Life and Health California Exam Disability Income Insurance 1 — Questions and Answers
Question 1: The 'elimination period' in a disability income policy is best described as:
- The period after which the policy terminates
- A waiting period after disability begins before benefits are paid (Correct answer)
- The period during which pre-existing conditions are excluded
- The time it takes the insurer to process a claim
Correct answer: A waiting period after disability begins before benefits are paid
The elimination period is a time deductible—a specified number of days the insured must be disabled before disability income benefits begin.
Question 2: Under an 'own-occupation' definition of disability, benefits are paid when the insured:
- Cannot perform any job for which they are suited by education or experience
- Cannot perform the material duties of their own specific occupation (Correct answer)
- Has been disabled for more than 12 months
- Receives Social Security Disability Insurance (SSDI)
Correct answer: Cannot perform the material duties of their own specific occupation
Own-occupation disability means benefits are payable if the insured cannot perform the duties of their specific occupation, even if they could work in another field.
Question 3: A disability income policy with a benefit period of 'to age 65' means:
- Benefits are paid for a maximum of 65 months
- Benefits are paid until the insured reaches age 65, if disabled that long (Correct answer)
- Benefits stop being paid at age 65 regardless of when disability started
- The policy expires when the insured turns 65
Correct answer: Benefits are paid until the insured reaches age 65, if disabled that long
A benefit period 'to age 65' means the insurer will continue paying monthly disability benefits until the insured turns 65, as long as total disability persists.
Question 4: Which disability income policy rider pays an additional monthly benefit if the insured is disabled and requires assistance with activities of daily living?
- Cost of living adjustment (COLA) rider
- Social insurance substitute rider
- Catastrophic disability rider (Correct answer)
- Return of premium rider
Correct answer: Catastrophic disability rider
A catastrophic disability rider provides an additional benefit when a totally disabled insured also needs help with activities of daily living or has cognitive impairment.
Question 5: Disability income benefits received by an employee are generally taxable when:
- The employer paid the premiums with pre-tax dollars (Correct answer)
- The employee paid the premiums with after-tax dollars
- Benefits are received as a lump sum
- The disability resulted from an accident rather than illness
Correct answer: The employer paid the premiums with pre-tax dollars
If the employer pays disability insurance premiums with pre-tax dollars, the benefits received by the employee are subject to ordinary income tax.
Question 6: What is the purpose of a 'residual disability' benefit in a disability income policy?
- It pays benefits to the insured's residual heirs upon death
- It pays a partial benefit when the insured returns to work but suffers a loss of income due to disability (Correct answer)
- It provides a lump-sum payment for permanent partial disabilities
- It waives future premiums if the insured is partially disabled
Correct answer: It pays a partial benefit when the insured returns to work but suffers a loss of income due to disability
A residual disability benefit pays a proportionate monthly benefit when the insured can work but earns less income than before due to their disability.
Life and Health California Exam Disability Income Insurance 1
The 'elimination period' in a disability income policy is best described as: