Chapter 4: Disability Income & Related Insurance

By Vivian Tayor
Vivian Tayor, Insurance & Finance
Vivian, with over a decade of financial and insurance leadership, founded Celevi CE, an elite continuing education organization, aiming to empower industry experts with trust and respect.
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Life Insurance Quizzes & Trivia

Questions and Answers
  • 1. 

    A corporation is the owner and beneficiary of a Key Person disability policy. If the corporation collects the policy benefit, then:

    • A.

      The amount is subject to an exclusionary rule

    • B.

      The amount received is tax free

    • C.

      IRS has no jurisdiction

    • D.

      The amount received is taxable income

    Correct Answer
    B. The amount received is tax free
    Explanation
    The amount received from a Key Person disability policy by a corporation is tax-free. This means that the corporation does not have to pay taxes on the policy benefit.

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  • 2. 

    Which of the following conditions would a Disability Income policy most likely NOT require in order to qualify for benefits?

    • A.

      The insured must be unable to work

    • B.

      A specified income status prior to the disability

    • C.

      The insured must provide proof of disability

    • D.

      The insured must be under a physician’s care

    Correct Answer
    B. A specified income status prior to the disability
    Explanation
    A Disability Income policy would most likely NOT require a specified income status prior to the disability in order to qualify for benefits. This means that the insured does not need to have a specific level of income before becoming disabled in order to be eligible for benefits under the policy.

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  • 3. 

    Which of the following methods is most commonly used in Individual Disability plans to determine the benefit amount?

    • A.

      Coordination of Benefits flat amount

    • B.

      Occupational rate

    • C.

      Earnings table

    • D.

      Annual earnings

    Correct Answer
    D. Annual earnings
    Explanation
    In Individual Disability plans, the benefit amount is most commonly determined based on the individual's annual earnings. This means that the disability benefit will be calculated as a percentage of the individual's annual income. This method is commonly used because it takes into account the individual's specific earnings and provides a fair and accurate representation of their income replacement needs in the event of disability.

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  • 4. 

    What is the main reason for Ticket Back to Work Act?  

    • A.

      To qualify for Buy Sell Benefits

    • B.

      To have an incentive to return to work

    • C.

      To have an incentive to qualify for the maximum benefits of Old Age Disability

    • D.

      To qualify for Quarter of Coverage

    Correct Answer
    B. To have an incentive to return to work
    Explanation
    The main reason for the Ticket Back to Work Act is to provide an incentive for individuals to return to work. This act aims to encourage individuals who are receiving disability benefits to reenter the workforce by providing them with support and resources. By offering incentives, such as continued access to healthcare and other benefits, the act aims to motivate individuals to seek employment opportunities and regain financial independence.

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  • 5. 

    Disability Income Policies include certain conditions describing how the policy will respond. Which of the following conditions would NOT be required in order to qualify for benefits?

    • A.

      Be in a Convalescent Center

    • B.

      Under a Physicians Care

    • C.

      Have income prior to the disability

    • D.

      Proof of disability

    Correct Answer
    A. Be in a Convalescent Center
    Explanation
    In order to qualify for benefits under a Disability Income Policy, certain conditions must be met. These conditions typically include being under a physician's care, having income prior to the disability, and providing proof of disability. However, being in a convalescent center is not a required condition to qualify for benefits. This means that an individual can still receive benefits even if they are not in a convalescent center.

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  • 6. 

    Which Disability occupation definition has a more liberal definition, and therefore provides a better benefit for the insured?

    • A.

      Hazardous occupation

    • B.

      Any occupation

    • C.

      Own occupation

    • D.

      Liberal occupation

    Correct Answer
    C. Own occupation
    Explanation
    Own occupation has a more liberal definition compared to the other options mentioned. It provides a better benefit for the insured as it covers them if they are unable to perform the duties of their specific occupation, even if they are able to work in a different occupation. This allows the insured to receive benefits that are more tailored to their individual circumstances and ensures that they are adequately protected in case they can no longer work in their chosen profession.

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  • 7. 

    William is involved in a physical collision while playing Soccer. His injuries being of a serious nature also included loss of hearing, loss of sight in his left eye, in addition to permanent back disorders. Fortunately his sight returned as did his loss of hearing shortly after his accident. His disability policy includes a Presumptive Disability Ride. Under what is William entitled to receive?

