Life and Health California Exam Disability Income Insurance 2 — Questions and Answers
Question 1: Which of the following best describes the 'any-occupation' definition of total disability?
- The insured cannot perform any occupation for which they are reasonably suited by education, training, or experience (Correct answer)
- The insured cannot perform any job that exists in the economy, regardless of skill
- The insured is confined to a hospital
- The insured must be unable to work for at least 90 days
Correct answer: The insured cannot perform any occupation for which they are reasonably suited by education, training, or experience
Any-occupation total disability requires that the insured be unable to engage in any occupation for which they are reasonably suited—a stricter standard than own-occupation.
Question 2: A disability income policy that cannot be canceled and whose premiums cannot be increased is called:
- Guaranteed renewable
- Conditionally renewable
- Non-cancelable (Correct answer)
- Optionally renewable
Correct answer: Non-cancelable
A non-cancelable policy guarantees the insurer cannot cancel coverage or raise premiums as long as the insured pays the stated premium.
Question 3: Under a business overhead expense (BOE) disability policy, which of the following is a covered expense?
- The disabled owner's personal salary replacement
- Employee salaries, rent, and utilities of the business (Correct answer)
- Cost of finding a business partner replacement
- The owner's personal mortgage payments
Correct answer: Employee salaries, rent, and utilities of the business
BOE policies reimburse a disabled business owner for the fixed overhead expenses of running the business, such as employee salaries, rent, and utilities.
Question 4: A 'cost of living adjustment' (COLA) rider on a disability income policy:
- Increases the benefit amount annually to keep pace with inflation during a disability (Correct answer)
- Reduces premiums each year as the cost of living rises
- Adjusts the elimination period based on inflation
- Provides a bonus payment after 12 months of disability
Correct answer: Increases the benefit amount annually to keep pace with inflation during a disability
The COLA rider automatically increases the monthly disability benefit each year, often tied to the CPI, to protect the insured's purchasing power during a long-term disability.
Question 5: If a disability income policy has a 90-day elimination period and the insured becomes disabled on January 1, when will the first benefit payment typically be made?
- January 1
- February 1
- April 1 (Correct answer)
- July 1
Correct answer: April 1
After a 90-day elimination period beginning January 1, the insured satisfies the waiting period on April 1, and the first benefit payment is issued for that date.
Question 6: Which provision in a disability income policy prevents the insured from collecting more in benefits than they earn in income?
- Rehabilitation provision
- Relation of earnings to insurance provision (Correct answer)
- Recurrent disability clause
- Coordination of benefits provision
Correct answer: Relation of earnings to insurance provision
The relation of earnings to insurance provision limits the total disability benefit to a percentage of the insured's pre-disability income to prevent over-insurance.
Life and Health California Exam Disability Income Insurance 2
Which of the following best describes the 'any-occupation' definition of total disability?