Life and Health California Exam Disability Income Insurance 3 — Questions and Answers
Question 1: What is a 'recurrent disability' clause in a disability income policy?
- A clause that covers each new disability independently regardless of cause
- A clause treating a return of the same disability within a specified period as a continuation of the original claim (Correct answer)
- A clause that doubles benefits for a second disability
- A clause excluding coverage for disabilities that recur more than twice
Correct answer: A clause treating a return of the same disability within a specified period as a continuation of the original claim
The recurrent disability clause treats a relapse of the same disability within a defined period (often 6 months) as a continuation of the prior claim, so a new elimination period is not required.
Question 2: Under a disability buyout policy, the benefit is used to:
- Replace a disabled owner's personal income
- Fund the purchase of a disabled partner's business interest by the remaining partners (Correct answer)
- Pay the overhead expenses of the business during a partner's disability
- Provide a lump-sum death benefit to the disabled partner's family
Correct answer: Fund the purchase of a disabled partner's business interest by the remaining partners
A disability buyout policy funds a buy-sell agreement by providing a lump sum or installment payments to the remaining partners to buy out a permanently disabled partner's interest.
Question 3: For California individual disability income policies, the maximum probationary period for sickness is:
- No limit (Correct answer)
- 6 months
- 15 days
- 30 days
Correct answer: No limit
California does not set a statutory maximum on probationary (waiting) periods for sickness under individual disability income policies, leaving it to the contract terms.
Question 4: Which of the following is TRUE about Social Security Disability Insurance (SSDI) and private disability income insurance?
- Private disability income policies always offset dollar-for-dollar against SSDI benefits
- Some private policies have a 'social insurance substitute' rider that reduces benefits when SSDI is received (Correct answer)
- SSDI replaces 80% of pre-disability income for most workers
- Private disability income benefits are always reduced when SSDI is approved
Correct answer: Some private policies have a 'social insurance substitute' rider that reduces benefits when SSDI is received
A social insurance substitute (SIS) rider pays a higher benefit while an SSDI claim is pending and reduces the benefit once SSDI is approved, keeping total income at the target amount.
Question 5: A disability income policy's 'presumptive disability' provision provides benefits if the insured:
- Is presumed disabled by their physician without objective testing
- Suffers loss of sight, hearing, speech, or two limbs, regardless of ability to work (Correct answer)
- Has not returned to work within 6 months of disability onset
- Qualifies for SSDI approval
Correct answer: Suffers loss of sight, hearing, speech, or two limbs, regardless of ability to work
Presumptive disability provisions automatically pay total disability benefits if the insured loses sight, hearing, speech, or use of two limbs, without requiring proof that they cannot work.
Question 6: Under California law, disability income insurance policies issued to California residents must include which of the following provisions?
- A 24-hour coverage clause for occupational and non-occupational disabilities
- An incontestable clause limiting the contest period to 2 years (Correct answer)
- A guaranteed insurability rider at no cost
- An automatic benefit increase tied to the Consumer Price Index
Correct answer: An incontestable clause limiting the contest period to 2 years
California requires individual disability income policies to include a 2-year incontestable clause, after which the insurer cannot contest the validity of the policy except for fraud.
Life and Health California Exam Disability Income Insurance 3
What is a 'recurrent disability' clause in a disability income policy?