Final Examination — Disability Income Insurance

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Question 1 — Honor System Certification

I certify that as the agent enrolled in this continuing education course, I will complete the final exam by myself without any assistance from anyone else.

I understand that failure to comply with this requirement may result in loss of continuing education credits, and possible administrative sanctions by the Florida Department of Financial Services.

Yes — I agree and certify No

Instructions: Select the best answer for each question. Click Submit Answers when finished. A score of at least 70% (21 of 30 correct) is required to pass. Do not press the Enter key while taking this exam.

Progress0 of 30 answered

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

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 is the LEAST favorable to the insured?

Own occupation Any occupation Limited own occupation Modified own occupation

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 race car driver. His disability insurer’s response with respect to his policy is likely to be:

increase the premium for coverage refuse to renew the 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 insurance benefit for a pre-existing condition?

When the condition was disclosed in the application for the policy and not excluded When the agent has accepted the pre-existing condition risk After the policy has been in force for one year The insurance company specifically excluded the condition

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 insurance policy providing lifetime benefits if he becomes disabled from sickness at age 61?

2 years 5 years age 65 lifetime

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

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 elimination 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

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

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 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 disability coverage individual disability income coverage

Which of the following roles 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

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

If Walters Paint Company is a regular corporation If Walters Paint Company is a sole proprietorship If Walters Paint Company is a partnership The form of business organization is irrelevant for tax deductibility

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

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

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 Total disability Presumptive disability

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

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

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Correct

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Score

70%

Needed to Pass