Question 1

Under an "own occupation" definition of total disability, an insured is considered totally disabled when the insured is unable to perform which duties?

Accepted Answer

The "own occupation" definition is more liberal to the insured because it pays benefits when the insured cannot perform the duties of their specific occupation, even if they could work in another field. The "any occupation" definition is stricter and harder to qualify under.

Question 2

A dentist develops a hand condition and can no longer perform dentistry, but takes a job teaching at a dental school at a reduced salary. Under which definition of total disability would this insured most likely still collect full benefits?

Accepted Answer

Under an "own occupation" definition, the insured is totally disabled if unable to perform their own occupation (dentistry), even though they are working in another capacity. Under an "any occupation" definition, the ability to teach would likely disqualify them from total disability benefits.

Question 3

Which provision in a disability income policy pays a reduced benefit to an insured who returns to work but suffers a loss of income because they cannot perform all their prior duties?

Accepted Answer

The residual (or partial) disability benefit pays a proportionate benefit based on the percentage of income lost when an insured returns to work but earns less due to the disability. It bridges the gap for insureds who are partially, rather than totally, disabled.

Question 4

How does lengthening the elimination period on a disability income policy affect the premium, all else being equal?

Accepted Answer

A longer elimination period means the insured waits longer before benefits begin, so the insurer pays out less often and later, which lowers the premium. It functions much like a deductible in terms of time.

Question 5

Which statement correctly distinguishes the elimination period from the benefit period in a disability income policy?

Accepted Answer

The elimination period is the initial waiting period after a disability begins during which no benefits are paid, while the benefit period is the maximum length of time benefits will be paid during a claim. Lengthening either affects premium differently.

Question 6

Why do disability income policies typically limit the benefit amount to a percentage of the insured's income (such as 60 percent) rather than 100 percent?

Accepted Answer

Insurers replace less than 100 percent of income to maintain the insured's financial incentive to recover and return to work, discouraging malingering and overinsurance. Individually paid benefits are also received tax-free, so a lower percentage often approximates prior take-home pay.

Question 7

The recurrent disability provision in a disability income policy specifies that if a disability returns within a stated period after recovery, the insurer will treat it as which of the following?

Accepted Answer

Under the recurrent disability provision, if the same or related disability recurs within a specified time (often six months) after a return to work, it is considered a continuation of the prior claim, so the insured does not have to satisfy a new elimination period.

Question 8

Which of the following losses is typically covered under a presumptive disability provision, paying full benefits even if the insured is still able to work?

Accepted Answer

Presumptive disability automatically presumes total disability for certain severe losses such as the loss of sight in both eyes, hearing in both ears, speech, or the loss of any two limbs. Benefits are paid in full even if the insured continues working.

Question 9

The waiver of premium provision in a disability income policy generally becomes effective under which condition?

Accepted Answer

The waiver of premium provision relieves the insured of paying premiums once total disability has continued for a stated waiting period, commonly 90 days. Premiums paid during that waiting period are typically refunded, and coverage stays in force while disabled.

Question 10

A social insurance supplement (SIS) rider on a disability income policy is designed to do which of the following?

Accepted Answer

A social insurance supplement (SIS) rider coordinates with government benefits by paying a stated amount that is reduced dollar-for-dollar as Social Security or other social insurance benefits are approved. This prevents overinsurance while providing coverage during the waiting period for government benefits.

Question 11

An employee receives disability income benefits from a group policy for which the employer paid the entire premium. How are these benefits treated for income tax purposes?

Accepted Answer

When an employer pays the disability premiums and does not include them in the employee's taxable income, the benefits received are taxable to the employee. Conversely, benefits from a policy the individual paid for with after-tax dollars are received income tax-free.

Question 12

A business owner purchases a policy that reimburses fixed business expenses such as rent, utilities, and employee salaries if the owner becomes disabled. This coverage is known as which of the following?

Accepted Answer

Business overhead expense (BOE) insurance reimburses the ongoing fixed operating costs of a business when the owner is disabled, keeping the business running. It does not replace the owner's personal income, which is the role of individual disability income coverage.

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