Health and Disability Income Insurance
Health and disability questions test whether you can define disability precisely, set the waiting period, and coordinate benefits without gaps or duplication. The exam favors definitions, policy provisions, group versus individual differences, Medicare, and long-term care basics.
Disability income mechanics
- Morbidity is the risk measure for illness and injury, as mortality is for life insurance.
- Elimination period: the waiting period before benefits begin; a longer EP lowers premium.
- Benefit period: two years, five years, to age 65, or lifetime.
- Own occupation vs any occupation: most policies pay own-occ for two to five years, then any-occ; a true own-occ policy keeps paying if the insured cannot perform their own occupation even while working elsewhere.
- Residual/partial disability: proportional benefit when income loss exceeds a threshold (often 20%), frequently with a recovery benefit.
- Presumptive disability: loss of sight, hearing, speech, or two limbs pays the full benefit regardless of earnings.
- Recurrent disability: a relapse within six months (typical) is treated as the same disability, so no new elimination period.
- Riders: COLA, future increase option, return of premium, Social Security substitute.
Health plan provisions
Guaranteed renewable (insurer cannot cancel but can raise premiums by class), noncancelable (premium and renewability fixed), conditionally renewable. Managed care: HMO (in-network gatekeeper), PPO (network discounts, out-of-network allowed), POS. Group plans coordinate benefits; for dependent children the birthday rule applies - the parent whose birthday comes first in the calendar year pays first. COBRA continues group coverage for 18 months (36 for certain events) at employers with 20+ employees.
Worked example
A client earns $6,000/month and owns a policy paying $4,000/month with a 90-day elimination period and residual benefits above a 20% income loss. She returns part-time at $3,000/month after 120 days. Income loss is 50%, so the residual benefit is roughly 50% × $4,000 = $2,000/month, and the 90-day EP has been satisfied.
Traps
Resetting the elimination period on a relapse inside six months; assuming own-occ lasts the whole benefit period; applying the birthday rule by the older parent; assuming Medicare pays custodial long-term care; confusing guaranteed renewable with noncancelable.