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47 Cards in this Set
- Front
- Back
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9–1 Identify the risk exposures a client faces related to the loss of earning capacity.
Why is disability income insurance important to an individual? |
Loss of income can be financially devastating.
The ability to produce income is usually the most valuable asset a client has. |
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9–1 Identify the risk exposures a client faces related to the loss of earning capacity.
What business exposures can be dealt with through the use of disability income insurance? |
Policies are available for overhead expenses,
key persons, disability buyout. |
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9–1 Identify the risk exposures a client faces related to the loss of earning capacity.
Camille McCartney is the sole owner of a small business that is her only source of income. She employs a general manager, two salespeople, and 15 other employees. Camille depends on the salespeople to bring in enough business to cover all the salaries as well as to make sure all operating expenses are covered. She has only a savings account equal to about two months worth of expenses, and a small retirement plan. What risk exposures does Camille face that may be covered by some type of disability insurance? |
loss of income due to sickness or accident
the possibility that she may have to close her business if she is hurt or disabled significant loss of revenue if one or both of her key salespeople get sick or injured the possibility of not being able to meet overhead expenses in the event of the disability of one of her key employees |
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9–2 Identify disability underwriting issues.
How can a policy’s definition of disability affect coverage? |
It determines whether the insured is qualified to receive income payments.
It affects the cost of the policy. |
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9–2 Identify disability underwriting issues.
What is unique about a disability income policy that uses the loss of income definition for determining eligibility for benefits? |
The insured may qualify for benefits without ever missing time from work.
Benefits are triggered when there is a loss of income due to illness or injury |
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9–2 Identify disability underwriting issues.
Briefly describe the taxability of the benefits from disability insurance policies in the following situations: a. employer-paid policy |
The disability insurance benefit is taxable to the employee. In addition, the benefit is subject to FICA and FUTA for the first six months
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9–2 Identify disability underwriting issues.
Briefly describe the taxability of the benefits from disability insurance policies in the following situations: b. individually owned and paid-for |
The benefit is not taxable.
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9–2 Identify disability underwriting issues.
Briefly describe the taxability of the benefits from disability insurance policies in the following situations: c. paid partly by the employer and partly by the employee |
A portion of the benefit payments (the percentage of premium paid by the employer) will be taxable to the employee, and a portion (the percentage the premium paid by the employee) will not be taxable to the employee.
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9–3 Describe characteristics and essential terms found in disability income policies.
Describe short-term disability coverage. |
Benefits last from 90 days to two years
Elimination periods of zero days to 30 days Generally available only under an employer’s group plan |
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9–3 Describe characteristics and essential terms found in disability income policies.
Describe long-term disability coverage. |
Benefits last from two years to a lifetime
Elimination periods of 30 days to two years Available under employer’s group plan, individual policies, or through an association |
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9–3 Describe characteristics and essential terms found in disability income policies.
Describe occupational and non-occupational disability coverage. |
occupational policies: pay the total policy benefit regardless of where the disability began
nonoccupational policies: exclude payment of benefits if illness or accident arose out of insured’s occupation and if insured is entitled to benefits under workers’ compensation plan |
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9–3 Describe characteristics and essential terms found in disability income policies.
What are the insured’s rights concerning renewal for a Noncancelable policy |
Guarantees the insured the right to renew for a stated number of years or to a stated age with premium at renewal guaranteed (not necessarily a level premium)
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9–3 Describe characteristics and essential terms found in disability income policies.
What are the insured’s rights concerning renewal for a Guaranteed renewable policy |
Guarantees the right to renew, but permits the company to adjust the premium for entire class of insureds
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9–3 Describe characteristics and essential terms found in disability income policies.
What are the insured’s rights concerning renewal for a Conditionally renewable policy |
Continuous term policy under which the insurer may terminate the contract by not renewing under certain conditions stated in the contract, or a policy that may be renewed beyond its original term if the insured meets certain conditions
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9–3 Describe characteristics and essential terms found in disability income policies.
What are the insured’s rights concerning renewal for a Policy renewable at the company’s option |
No guarantee of renewal
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9–3 Describe characteristics and essential terms found in disability income policies.
What are the insured’s rights concerning renewal for a Policy with no renewal provision |
Single term policy that provides coverage for stated period only
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9–3 Describe characteristics and essential terms found in disability income policies.
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What are the insured’s rights concerning renewal for a Cancelable policy May be terminated by insurer during policy period
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9–3 Describe characteristics and essential terms found in disability income policies.
Explain the following definitions of disability: Any occupation |
This is the strictest definition (from the insured’s point of view).
