Disability Income Insurance
Purpose and Mechanics
Disability income (DI) insurance replaces a portion of earned income lost to disability-typically 60–70% of income. Candidates must know the definition of disability: own occupation (cannot perform the duties of one's own occupation, generally more favorable to the insured) versus any occupation (cannot perform any occupation for which one is reasonably suited, generally stricter). Know total vs. partial/residual disability, presumptive disability (loss of sight, hearing, speech, or limbs, which pays without regard to occupation), and recurrent disability provisions.
Understand the elimination period (time between disability onset and benefit payment), benefit period, and residual benefits that pay a percentage based on income loss. Know noncancellable and guaranteed renewable DI policies, and Social Security integration (benefits offset by other income).
Traps in Questions
- Own vs. any occupation. A policy that pays under own occupation only for a stated period (e.g., 24 months) then switches to any occupation is common; questions test the transition.
- Elimination period and benefit period. A longer elimination period lowers premium; a longer benefit period raises it.
- Partial vs. residual. Partial disability often pays a flat percentage; residual pays in proportion to lost income.
- Occupational coverage. Individual DI often excludes work-related disability; a policy with occupational coverage does not.
Worked Example
An insured earning $6,000/month has a policy paying 60% of income with a 90-day elimination period. After 90 days of total disability, the maximum monthly benefit is $3,600, subject to policy limits and offsets. If the insured returns part-time at 50% income, a residual benefit may pay a proportionate share.
Rule of Thumb
The more favorable the definition to the insured (own occupation, shorter elimination period, longer benefit period), the higher the premium.