Individual disability income policies typically limit the benefit to roughly 60 percent of the insured's earned income in order to:
Explanation
Disability income benefits are capped at a portion of income (often around 60 percent) because disability benefits are generally received income-tax-free when the individual paid the premiums, so replacing too much income could leave the insured better off not working, creating a moral hazard. The limit is not about advertising costs, Medicare, or property insurance. Keeping the benefit below full pay maintains the insured's motivation to recover and return to work.
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Related questions on this topic
- A 'calendar-year' deductible in a medical plan means the insured must satisfy the deductible:
- A 'family deductible' provision in a medical plan generally:
- The 'coordination of benefits' (COB) provision in group health insurance is designed to prevent:
- Under a 'presumptive disability' provision in a disability income policy, the insured is automatically presumed totally disabled upon:
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