The insured is considered disabled if he or she is unable to perform the duties pertaining to any gainful occupation. It limits payments to those insureds who are unable to work in any occupation whatsoever. |
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9–3 Describe characteristics and essential terms found in disability income policies.
Explain the following definitions of disability: Modified any occupation |
The any occupation definition is modified to include “any gainful occupation for which the insured is reasonably fitted by education, training, experience, and prior economic status.”
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9–3 Describe characteristics and essential terms found in disability income policies.
Explain the following definitions of disability:Split definition |
It is somewhat of a compromise.
It defines disability in a liberal own occ definition for a specific time (such as two to five years), with a modified any occ definition taking effect after that time for the duration of the maximum benefit period. |
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9–3 Describe characteristics and essential terms found in disability income policies.
Explain the following definitions of disability: Own occupation |
This is considered to be the most liberal definition (from the insured’s point of view).
Total disability is the inability of the insured to engage in the principal duties of his or her own occupation. |
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9–3 Describe characteristics and essential terms found in disability income policies.
Explain the following definitions of disability: Loss of income |
Whenever an insured has a loss of income due to illness or injury, and that loss is 20% or more, he or she will receive a portion of the policy’s benefits equal to the portion of income lost.
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9–3 Describe characteristics and essential terms found in disability income policies.
What is meant by the term presumptive disability? |
It provides that the loss of, or the loss of use of, two bodily members or the loss of sight or hearing (or speech) will be considered total disability, regardless of whether the insured can do work for remuneration.
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9–3 Describe characteristics and essential terms found in disability income policies.
How is the definition of sickness used to exclude preexisting conditions in a disability income policy? |
It may exclude coverage for sickness or disease that the insured had at the inception of the policy, even if the condition was unknown to the insured.
Under a more liberal definition, coverage is provided for a preexisting condition that did not manifest itself until after inception of the policy. |
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9–3 Describe characteristics and essential terms found in disability income policies.
What is the elimination period (waiting period) and what is its purpose in a disability income policy? |
It is the period of time after the disability occurs and before benefit payments begin.
The waiting period acts like a deductible, forcing the insured to bear part of the loss. A longer elimination period reduces premiums. |
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9–3 Describe characteristics and essential terms found in disability income policies.
What is the probation period and what is its purpose in a disability income policy? |
It is the period of time the policy must be in force before it covers the insured for specified perils.
It protects the insurance company from having to cover preexisting conditions if the individual wishes to purchase a policy while ill or recovering from an illness. |
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9–3 Describe characteristics and essential terms found in disability income policies.
What is the misstatement of age clause, and what is its effect in a disability income policy? |
It is the provision that protects the policyholder when an error is made regarding his or her age.
It prevents the policy from being voidable for the error, but the amount of benefit payable is adjusted. |
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9–3 Describe characteristics and essential terms found in disability income policies.
What is the relation to earnings clause, and what is its effect in a disability income policy? |
It states that if the insured’s income is substantially lower when he or she submits a claim, the benefits will be reduced so that the benefits paid are proportionate to the earnings of the insured.
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9–3 Describe characteristics and essential terms found in disability income policies.
What is the relation of earnings to insurance clause, and what is its effect in a disability income policy? |
It protects the insurance company from the moral hazard that would arise if disability benefits payable were greater than the normal income of the insured.
It provides that if, at the time the disability commences, the insured’s total disability income exceeds earned income, or the average earned income for the preceding two years, then income benefits under the policy may be reduced proportionately. It may be used only with noncancelable and guaranteed renewable contracts. |
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9–3 Describe characteristics and essential terms found in disability income policies.
What is the traditional difference between partial disability benefits and residual disability benefits? |
partial disability: usually requires prior total disability, if qualified, benefit is usually 50% of total disability benefit; maximum payment period usually limited to six months
residual disability: proportion of benefits paid is equal to the portion of income lost when insured is unable to work at full-income capacity; usually requires initial period of total disability |
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9–4 Describe the operation of disability insurance riders.
Provide a description of the following disability income insurance policy rider: Additional purchase Option |
This option permits the insured to purchase additional insurance in the years following the purchase of the initial policy. The new policy will have the same underwriting classification without any health underwriting; however, there will be financial underwriting to determine if the insured is eligible for the additional coverage.
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9–4 Describe the operation of disability insurance riders.
Provide a description of the following disability income insurance policy rider: Cost-of-living rider |
This provides that when and if the insured becomes disabled and eligible for benefits, those benefits will increase each year by the lesser of the cost of living percentage or a specified percentage. Total benefits following years of disability are generally limited to double or quintuple the original benefit, depending on the contract.
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9–4 Describe the operation of disability insurance riders.
