Chapter 4 Review

Underwriting the disability insurance risk involves a consideration of the proposed insured's occupation, medical history and the financial aspects of the proposed risk.  Occupations are generally classified by their manual content and the hazard that they present.  Financial underwriting is concerned primarily with ensuring that claimants are financially motivated to return to their occupation, if possible, following a period of disability.  The foremost concern with respect to financial underwriting is the possibility of overinsurance.

Underwriters generally take one of three approaches to underwriting the impaired disability risk: rejecting the risk, charging an increased premium and excluding or limiting coverage for certain conditions.

Chapter 4 Review Questions

1.  A proposed insured's occupation class may play a role in determining all of the following EXCEPT:

The amount of benefit available
The disability premium
The maximum benefit period available
*The minimum elimination period available

2.  Why do insurers often refuse to sell disability income policies to applicants that work at home?

*It is difficult to determine if someone is unable to work
Working from home presents a greater than normal hazard
The policy's Incontestable provision is affected by employment from home
Personal and business expenses are commingled, making financial underwriting of disability income less precise

3.  Which of the following is NOT a factor in financial underwriting of disability insurance:

the insured will be financially motivated to return to work following a period of disability
the insured will be able to pay the premium
the insured will be overinsured
the insured will malinger

4.  What choices are generally available to a disability insurance underwriter in the case of an applicant who is a substandard risk?

I.  Reject the risk
II. Increase the premium
III. Exclude coverage for certain conditions

I & II only
I & III only
II & III only
*I, II & III

5.  Which of the following underwriting actions is generally considered the most favorable to the substandard disability income applicant?

Reject the risk
Exclude coverage
*Increase the premium
Issue the policy with a split elimination period