Accident and sickness insurance fundamentals
Domain 3 tests accident and sickness coverage: disability income, accidental death and dismemberment, and medical expense plans. Focus on definitions that change benefits.
Core rules
- Morbidity is the incidence and severity of sickness/injury; it drives health premiums.
- Disability income replaces part of earned income, often 60–80%, subject to underwriting.
- Own-occupation pays if the insured cannot do their own job; any-occupation pays only if unable to do any job for which reasonably suited. Own-occ is broader and often limited to a shorter period.
- Elimination period is the waiting period before benefits; benefit period is how long benefits last.
- Residual/partial disability pays a proportion when income falls after return to work.
- AD&D pays for accidental death or dismemberment, not for sickness or ordinary disability.
- Medical plans use deductibles, coinsurance, copays, networks, and out-of-pocket maximums. Coordination of benefits prevents duplicate payment.
Worked example
An insured earns $6,000 monthly. The insurer limits disability benefit to 60%, or $3,600. With a 90-day elimination period, no benefit is paid for the first 90 days. If the insured returns part-time at 50% of prior income after benefits begin, a residual benefit may pay a reduced amount based on income loss, not the full $3,600.
Traps
AD&D is not disability income. The elimination period is not the benefit period. Coinsurance is the insured's share after deductible, not a flat copay. Own-occ does not always last to age 65.