Review Questions

On average, how much of their income do U.S. residents normally save?

2%
*4%
8%
10%


Which of the following is NOT correct concerning borrowing to provide family income during a breadwinner's disability?

The widespread use of credit cards increases the likelihood that a disabled individual may borrow during a period of disability
The likelihood of borrowing from a bank may be adversely affected by an individual's disability
*Borrowing during a period of disability is generally considered one of the more inexpensive and workable options for finding cash to pay family bills
Borrowing during a period of disability may turn a financial problem into a catastrophic problem



Which of the following is/are correct with respect to total disability in a traditional disability income policy?

*Total disability is couched in terms of an insured's inability to work
Income loss is required before total disability benefits are payable
Both a and b
Neither a nor b


    Jill Whitaker was a practicing cardiac surgeon when she purchased her $10,000 per month disability income insurance policy that contains an own occupation definition of disability.  Shortly after purchasing the policy she developed a tremor in her hands that resulted in her being considered disabled, and she began receiving a monthly disability benefit of $10,000.  Her tremor continued after six months of treatment and evaluation, so she decided to close her surgical practice and teach in a local medical school at one-half her former income.  What, if any, continuing monthly disability benefit will Jill receive under her policy?

zero
$2,500
$5,000
*$10,000


What is "limited" in a limited own occupation definition of total disability?

The permitted amount of income that may be earned during a period of total disability
*The duration of the own occupation definition
The amount of the total disability benefit
The number of times in any calendar year that the own occupation definition may be used


Which of the following definitions of total disability is the LEAST favorable to the insured?

Own occupation
*Any occupation
Limited own occupation
Modified own occupation



    In an income replacement policy whose maximum monthly benefit is $10,000, what benefit would an insured receive if he were able to perform all of the important duties of his regular job, but his income declined from $20,000 per month to $14,000 as a result of an accident or sickness?


zero

$10,000

$6,000

*$3,000



    Paul Wilson's disability income insurance policy with a $1,000 monthly benefit for total disability contains a residual disability benefit.  As a result of illness, Paul's monthly income reduces by 20%, however, he is able to work each day and perform all of his usual duties.  What is his probable benefit in the first month of his residual disability?


    zero

    $250

    *$500

    $1,000



    Jane Hoffman has been receiving residual disability benefits for several months as she attempts to return to her job.  Her disability income policy provides a monthly benefit of $5,000 for total disability; her pre-disability monthly earnings were $10,000.  Last month, her earnings were $2,000.  What is her residual disability benefit?


zero

*$5,000

$8,000

$3,000



Under which of the following benefits is there normally no requirement for income loss?


Residual disability

*Partial disability

Both a and b

Neither a and b



Which of the following are differences between the life insurance waiver of premium benefit and the disability insurance waiver of premium?


I.   Disability waiver may begin after 90 days of disability

II.  Disability waiver of premium of premium may be satisfied by residual disability

III.  Disability insurance premiums may be waived upon the earliest of the elimination period or 90 days


I & II only

I & III only

II & III only

*I, II & III



Which of the following statements is NOT correct with respect to the non-disabling injuries benefit in a disability income insurance policy?


The non-disabling injuries benefit provides benefits for medical treatment within 90 days of an accident

The maximum non-disabling injuries benefit is usually 50% of the monthly total disability benefit

*Payment of the non-disabling injuries benefit causes disability benefits to become immediately payable

Non-disabling injuries benefits are payable in lieu of disability benefits



    John Peters purchased a disability income insurance policy when he opened his law practice.  Because John was in the highest occupation class, his policy is noncancellable and guaranteed renewable and was issued at an extremely low premium.  Five years later, John closed his law practice and became a professional racecar driver.  His disability insurer's response with respect to his policy is likely to be to:


        increase the premium for the coverage

        refuse to renew the coverage

Both a and b

*Neither a nor b



Which of the following statements about a disability Cost of Living rider is INCORRECT?


Disability benefit adjustments may be based on the CPI-U

A Cost of Living rider may generally cause disability benefits to increase or decrease

*Adjustments to the disability income insurance benefit are made immediately upon the insured's becoming disabled

Disability benefits may not be reduced below the amount shown in the policy as a result of COLA adjustments



A disability Hospital Income Rider works by:


paying an additional benefit when the insured is hospitalized

waiving the policy's elimination period when the insured is hospitalized

*Either a or b

Neither a nor b




   How many disabilities are likely to occur by age 65 in a group of 10 men, all of whom are age 40?


One

*Three

Four

Five


   Which of the following affect the likelihood of any individual's becoming disabled?


I.   Age

II.  Occupation

III.  Lifestyle


I & II only

I & III only

II & III only

*I, II & III



   Which of the following is/are affected by a prospective disability insurance applicant's occupation?


The cost of disability coverage

The quality of disability coverage

*Both a and b

Neither a nor b





   Which of the following would NOT normally be considered a part of a disability insurance applicant's lifestyle?


Smoking habits

Avocation

*Occupation

Drinking habits




       What guarantee(s) is/are provided in disability insurance coverage that is noncancellable and guaranteed renewable?