Provide a description of the following disability income insurance policy rider: Additional insurance rider |
This rider provides for an increase in the amount of monthly benefit each year by a specified percentage. After five years, financial underwriting is performed. If the insured is financially eligible for the increased coverage, the increases continue. If he or she does not qualify for the increased coverage, no additional increases are made. The rider itself generally has no premium, but the additional coverage does.
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9–4 Describe the operation of disability insurance riders.
Provide a description of the following disability income insurance policy rider: Social insurance rider |
This rider is usually used to increase the amount of disability benefits available. If the insured becomes disabled, he or she is required to apply for Social Security Disability Income insurance benefits. If they are received, the social insurance rider benefits are reduced or eliminated. If the insured is denied Social Security Disability Income insurance benefits, the rider benefits usually continue.
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
What types of providers may make long-term care coverage available? |
life and health insurance companies through individual long-term care policies, employer-sponsored plans, riders on life insurance policies, or through associations
health maintenance organizations (HMOs) Blue Cross/Blue Shield organizations continuing care retirement communities (CCRCs) |
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
What factors should be considered before purchasing long-term care insurance in the form of a rider on a life insurance policy? |
Long-term care needs may not coincide with a need to keep life insurance.
The need for long-term care does not necessarily indicate a reduction in life insurance needs Is the client likely to have a lifelong need for life insurance? Is there an opportunity to pay up a single policy containing such a rider under some reasonable set of premium increase assumptions? If the benefit is based on the net amount at risk (the difference between the death benefit and the cash value), will it be so reduced by the higher cash value at advanced ages that it will be insufficient to meet needs? What effect, if any, is there on the client’s ability to remove, borrow, or otherwise use policy cash values? |
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
Briefly describe Skilled nursing care |
highest level of care and generally refers to 24-hour-a-day availability of a registered nurse under a doctor’s supervision.
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
Briefly describe Intermediate care |
refers to less-intensive nursing or rehabilitative care.
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
Briefly describe Custodial care |
generally refers to care that is not medical in nature, but which is nonetheless necessary for the health of the individual. This includes such things as assistance with bathing, moving from bed to a chair, or eating.
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
Briefly describe Home care |
Home care is the provision of some level of care in the patient’s own home rather than in an inpatient institutional setting.
It may also include assisted living facilities, community-based residential facilities, or adult day care centers. |
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9–6 Identify the key considerations that must be taken into account in purchasing long-term care insurance.
Briefly describe Respite care |
Respite care is the provision of a replacement caretaker so that the regular caretaker can take a break from his or her duties.
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9–7 Explain why the key provisions in a long-term care contract are important.
Explain the problem with a policy requiring that skilled nursing care be needed before any other level of care will be paid. |
Since very few people who require long-term care require skilled nursing care, this severely limits the number of situations in which the policy would pay, even though long-term care is legitimately needed.
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9–7 Explain why the key provisions in a long-term care contract are important.
Explain the problem with a policy that requires hospitalization before a period of long-term care will be paid. |
Only about half of nursing home admissions are made directly from hospitals. Thus, such a provision also severely limits the number of situations in which the policy would pay, even though long-term care is legitimately needed.
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9–7 Explain why the key provisions in a long-term care contract are important.
What are ADLs, and for what are they used? |
Activities of Daily Living.
These activities are set out in the policy and generally include a total of five or six ADLs, including any combination of the following: dressing, transferring (getting from bed to a chair), toileting, eating, bathing, and/or maintaining continence. The inability of an insured to perform two of the above ADLs is used by insurers to determine eligibility for benefits under the contract. |
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Why is it important for a long-term care policy to have provisions covering the effects of inflation?
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A long-term care policy is purchased to cover the cost of care to be rendered for long periods of time into the future, and historically the cost of such care has increased at a substantial rate. If there is no provision to cover the escalation in the cost of such care, it is likely the policy benefit will be inadequate, perhaps substantially so.
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9–8 Explain the issues of long-term care as related to Medicare and Medicaid.
Does Medicare cover the cost of long-term care? |
Medicare will pay for the first 20 days of skilled care and everything over a specified amount per day for the next 80 days of skilled care.
substantial restrictions only skilled care is paid for must follow within 30 days of a hospital stay of three days or more. Other requirements: (1) the care must be needed full time, (2) there must be a written request for payment, (3) there must be certification of need for the care by a physician, (4) the facility must be participating under Medicare law, and (5) the patient’s condition must be expected to improve. |
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9–8 Explain the issues of long-term care as related to Medicare and Medicaid.
What are the general requirements for an individual to qualify for Medicaid to pay for his or her needed long-term care? |
medically qualified to receive Medicaid provided long-term care
very little in assets and income requirements differ from state to state. at the individual’s death, or when the home is sold, the state recovers as much as it can from the sale of the home. |
