Disability & Long-Term CareQuestion 84 of 315
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 will not cover higher amounts
c.Federal law forbids replacing 100 percent of income
d.Because the IRS taxes any 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?
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- 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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Sen Lin, PrepPass Founder · 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)