Disability income and accidental death and dismemberment policies

Correct answer: A periodic, usually monthly, benefit that replaces part of the insured's earned income while he or she cannot work

Disability income insurance replaces a paycheck: it pays a periodic, usually monthly, benefit while the insured cannot work because of sickness or injury. It does not reimburse medical expenses.

Correct answer: When unable to perform the material duties of his or her own occupation

Own occupation is the most liberal definition of total disability: the insured is totally disabled if unable to perform the duties of his or her own job, even if able to work in some other occupation.

Correct answer: Own occupation

Under own occupation she is totally disabled because she cannot perform the duties of her own occupation, surgery, even though she can earn income teaching. Under any occupation, the teaching job would disqualify her.

Correct answer: It starts with the liberal own-occupation test and then applies a stricter test, so benefits may stop after 24 months if the insured can do other suitable work

A split definition applies own occupation for an initial period, commonly two years, and then any occupation. After the switch, an insured who can perform other work suited to education, training and experience is no longer totally disabled.

Correct answer: The waiting period at the start of a disability during which no benefits are paid

The elimination period is measured from the start of disability; no benefits are payable during it. It works like a deductible expressed in time rather than dollars.

Correct answer: Choosing a longer elimination period, such as 180 days instead of 30

The elimination period works like a deductible in time: the longer the insured waits before benefits start, the less the insurer is likely to pay, so the premium falls. A client with savings to cover the gap is a natural fit for a longer elimination period.

Correct answer: How long benefits will be paid once they begin

The benefit period is the maximum length of time benefits are paid for a disability, for example two years, five years, or to age 65.

Correct answer: Short-term pays for a few months up to about two years; long-term pays for many years, often to age 65

The main distinction is the benefit period: short-term disability generally pays for a few months up to about two years, while long-term disability pays for years, often to age 65.

Correct answer: To avoid overinsurance and keep a financial incentive for the insured to return to work

If a disabled insured received as much as, or more than, his or her working income, there would be little reason to recover and return to work. Capping benefits at a share of earned income controls overinsurance and malingering.

Correct answer: About $3,900

At 60 to 70 percent of $6,000 a month, the issue limit falls between $3,600 and $4,200. About $3,900, 65 percent, is within that range.

Correct answer: A reduced benefit when the insured can perform some, but not all, of the duties of his or her occupation

Partial disability pays a reduced benefit, often a percentage of the total disability benefit, when the insured can still perform some but not all important job duties.

Correct answer: Residual disability

Residual disability pays in proportion to the income actually lost after the insured returns to work. With a 40 percent income loss, it would pay about 40 percent of the total disability benefit.

Correct answer: Total and permanent loss of sight in both eyes

Presumptive disability treats certain severe losses, such as total loss of sight, hearing or speech, or loss of the use of two limbs, as total disability automatically.

Correct answer: He is still treated as totally disabled and can receive benefits even though he is working

Presumptive disability treats the listed severe losses, including loss of the use of two limbs, as total disability automatically. Benefits are payable even if the insured goes back to work.

Correct answer: The relapse is treated as a continuation of the original disability, so no new elimination period applies

Under a recurrent disability provision, a relapse from the same cause within a stated period, often six months, is treated as a continuation of the first claim. The insured does not have to satisfy a new elimination period.

Correct answer: Excuses premium payments after the insured has been totally disabled for a set period, commonly 90 days

Waiver of premium stops premium payments once the insured has been totally disabled for a stated period, commonly 90 days, so the coverage stays in force while the insured is not working.

Correct answer: Cost-of-living adjustment rider

A cost-of-living adjustment rider increases benefits during a disability, typically tied to an inflation index, so a long-term claim keeps its purchasing power.

Correct answer: Guaranteed insurability, or future increase, option

A guaranteed insurability or future increase option lets the insured buy additional disability coverage at specified times or as income rises, without evidence of insurability.

Correct answer: To pay an additional benefit if the insured's Social Security or similar social insurance disability benefits are denied or reduced

A social insurance substitute rider pays an extra benefit when social insurance disability benefits, such as Social Security, are denied or reduced, filling the gap the insured was counting on.

Correct answer: They are received tax-free

When an individual pays disability income premiums with after-tax dollars, the premiums are not deductible and the benefits are received tax-free.