    • A.

      No benefits

    • B.

      Double Indemnity

    • C.

      Short Term Disability

    • D.

      50% of his Income

    Correct Answer
    B. Double Indemnity
    Explanation
    William is entitled to receive Double Indemnity benefits under his disability policy with a Presumptive Disability Rider. A Presumptive Disability Rider is an insurance provision that automatically classifies certain severe injuries or impairments as total disabilities, regardless of whether the individual is able to work.
    In this scenario, William's injuries, which initially included loss of hearing, loss of sight in his left eye, and permanent back disorders, would likely qualify as presumptive disabilities under the rider.
    Since his sight returned and his hearing loss resolved shortly after the accident, he would not be considered permanently disabled. However, the Presumptive Disability Rider would still entitle him to receive benefits, typically in the form of double indemnity, for a specified period following the accident. Therefore, William is entitled to receive Double Indemnity benefits under his disability policy with a Presumptive Disability Rider.

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  • 8. 

    Social Security sometimes only pays for partial benefits to survivors of those covered by Social Security. According to Social Security Regulations this insured was: 

    • A.

      Partially insured

    • B.

      Not insured

    • C.

      PIA to Small

    • D.

      Totally covered

    Correct Answer
    A. Partially insured
    Explanation
    According to the given information, Social Security sometimes only pays partial benefits to survivors of those covered by Social Security. Therefore, the insured individual in question is considered "partially insured" as they are eligible for partial benefits from Social Security.

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  • 9. 

    A Disability Income Benefit is intended to:  

    • A.

      Provide cash payments for travel and educational expenses

    • B.

      Supplement individuals earned income

    • C.

      Provide an annuity

    • D.

      Pay for unreimbursed expenses

    Correct Answer
    B. Supplement individuals earned income
    Explanation
    A Disability Income Benefit is intended to supplement an individual's earned income. This means that it provides additional financial support to individuals who are unable to work due to a disability, helping them maintain their standard of living and cover their expenses. This benefit is not designed to provide cash payments for travel and educational expenses, provide an annuity, or pay for unreimbursed expenses. Its main purpose is to provide financial assistance to individuals who have lost their ability to earn income due to a disability.

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  • 10. 

    Carl owns a small craft store. He was involved in a car accident that rendered him totally disabled for half a year. Which type of insurance would help him pay for expenses from his store, during the time of his disability?

    • A.

      Business Employer Policy

    • B.

      Business Overhead Expense Policy

    • C.

      Business Disability Policy

    • D.

      Business Expense Policy

    Correct Answer
    B. Business Overhead Expense Policy
    Explanation
    A Business Overhead Expense Policy would help Carl pay for expenses from his store during the time of his disability. This type of insurance is specifically designed to cover the ongoing expenses of a business while the owner is unable to work due to a disability. It typically covers expenses such as rent, utilities, employee salaries, and other necessary costs to keep the business running. This policy ensures that the business can continue to operate and generate income even when the owner is unable to actively participate in its day-to-day operations.

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  • 11. 

    Why are Disability Income Benefits limited to a percentage of earned income?  

    • A.

      To avoid extra services

    • B.

      To avoid an injury

    • C.

      To avoid malingering

    • D.

      To avoid extra expenses

    Correct Answer
    C. To avoid malingering
    Explanation
    Disability Income Benefits are limited to a percentage of earned income to avoid malingering. Malingering refers to the act of exaggerating or feigning symptoms in order to receive disability benefits. By limiting the benefits to a percentage of earned income, it discourages individuals from falsely claiming disabilities or exaggerating their conditions for financial gain. This helps ensure that the benefits are provided to those who genuinely need them and prevents misuse of the system.

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  • 12. 

    George was involved in a serious Car Accident that left him paralyzed and confined to a wheelchair. He works as an Administrative Assistant so his disability has not affected his ability to return to the same job. What percentage of his disability benefits would George receive?

    • A.

      No benefits

    • B.

      Rehabilitation only

    • C.

      Presumptive Benefits

    • D.

      Loss of USE

    Correct Answer
    A. No benefits
    Explanation
    George would receive no disability benefits because his disability has not affected his ability to return to the same job. Since he can still work as an Administrative Assistant, he does not qualify for any disability benefits.

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  • 13. 

