Disability & Long-Term CareQuestion 84 of 716
Why do disability income insurers cap the monthly benefit at roughly 60 to 70 percent of the insured's gross income?
a.To preserve the insured's financial incentive to return to work
b.Because state guaranty funds refuse to cover higher benefit amounts
c.Because federal law forbids replacing 100 percent of earned income
d.Because the IRS taxes any monthly benefit above that level
Explanation
Insurers limit the benefit so that the insured still has a real financial reason to recover and return to work. Paying close to or more than full income would invite malingering and adverse selection.
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Related questions on this topic
- Which definition of total disability is the MOST favorable to the insured?
- An insured selects a 180-day elimination period instead of a 30-day elimination period. What is the effect on the premium?
- A short-term disability policy sold through an employer is MOST likely to pay benefits for which length of time?
- An insured loses the sight in both eyes in an accident. Under a typical disability income policy with a presumptive disability provision, when do benefits begin?
- An insured returns to part-time work after a covered disability and earns 40 percent of pre-disability income. Which provision pays a pro-rata benefit based on the lost income?
- An insured returns to work after a covered disability, then suffers a relapse from the same condition four months later. Under a recurrent disability provision, the second period is treated as:
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)