Disability income insurance

Disability questions are mostly about definitions and timing, and they are heavily scenario-based: you are given a situation and must decide what is payable and when.

Questions and answers, explained

All 12 questions above, with the correct answer and why it is correct. Everything here is on disability income insurance.

1. A disability income policy was issued 3 years ago. When the insured files a claim, the insurer discovers he innocently failed to mention a previously treated back strain on his application and moves to void the policy. Under s. 627.607, F.S., the insurer:

   • ACannot void the policy — after 2 years, only fraudulent misstatements may be used to void coverage or deny a claimCorrect
   • BMay void the policy at any time for any misstatement, however innocent
   • CMay deny the claim because the back strain is automatically a preexisting condition
   • DMust pay only 50 percent of the benefit as a compromise

   Why: The time limit on certain defenses in s. 627.607, F.S., provides that after a health policy has been in force for 2 years, only fraudulent misstatements in the application may be used to void the policy or deny a claim for a loss incurred after the 2-year period. Since the omission was innocent and the policy is past 2 years, the insurer must honor the claim; there is no automatic preexisting-condition denial or 50-percent compromise rule.

   Reference FL-III.A; s. 627.607, F.S.

2. To qualify for Social Security disability income benefits, a covered worker must meet which definition of disability?

   • AUnable to perform the main duties of his or her own regular occupation for a period of 90 days or more
   • BUnable to work at any job at all for at least 90 consecutive days
   • CSuffering any injury that reduces his or her earnings by 20% or more
   • DUnable to engage in any substantial gainful activity, expected to last 12 months or end in deathCorrect

   Why: Social Security uses the strictest common definition of disability: the inability to engage in any substantial gainful activity due to an impairment expected to last at least 12 months or result in death, plus a 5-month waiting period before benefits begin. The 'own occupation' standard in option A is a definition found in private disability income policies, not Social Security.

   Reference Outline VII (Social Insurance): Social Security benefits — disability definition

3. After recovering from surgery, Marta returns to her job part-time and now earns 40% less than she did before her disability. Which disability income policy benefit would pay her an amount based on the percentage of earnings she has lost?

   • ATotal disability benefit
   • BResidual disability benefitCorrect
   • CPresumptive disability benefit
   • DWaiver of premium benefit

   Why: A residual disability benefit pays a proportionate amount based on the insured's actual loss of earnings — here, roughly 40% of the total disability benefit. By contrast, a partial disability benefit typically pays a flat 50% of the total benefit for a limited time, and presumptive disability applies to specified losses such as sight, hearing, speech, or two limbs.

   Reference Outline VIII (Other Health Insurance Concepts): total/partial/residual disability

4. Elena applied for an individual disability income policy, paid the initial premium, and received a conditional receipt. No medical exam was required. Ten days later — before the insurer issued the policy — she was seriously injured in an accident. Underwriters then determine she was insurable as a standard risk on the date of the application. The insurer should

   • Apay the claim, because under the conditional receipt coverage began on the application dateCorrect
   • Bdeny the claim, because the policy had not yet been issued or delivered to her when she was hurt
   • Cdeny the claim but refund the premium she paid with the application
   • Dpay the claim only if the agent had express authority to bind the coverage

   Why: A conditional receipt makes coverage effective as of the date of the application (or the medical exam, if one is required) provided the applicant is later found insurable as applied for at standard rates. Because Elena met that condition, the loss is covered even though the policy had not yet been issued; had she been found uninsurable, the receipt would have provided no coverage at all.

   Reference Outline IX (Field Underwriting Procedures): initial premium and receipt consequences — conditional receipt

5. A surgeon injures her hand and can no longer perform surgery, but she accepts a full-time position teaching at a medical school. Under which definition of total disability would her individual disability income policy pay full benefits?

   • AAny occupation
   • BOwn occupationCorrect
   • CPresumptive disability
   • DPartial disability

   Why: The own-occupation definition pays benefits when the insured cannot perform the substantial duties of his or her OWN occupation, even if the insured works in a different field. The any-occupation definition is stricter: it would deny benefits because she can work in another occupation suited to her education and training. Presumptive disability applies only to specified losses such as sight, speech, or limbs. (Outline V.A)

   Reference Outline V.A (Disability income - individual)

6. Under the time of payment of claims provision, benefits for a continuing loss — such as ongoing disability income — must be paid at least:

   • AWeekly
   • BQuarterly
   • CMonthlyCorrect
   • DAnnually

   Why: Florida's time of payment of claims provision requires that benefits due for a continuing loss be paid at least monthly, and benefits for any other covered loss be paid as soon as the insurer receives proper written proof (s. 627.613, F.S.). This protects a disabled insured's cash flow — an insurer cannot accumulate periodic benefits and pay them quarterly or at the end of the claim. (Outline VI.A)

   Reference Outline VI.A; s. 627.613, F.S.

7. A waiver of premium rider states that the benefit is available for disabilities beginning before the insured's 65th birthday. The insured first becomes totally disabled at age 68. What is the result?

   • APremiums are waived anyway, because the disability is total and permanent.
   • BNo premiums are waived, because the disability began after the rider's stated expiry age.Correct
   • CThe insurer must refund every rider premium the insured ever paid.
   • DThe base policy automatically becomes reduced paid-up insurance.