    From an insurance exposure prospective, which of the following is the primary risk associated with disability?

    • A.

      Interest rate risk

    • B.

      Reduced mobility

    • C.

      Loss of income

    • D.

      Loss of physical ability

    Correct Answer
    C. Loss of income
    Explanation
    The primary risk associated with disability from an insurance exposure perspective is the loss of income. When an individual becomes disabled and is unable to work, they may experience a significant reduction or complete loss of their income. This can have a severe financial impact on the individual and their dependents, making it difficult to meet their financial obligations and maintain their standard of living. Insurance coverage for disability aims to provide financial protection by replacing a portion of the individual's lost income during the period of disability.

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  • 14. 

    The elimination period on an Individual Disability insurance policy refers to:  

    • A.

      Period of time that benefits are still payable after an insurance company discontinues a policy

    • B.

      Amount of time a disabled person must wait before benefits are paid

    • C.

      Length of time a policy will continue to pay for specified disabilities

    • D.

      Point of time when benefits are exhausted

    Correct Answer
    B. Amount of time a disabled person must wait before benefits are paid
    Explanation
    The elimination period on an Individual Disability insurance policy refers to the amount of time a disabled person must wait before benefits are paid. This means that once a person becomes disabled, they must wait for a specific period of time before they are eligible to receive benefits from the insurance policy. This waiting period is designed to prevent individuals from making fraudulent claims or seeking benefits for short-term disabilities. Once the elimination period has passed, the disabled person can start receiving the benefits they are entitled to.

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  • 15. 

    Under a disability income policy, the insurer does not pay a monthly benefit that is equal to the insured’s previous income. The reason for paying a benefit amount that is less than the insured’s income is to:

    • A.

      Enable the insurer to provide affordable coverage

    • B.

      Prevent the insured from obtaining excess insurance

    • C.

      Prevent over utilization and malingering

    • D.

      Enable the insurer to reduce variable costs

    Correct Answer
    C. Prevent over utilization and malingering
    Explanation
    The reason for paying a benefit amount that is less than the insured's income is to prevent over utilization and malingering. By providing a benefit amount that is less than the insured's income, the insurer discourages individuals from intentionally prolonging their disability or overusing the benefits. This helps to ensure that the benefits are used appropriately and only for the necessary duration of the disability.

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  • 16. 

    Josh is a concert pianistand earns a very good living with his talent. He was in a car accident and broke his arm.  His disability is considered. 

    • A.

      Total, temporary

    • B.

      Total, partial

    • C.

      Partial, temporary

    • D.

      Temporary, only

    Correct Answer
    D. Temporary, only
    Explanation
    The correct answer is "Temporary, only". This means that Josh's disability is not permanent and will eventually heal or improve over time. It suggests that his broken arm is a temporary setback that will not have a long-term impact on his ability to play the piano and earn a good living.

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  • 17. 

    Kelly, a kindergarten teacher, was in a boating accident and lost both legs.  Although he will continue to teach, his disability policy pays full benefits because of this provision.

    • A.

      Presumptive Disability

    • B.

      Total Disability

    • C.

      Partial Disability

    • D.

      Residual Disability

    Correct Answer
    A. Presumptive Disability
    Explanation
    Presumptive Disability is the correct answer because it refers to a provision in a disability policy that automatically classifies certain injuries or conditions as total disabilities, regardless of the individual's ability to work. In this case, Kelly's loss of both legs qualifies as a presumptive disability, entitling him to full benefits under his policy.

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  • 18. 

    Which of the following definitions does not match the terms?

    • A.

      Guaranteed Purchase Option- guarantees that on specified dates, ages or occurrances, the insured may purchase additional monthly benefits, if income justifies it, without proof of insurabilty.

    • B.

      Cost of Living- automatically increases monthly benefits, after the onset of disability, often in accordance with increases in the Consumer Price Index.

    • C.

      Waiver of Premium- in the event of total disability continues beyond a specified period, the insurer will waive premiums for the duration of he diability.

    • D.

      Return of Premium Rider- a special provision that provides for refund of the cash value if disability occurs after a certain period.

    Correct Answer
    D. Return of Premium Rider- a special provision that provides for refund of the cash value if disability occurs after a certain period.
    Explanation
    The definition of the Return of Premium Rider does not match the terms because it refers to a provision that provides a refund of the cash value if disability occurs after a certain period. However, the other definitions are related to different insurance terms such as Guaranteed Purchase Option, Cost of Living, and Waiver of Premium, which are not mentioned in the definition of the Return of Premium Rider.

