illness
Correct answer: Replace a portion of the insured's earned income if they become unable to work due to disability
Disability income insurance replaces a percentage of lost wages—typically 60–70% of pre-disability income—when the insured cannot work.
Question 2: In DC, a disability income policy that uses an 'own-occupation' definition of disability means benefits are paid when the insured:
- Cannot perform any job in the national economy
- Cannot perform the material duties of their specific occupation (Correct answer)
- Is hospitalized for more than 30 days
- Loses at least 50% of their income
Correct answer: Cannot perform the material duties of their specific occupation
The own-occupation definition provides the broadest disability protection, paying benefits if the insured cannot perform their specific occupation even if they could work in another field.
Question 3: The 'elimination period' in a DC disability income policy functions similarly to:
- A waiting period before benefits begin, similar to a deductible (Correct answer)
- The maximum period benefits can be paid
- A provision that eliminates pre-existing condition coverage
- The grace period for premium payments
Correct answer: A waiting period before benefits begin, similar to a deductible
The elimination period is a waiting period at the start of a disability during which no benefits are paid; the insured must be disabled for this period before benefits begin.
Question 4: Under DC insurance regulations, long-term care (LTC) insurance policies must include which consumer protection feature?
- A guaranteed renewable provision with locked-in premiums
- A nonforfeiture benefit option in case the insured stops paying premiums (Correct answer)
- A 60-day free-look period
- Automatic inflation adjustments of 10% per year
Correct answer: A nonforfeiture benefit option in case the insured stops paying premiums
DC and NAIC model regulations require LTC insurers to offer a nonforfeiture benefit, such as shortened benefit period coverage, if a policyholder lapses after paying premiums for years.
Question 5: A DC long-term care insurance policy that covers care in a nursing facility, assisted living facility, and at home is best described as:
- An institutional-only LTC policy
- A comprehensive (integrated) LTC policy (Correct answer)
- A skilled nursing facility rider
- A supplemental health policy
Correct answer: A comprehensive (integrated) LTC policy
A comprehensive LTC policy covers multiple settings of care including nursing facilities, assisted living, and home health care, giving the insured maximum flexibility.
Question 6: In DC, disability income benefits received under an individually purchased policy funded entirely with after-tax premiums are generally:
- Fully taxable as ordinary income
- Tax-free to the recipient (Correct answer)
- Taxable only if benefits exceed $50,000 per year
- Subject to DC income tax but not federal income tax
Correct answer: Tax-free to the recipient
When the insured pays disability income premiums with after-tax dollars, benefits received are generally income-tax-free at both the federal and DC level.
DC DC Disability and Long-Term Care Insurance 1
Individual disability income insurance sold in DC is designed primarily to: