Life & Health Insurance Exam Life & Health Insurance Disability Income Insurance 2 — Questions and Answers
Question 1: Under an 'any occupation' definition of disability, benefits are payable only if the insured:
- Cannot perform the duties of their own job
- Cannot perform the duties of any job for which they are reasonably fitted by education and experience (Correct answer)
- Is confined to a hospital or nursing facility
- Has been disabled for at least 12 consecutive months
Correct answer: Cannot perform the duties of any job for which they are reasonably fitted by education and experience
The 'any occupation' definition is more restrictive; the insured must be unable to work in any suitable occupation, not just their own, to qualify for benefits.
Question 2: What does the waiver of premium provision in a disability income policy do?
- Waives the elimination period after the first claim
- Excuses the insured from paying premiums while totally disabled (Correct answer)
- Reduces the benefit amount in exchange for lower premiums
- Allows premium payments to be deducted from benefit checks
Correct answer: Excuses the insured from paying premiums while totally disabled
The waiver of premium provision keeps the policy in force without requiring premium payments when the insured is totally disabled, typically after a specified waiting period.
Question 3: A Cost of Living Adjustment (COLA) rider in a disability income policy is designed to:
- Reduce premiums as the insured ages
- Increase benefit payments annually to help offset inflation during a long disability (Correct answer)
- Adjust the elimination period based on economic conditions
- Automatically increase the face amount of the policy each year
Correct answer: Increase benefit payments annually to help offset inflation during a long disability
A COLA rider increases disability benefit payments periodically—often tied to the CPI—so the insured's purchasing power is preserved during an extended disability.
Question 4: How are disability income benefits generally taxed when the employer pays 100% of the group disability premium?
- Benefits are received tax-free
- Benefits are fully taxable as ordinary income to the employee (Correct answer)
- Only 50% of benefits are taxable
- Benefits are subject to capital gains tax
Correct answer: Benefits are fully taxable as ordinary income to the employee
When employers pay disability insurance premiums, those premiums are a tax deduction for the employer but the resulting benefits are taxable income to the disabled employee.
Question 5: A Social Security offset rider in a disability income policy:
- Pays additional benefits equal to estimated Social Security income
- Reduces the insured's disability benefit by the amount of Social Security disability benefits received (Correct answer)
- Eliminates the waiting period if Social Security denies the claim
- Doubles the benefit if Social Security disability is approved
Correct answer: Reduces the insured's disability benefit by the amount of Social Security disability benefits received
A Social Security offset rider lowers the insurer's benefit payment by the amount the insured receives from Social Security Disability Insurance, preventing over-insurance.
Question 6: Which of the following best describes short-term disability (STD) insurance compared to long-term disability (LTD) insurance?
- STD has longer elimination periods and higher benefit amounts
- STD covers shorter benefit periods (weeks to months) while LTD covers years or to retirement age (Correct answer)
- STD is always provided by the government; LTD is private only
- STD pays higher benefits than LTD for the same condition
Correct answer: STD covers shorter benefit periods (weeks to months) while LTD covers years or to retirement age
Short-term disability insurance provides benefits for a limited period (typically up to 26 weeks), while long-term disability covers extended periods that may last until retirement age.
Question 7: The guaranteed insurability rider in a disability income policy allows the insured to:
- Guarantee that premiums will never increase
- Purchase additional disability coverage in the future without proving insurability (Correct answer)
- Convert the disability policy to a life insurance policy
- Extend the benefit period without a new application
Correct answer: Purchase additional disability coverage in the future without proving insurability
A guaranteed insurability rider lets the insured buy more disability coverage at specified future dates regardless of any change in their health status.
Life & Health Insurance Exam Life & Health Insurance Disability Income Insurance 2
Under an 'any occupation' definition of disability, benefits are payable only if the insured: