Life & Health Insurance Exam Life & Health Insurance Disability Income Insurance 1 — Questions and Answers
Question 1: What is the 'elimination period' in a disability income insurance policy?
- The period after which the policy expires
- The waiting period before benefits begin after a disability occurs (Correct answer)
- The maximum period for which benefits are paid
- The period during which the insurer can cancel the policy
Correct answer: The waiting period before benefits begin after a disability occurs
The elimination period is a waiting period that begins when the insured becomes disabled; benefits do not start until this period ends, similar to a deductible expressed in time.
Question 2: Under an 'own occupation' definition of disability, an insured is considered totally disabled if they:
- Cannot perform any job for which they are reasonably suited
- Cannot perform the material duties of their specific occupation (Correct answer)
- Are hospitalized for more than 30 days
- Cannot work more than 20 hours per week
Correct answer: Cannot perform the material duties of their specific occupation
Under own occupation, a person is disabled if they cannot perform the duties of their specific occupation, even if they could work in another field.
Question 3: A non-cancelable disability income policy guarantees which of the following?
- Benefits increase automatically each year
- The insurer cannot raise premiums or reduce benefits as long as premiums are paid (Correct answer)
- The policy converts to life insurance at age 65
- The insurer will pay benefits regardless of the cause of disability
Correct answer: The insurer cannot raise premiums or reduce benefits as long as premiums are paid
A non-cancelable policy locks in both the premium and the benefit amount, preventing the insurer from changing terms as long as the policyholder continues paying premiums.
Question 4: What is a residual disability benefit in a disability income policy?
- A benefit paid only after total disability ends permanently
- A partial benefit paid when the insured can work but suffers a loss of income (Correct answer)
- A benefit paid to the insured's estate upon death during disability
- A bonus paid if the insured never files a claim
Correct answer: A partial benefit paid when the insured can work but suffers a loss of income
Residual disability benefits provide a partial payment proportional to the insured's loss of income when they can still work but not at full capacity.
Question 5: Disability income benefits are typically limited to what percentage of the insured's pre-disability earned income?
- 25–40%
- 50–70% (Correct answer)
- 80–90%
- 100%
Correct answer: 50–70%
Insurers typically cap disability income benefits at 50–70% of pre-disability earnings to maintain a financial incentive for the insured to return to work.
Question 6: Which type of disability income policy allows the insurer to increase premiums at renewal but prohibits outright cancellation?
- Non-cancelable policy
- Guaranteed renewable policy (Correct answer)
- Conditionally renewable policy
- Optionally renewable policy
Correct answer: Guaranteed renewable policy
A guaranteed renewable policy cannot be canceled as long as premiums are paid, but the insurer may adjust premiums on a class basis at renewal.
Question 7: Which event most commonly triggers the payment of disability income benefits?
- The insured reaching age 60
- The insured becoming unable to perform occupational duties due to sickness or injury (Correct answer)
- The insured being hospitalized overnight
- The insured's employer terminating their employment
Correct answer: The insured becoming unable to perform occupational duties due to sickness or injury
Disability income benefits are triggered when the insured is unable to perform their occupational duties because of a covered sickness or accidental injury.
Life & Health Insurance Exam Life & Health Insurance Disability Income Insurance 1
What is the 'elimination period' in a disability income insurance policy?