Correct answer: They are taxable income to the employee

When an employer pays the premium and deducts it, the employee has received a tax-free fringe benefit, so the disability benefits are taxable income to the employee when paid.

Correct answer: The business's ongoing operating costs, such as rent, utilities and employee salaries

Business overhead expense insurance reimburses the business for fixed operating expenses, such as rent, utilities and staff salaries, while the owner is disabled, keeping the business running.

Correct answer: Disability buy-sell insurance

Disability buy-sell insurance funds a buy-sell agreement so the remaining owners can purchase a disabled owner's interest.

Correct answer: Key person disability insurance

Key person disability insurance is owned by and payable to the business, protecting it against the lost revenue and replacement costs caused by the disability of a vital employee.

Correct answer: A restriction of a health care practitioner's ability to practice imposed by the state licensing board because the practitioner tested positive for HIV

Fla. Stat. 627.4237 provides that sickness disability, or disability due to sickness, in individual or group disability policies issued on or after October 1, 1992, includes a restriction of a health care practitioner's ability to perform his or her occupation imposed by the state licensing board as a result of testing positive on an HIV test.

Correct answer: The restriction counts as sickness disability, but the law does not require benefits to be paid without the actual loss of income the policy requires

Fla. Stat. 627.4237 makes an HIV-related licensing restriction part of sickness disability, but states that it does not require payment of disability income benefits without the insured experiencing an actual loss of income where the policy requires it.

Correct answer: Accident-only and disability income insurance, among other limited or supplemental coverages

Fla. Stat. 627.6699(3)(k) defines a health benefit plan as a hospital or medical policy or certificate, a hospital or medical service plan contract, or an HMO subscriber contract, and excludes accident-only, disability income and several other limited or supplemental coverages.

Correct answer: Death or dismemberment caused by an accident only

AD&D is accident-only coverage: it pays a stated sum for accidental death or for specified losses of limbs or sight caused by an accident, never for sickness.

Correct answer: The full face amount, paid for accidental death or for loss of two hands, two feet or the sight of both eyes

The principal sum is the full face amount of an AD&D policy, payable for accidental death and for the most severe dismemberments, such as loss of both hands, both feet or the sight of both eyes.

Correct answer: $50,000

Loss of one hand, one foot or the sight of one eye pays the capital sum, here half of the $100,000 principal sum, or $50,000.

Correct answer: $50,000, the principal sum

Loss of two feet is one of the losses that pays the full principal sum, here $50,000.

Correct answer: 90 days

AD&D policies generally require the death or loss to occur within a stated period after the accident, commonly 90 days, which links the loss to the accident.

Correct answer: Accidental bodily injury is broader, because it requires only that the result be unintended, while accidental means also requires the cause to be unintended

Accidental means coverage requires that both the cause and the result were unintended. Accidental bodily injury coverage requires only an unintended result, so it covers more claims and is the modern standard.

Correct answer: Accidental means

Accidental means requires the cause itself to be unintended. Because the jump was deliberate, the cause was not accidental, so an accidental means clause could deny the claim; accidental bodily injury wording would cover it.

Correct answer: $500,000

An accidental death rider equal to the face amount doubles the benefit when death is accidental, which is why it is often called double indemnity: $250,000 plus $250,000.

Correct answer: A limited-risk policy

Limited-risk policies cover only a specified hazard, such as travel or common-carrier accidents, rather than accidents generally.

Correct answer: Coverage only for accident or disability income insurance, or any combination of them, among other limited benefits

Fla. Stat. 627.659(6) allows a blanket policy issued to a newspaper or other publisher, covering independent contractor delivery persons, to include coverage only for accident or disability income insurance or any combination, as well as other listed limited benefits.

Correct answer: It pays a stated amount based on lost income, regardless of what the insured's medical care cost

Disability income is a form of income replacement: the benefit is a stated amount tied to earnings, paid to the insured, and independent of medical costs.

Correct answer: The disability income policy only, because a stroke is a sickness

Disability income covers disability from sickness or accident. AD&D covers only accidents. A stroke is a sickness, so only the disability income policy pays.

Correct answer: Long-term disability income insurance, because it pays when sickness or injury prevents work over a long period

Long-term disability income insurance replaces a share of earnings for a long disability from sickness or accident. AD&D and limited-risk policies cover only accidents or specific hazards, and short-term coverage ends after a few months to about two years.