Accident and Sickness Insurance
This module tests disability income, accidental death and dismemberment (AD&D), critical illness, and long-term care coverage. Expect definitions of disability, benefit calculation, elimination and benefit periods, exclusions, offsets, and the tax treatment of premiums and benefits.
Disability income mechanics
Disability income replaces a portion of earned income, commonly 60–70%, subject to underwriting and income verification. The definition of total disability drives the claim: 'own occupation' is usually limited to two years, then 'any occupation' for which the insured is reasonably suited by education, training, or experience. The elimination period is the waiting period before benefits begin; the benefit period is how long they last. Non-cancellable policies guarantee premium and renewability; guaranteed renewable policies guarantee renewability but not premium.
Partial, residual, and offsets
Residual disability pays a proportion of the benefit based on lost income; partial disability often pays 50% for a limited period. Recurrent disability from the same cause within a stated period, often six months, usually continues the prior claim without a new elimination period. Benefits may be offset by CPP disability, workers' compensation, and other group coverage. Premiums paid personally produce tax-free benefits; employer-paid premiums generally make benefits taxable.
AD&D, critical illness, and exclusions
AD&D pays a capital sum for accidental death or scheduled losses: loss of two limbs or sight often pays 100%, one limb or sight 50%. Critical illness pays a lump sum after diagnosis and a survival period, commonly 30 days. Common exclusions include self-inflicted injury, war, non-commercial aviation, criminal activity, and pre-existing conditions. Long-term care reimburses or indemnifies qualified care costs.
Worked example
An insured earns $6,000 monthly and has a 60% benefit, a 90-day elimination period, and a CPP offset. After disability, income falls to $1,800, a 70% loss. Residual benefit = 70% × ($6,000 × 60%) = $2,520. CPP pays $600, so the insurer pays $1,920 monthly after the elimination period. If the insured earned $3,000 instead, the 50% loss would produce $1,800 before offsets.
Traps that cost marks
Students mix up the elimination period and benefit period; the first is a wait, the second a duration. 'Any occupation' may apply from day one in some contracts, so read the definition. Recurrent disability does not always restart the elimination period. Not all disability income is tax-free. AD&D pays a schedule, not the face amount for every injury. Critical illness requires survival to the payment date.