    That the insurer will not increase the premium during the specified period

    That the insurer will not refuse to renew the policy during the specified period

    *Both a and b

    Neither a nor b


   Which of the following is NOT a renewability provision found in a disability income insurance policy?


    Noncancellable & Guaranteed Renewable

    Conditionally Renewable

    *Automatically Renewable

    Guaranteed Renewable


   Under what conditions would an insurer pay a disability income benefit for a pre-existing condition?


I.    When the condition was disclosed in the application for the policy and not excluded

II.   When the agent has accepted the pre-existing condition risk

III.  After the policy has been in force for two years


    I & II only

    *I & III only

    II & III only

    I, II & III


   The period of time beginning with the onset of disability describes the:


    *elimination period

    benefit period

    rehabilitation period

    probationary period


   What is the maximum benefit period that would normally apply to an insured under a disability income policy providing lifetime benefits if he became disabled from sickness at age 61?


    2 years

    5 years

    *age 65

    lifetime





   Which of the following is a Social Insurance Benefit rider?


Social Insurance Substitute rider

Social Insurance Supplement rider

    *Both a and b

    Neither a nor b



   What type of underwriting is performed when a disability income policy is applied for under a disability Purchase Option Rider?


Medical underwriting

*Financial underwriting

    Both a and b

    Neither a nor b



   A COLA rider affects the benefit paid under which of the following provisions?


The total disability benefit provision

The residual disability benefit provision

    *Both a and b

    Neither a nor b



   Why are Return of Premium riders criticized?


    Its premiums are considered unnecessarily high

    Premiums are returned too infrequently

    *They may inhibit the submission of claims

    The provisions are too complex for many policyowners to understand



       Return of Premium riders may make payments under all of the following EXCEPT:


    Upon policy surrender

    At the insured's death

    At the insured's age 65

*Upon the insured's disability



   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



   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



 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




   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



      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


  The Social Security definition of disability can be characterized as:


    pure own occupation

    modified own occupation

    limited own occupation

    *any occupation



  Which of the following are requirements for a worker to be eligible to receive Social Security disability benefits?


*The individual must have worked in a covered occupation

The individual is currently insured

Both a and b

Neither a nor b



  Which of the following is a state program providing disability income benefits?


Workers Compensation

Non-occupation Disability program

    *Both a and b

    Neither a nor b



  Which of the following benefits would NOT normally be provided under Workers Compensation?


    Cash payments

    Medical services

    *Long term care services

    Hospital services



  Benefit periods of 26 weeks and zero-day elimination periods are generally characteristic of:


    franchise group disability plans

    *short-term group disability coverage

    long-term group disability coverage

individual disability income insurance




  Which of the following is NOT normally an eligible overhead expense that is reimbursed in Overhead Expense policies?


    Rent

    Utilities

    *Inventory

    Office supplies



  Which of the following would be typical Overhead Expense benefit periods?


    12 months

    24 months

    60 months


    I & II only

    *I & III only

    II & III only

    I, II & III



  Which of the following is a typical elimination period length in a disability buyout policy?


    30 days

    90 days

    6 months

    *24 months



  How are disability buyout benefits paid?


    In a lump-sum

    In installments

    * Either a or b

    Neither a nor b



  What role does an employer NOT play in a Keyperson disability policy?


        Owner

        Insured

        Beneficiary

        Premium payor





      Which of the following statements is/are correct with respect to the tax treatment of individually purchased disability income policies?


Premiums are not tax deductible

Benefits are received tax-free

    *Both a and b

    Neither a nor b



   In which of the following situations would the employer's payment of disability income insurance policy premiums on policies owned by employees be tax deductible?


    A proprietorship's payment of premiums on the proprietor's disability policy

    A partnership's payment of premiums on the disability policy owned by a 10% partner

    An S corporation's payment of premiums on the disability policy owned by a 15% stockholder

    *A regular corporation's payment of premiums on the disability policy owned by its sole stockholder




   Carl Walters is a non-owner employee of Williams Paint Company.  In which of the following situations would Williams Paint Company's payment of disability income insurance premiums on a policy owned by Carl be deductible to the company?


If Williams Paint Company is a regular corporation

If Williams Paint Company is a sole proprietorship

If Williams Paint Company is a partnership

    *the form of business organization is irrelevant for tax deductibility



   For which of the following organizations would Disability Overhead Expense policy premiums be tax deductible?


Robert Wilson, M.D., a sole practitioner

Gorman & Winslow, a law partnership

Columbia Foods, Inc., a food distributor organized as a regular corporation


    I & II only

    I & III only

    II & III only

*I, II & III



       Which of the following is/are correct with respect to the tax treatment of disability keyperson and buyout policies?


Premiums are tax deductible

Benefits are taxable when received

      Both a and b

*Neither a nor b

 

Which of the following statements is correct with respect to the probability of becoming disabled?

 

*At most ages before normal retirement age, the likelihood of becoming disabled is greater than the likelihood of death

The likelihood of becoming disabled generally increases as an individual becomes older
At certain ages the probability of becoming disabled may be as high as four times the probability of death at that age
all of the above are true