   Why: Waiver of premium riders carry an expiry age — commonly 60 or 65 — and a disability that first begins after that age triggers nothing; rider charges normally stop at the same age. A disability that had begun BEFORE the expiry age and continued past it would still be covered, which is the distinction being tested. Option A is the closest distractor and confuses the severity of the disability with the rider's eligibility window. Nonforfeiture options (option D) apply only when the policy actually lapses for nonpayment. (Outline II.A.)

   Reference FL 2-15 Outline II.A (Waiver of premium)

8. A 48-year-old Florida resident just enrolled in Medicare Parts A and B after qualifying due to a disability. He asks an agent whether he can buy a Medicare supplement policy. The correct answer is:

   • ANo — Medicare supplement policies may only be sold to people who have already reached the age of 65
   • BYes, but only if he first passes the insurer’s full medical underwriting and is approved
   • CYes — Florida requires an offer to under-65 enrollees, with 6-month open enrollment after Part BCorrect
   • DNo — he must wait until he has been on Medicare for a full 24 months

   Why: Section 627.6741, F.S., requires insurers selling Medicare supplement policies in Florida to make them available to individuals eligible for Medicare by reason of disability or end-stage renal disease, regardless of age, with a 6-month guaranteed-issue open enrollment period once enrolled in Parts A and B. This is a Florida-specific protection; in some states, under-65 enrollees have no Medigap access at all.

   Reference FL-III.D; s. 627.6741, F.S.

9. A fully insured worker becomes disabled on March 15 and meets Social Security's definition of disability. Assuming the claim is approved, for which month is the FIRST Social Security disability benefit payable?

   • AMarch
   • BApril
   • CSeptemberCorrect
   • DMarch of the following year

   Why: Social Security imposes a five-month waiting period, counted in full calendar months beginning with the first full month after onset — April through August — so the first payable month is the sixth full month, September. Choice B ignores the waiting period entirely; the separate 24-month rule determines when the disabled worker becomes entitled to Medicare, not when cash benefits start.

   Reference Outline VII (Social Insurance): Social Security disability — five-month waiting period

10. Luis received total disability benefits for eight months, returned to work full-time, and three weeks later became disabled again from the same cause. Under his policy's recurrent disability provision, the second period of disability will MOST likely be

    • Atreated as a continuation of the original claim, so no new elimination period appliesCorrect
    • Btreated as an entirely new claim, requiring a new elimination period
    • Cdenied, because returning to work terminated all rights to benefits
    • Dpaid at a reduced benefit amount for the remainder of the benefit period

    Why: A recurrent disability provision states that if the insured becomes disabled again from the same cause within a specified period (commonly three to six months) after returning to work, the relapse is treated as a continuation of the prior disability, so no new elimination period is imposed. If the relapse occurred after that window, or arose from a new cause, it would be handled as a new claim with a new elimination period.

    Reference Outline VIII (Other Health Insurance Concepts): recurrent disability

11. A small-business owner becomes totally disabled. Her business overhead expense (BOE) policy would reimburse each of the following while she is disabled EXCEPT:

    • AOffice rent
    • BHer employees' salaries
    • CUtility bills for the business
    • DHer own lost personal incomeCorrect

    Why: BOE insurance reimburses the fixed operating expenses that keep the business open while the owner is disabled — rent, utilities, and employee wages — but it never replaces the owner's own income or salary. The owner needs a separate individual disability income policy for that. BOE premiums are tax-deductible as a business expense, and the benefits received are taxable. (Outline V.A)

    Reference Outline V.A (Business overhead expense)

12. When he bought his disability income policy, the insured worked as an accountant. He later became a commercial roofer without notifying the insurer and was disabled in a fall on the job. If the policy contains the optional change of occupation provision, the insurer will:

    • ADeny the claim outright because the change of occupation was never reported to it
    • BVoid the policy as of the date the insured changed his occupation
    • CPay the full benefit because all of the premiums were paid on time
    • DPay reduced benefits — what the premium would have bought at the hazardous rateCorrect

    Why: Under the change of occupation provision, if the insured is injured after changing to a more hazardous occupation, the insurer pays only the portion of the benefit that the premium paid would have purchased at the rates for the more hazardous occupation (s. 627.619, F.S.). The claim is not denied and the policy is not voided. Conversely, a change to a less hazardous occupation entitles the insured to a reduced premium and a pro rata refund of the excess. (Outline VI.A)

    Reference Outline VI.A; s. 627.619, F.S.

Drill the whole domain

• Types of Health Policies (11%)
• Florida Statutes — Health Insurance (10%)
• Health Policy Provisions, Clauses, and Riders (10%)

Other topics

• Free look periods on the Florida 2-15
• Twisting vs churning vs sliding vs rebating
• Annuities on the Florida 2-15
• Medicare and Medicare supplement rules
• Life policy provisions and clauses
• Variable life, VUL and the separate account
• Annuity best interest rules for buyers 65+
• HIV testing and consent in Florida underwriting
• Premium trust funds and fiduciary duty
• Compulsory vs discretionary license discipline
• Buyer's Guide and Florida free look periods
• Florida guaranty association limits
• License, appointment and continuing education

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