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  • 19. 

    Sam is a valuable veteran of 19 years at Casey's Garage working with 26 people and filling in for Casey when he is not in.  Casey wants to insure Sam  to offset any losses and the costs of trying to find, recruit and train a replacement should Sam become disabled.   What type of policy should Casey purchase?

    • A.

      Business Overhead Insurance

    • B.

      Key Employee Insurance

    • C.

      Special Insurance Supplement

    • D.

      Employee Impairment Insurance

    Correct Answer
    B. Key Employee Insurance
    Explanation
    Casey should purchase Key Employee Insurance because Sam is a valuable veteran with 19 years of experience at Casey's Garage and fills in for Casey when he is not in. This type of insurance is specifically designed to offset any losses and the costs of finding, recruiting, and training a replacement for a key employee like Sam in the event that he becomes disabled.

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  • 20. 

    Two business partners wanting to be assured the business will not be lost should one of them become disabled, should purchase a Disability Policy to fund which of the following?

    • A.

      A Buy-Sell Agreement

    • B.

      A Business Continuation Plan

    • C.

      A Business Overhead Expense Contract

    • D.

      A Guaranteed Purchase Option

    Correct Answer
    A. A Buy-Sell Agreement
    Explanation
    A Buy-Sell Agreement is a legal contract between business partners that outlines the terms and conditions for the sale of a partner's share of the business in the event of their disability or death. By purchasing a Disability Policy, the partners can ensure that funds are available to buy out the disabled partner's share and maintain the continuity of the business. This agreement provides financial security and protects the interests of both partners in case of disability.

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  • 21. 

    What statement is false regarding Social Security Disablilty benefits?

    • A.

      The waiting period is 5 months

    • B.

      To collect disability benefits, an employee must be unable to engage in any kind of gainful work because of a medically determined physical or mental condition that has lasted, or is expected to last, at least 12 months, or results in an early death.

    • C.

      Qualifications for benefits is contingent upon the employee's having the proper insured status (45 quarters) and satisfying the waiting period.

    • D.

      Higher average earnings will result in a larger absolute benefit, thus lower income workers receive a greater percentage of their pre-disability income than the higher wage earner does.

    Correct Answer
    C. Qualifications for benefits is contingent upon the employee's having the proper insured status (45 quarters) and satisfying the waiting period.
    Explanation
    The statement that is false regarding Social Security Disability benefits is that qualifications for benefits are contingent upon the employee's having the proper insured status (45 quarters) and satisfying the waiting period.

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  • 22. 

    Kelly was told she could only expect about 70% of  her weekly salary on a disability check if she was ever disabled.  The reason for this is to reduce________.

    • A.

      Malfunctions

    • B.

      Malingering

    • C.

      Misalignment

    • D.

      Missions

    Correct Answer
    B. Malingering
    Explanation
    The reason for reducing Kelly's disability check to only 70% of her weekly salary is to discourage malingering. Malingering refers to the act of exaggerating or faking symptoms of illness or disability in order to receive benefits or avoid work. By reducing the amount of money received on a disability check, it serves as a deterrent for individuals who may attempt to exploit the system by pretending to be disabled.

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  • 23. 

    Most Group Disability Income contracts are offered on a/an 

    • A.

      Nonoccupational basis

    • B.

      Occupational basis

    • C.

      Contributory basis

    • D.

      Noncontributory basis

    Correct Answer
    A. Nonoccupational basis
    Explanation
    Group Disability Income contracts are typically offered on a nonoccupational basis. This means that the coverage provided by the contract applies to disabilities that occur both on and off the job. In other words, the policyholder is eligible to receive benefits if they become disabled due to any cause, whether it is work-related or not. This type of coverage is generally more comprehensive and provides greater protection for individuals, as it covers disabilities that may occur outside of the workplace.

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Vivian Tayor |Insurance & Finance
Vivian, with over a decade of financial and insurance leadership, founded Celevi CE, an elite continuing education organization, aiming to empower industry experts with trust and respect.

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  • Current Version
  • Feb 09, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 25, 2012
    Quiz Created by
    Vivian Tayor
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