Understanding Disability Insurance: Key Concepts & Scenarios

Disability Insurance: Core Principles & Practical Applications

1. True Statements on Disability Insurance

Louise is contemplating disability insurance but finds the industry a bit confusing. Which among the following statements concerning disability insurance is TRUE?

It is more probable that someone in their mid-twenties will suffer a disability lasting three months or more before they are 65, than someone who is 60 years old.

2. Monika's Occupational Disability Risk Class

Monika works for Geological Capital Corporation as a full-time surveyor. What is her likely disability risk class?

Class 3

3. Risk Management & Disability Income Protection

In general, risk management strategies are intended to protect individuals from the risks associated with their daily lives. If partial or total disability occurs, what is the primary amount at risk?

The client's before-tax income.

4. Ben's Potential Financial Loss from Disability

Ben earns $54,000 per year, on which he pays $16,000 in taxes. After assessing his lifestyle expenditures, net worth, and other factors, he realizes that he could face great difficulty maintaining his standard of living if his after-tax income was reduced at all. What is Ben's potential financial loss in the event of disability?

Ben's potential financial loss is his pre-tax income plus the pre-tax cost of additional medical care.

5. Disability Risk Severity Categories Explained

Other than occupational classification, there are other ways to evaluate an individual's disability risk category. Which of the following does not correctly describe one of the risk severity categories?

Risks of major severity can lead to a reduction in one's standard of living. (Note: This statement correctly describes a major severity risk, implying it is the incorrect answer to the question asking for what does NOT correctly describe.)

6. Snowmobiling Risk Mitigation: Julia's Helmet

Roberto and Julia like to race snowmobiles on the weekends. What is an example of Julia's risk mitigation strategy?

Julia purchases a helmet and wears it when snowmobiling.

7. Risk Financing Strategies: Disability Insurance

Tony and Sharon follow their financial planner's advice and implement some risk financing strategies. Which of the following is an example of a risk financing strategy?

Purchasing a disability insurance contract.

8. Aaron's CPP Disability Pension Eligibility

Aaron is 17 years old. He attends high school full-time and starts university full-time next year. His father works and his mother is on a CPP disability pension. When might Aaron's eligibility for a dependent benefit related to his mother's pension cease?

When Aaron turns 25 years of age.

9. Workers' Compensation & Taxability for Conrad

Conrad works as a floor supervisor at a major Canadian newspaper. During the summer, he received a severe concussion and dislocated his shoulder after falling into a printing press. What is a key characteristic of workers' compensation benefits?

Workers' compensation benefits are not taxable.

10. Disability Claims: Alumni Association Policy

Martha, Albert, Ken, and Karen purchased disability insurance contracts through the Indian Feather College alumni association two years ago. Which of the following claims would likely be covered?

Albert's claim, resulting from injuries sustained when a plate glass window fell on him as he was walking down the sidewalk.

11. Total Disability Definition: Uri's Case

Consider Uri, who worked as a mailman before losing one leg and is now unable to find any work. Under what definition of disability would Uri most likely qualify for benefits?

Uri, who worked as a mailman before losing one leg and is now unable to find any work, would likely qualify under a 'total disability' or 'any occupation' definition.

12. Disability Coverage for Skilled Medical Researcher

Tom, a highly skilled medical researcher in his late thirties, seeks advice on disability coverage. He can teach at a local university if required. What is a relevant policy feature he should consider?

The policy may include a future income option to increase disability coverage, provided he continues to be insurable.

13. Employer-Paid Disability Premiums & Taxability

Benito earns $165,000 per year of employment income as a securities lawyer. Regarding employer-paid disability insurance premiums, what is true for his income tax return?

Benito does not need to report the insurance premium paid by his employer as a taxable benefit on his income tax return.

14. Jason's Partial Disability Benefit Calculation

Jason, an investment advisor, has a disability insurance policy that specifies a monthly benefit for total disability of $4,500. Late last year, he suffered an illness that caused a total disability. He has recuperated to a point where he can return to work part-time. What might his partial disability benefit be?

$1,500.

15. Disability Insurance Waiting Period for Susan

After purchasing a typical disability insurance contract, Susan developed a medical condition that prevented her from working for four months. What is the typical waiting period implication?

Susan must wait another three months before collecting total disability payments, indicating an elimination period longer than four months.

16. Alley's Disability Policy: Level Premium Term

Alley, an archaeologist, purchased a substantial amount of disability insurance four years ago prior to an expedition in Africa. At 38 years of age, her premiums on the ten-year policy are relatively inexpensive. What type of premium structure does her policy likely have?

Alley's policy includes a level premium term.

17. Individual vs. Group Disability for Self-Employed

Pat is self-employed as a carpenter. He is trying to decide whether he should purchase an individual disability contract or a group contract through the trade association to which he belongs. What is a common perception regarding group plans?

Group plans usually provide a higher quality of coverage than individual plans.

18. Taxation of Personally Owned Disability Benefits

Paula is completing her income tax return. She receives a disability benefit from the disability policy that she personally owns and for which she personally pays the premiums. What is true regarding the taxation of these benefits?

All of the above. (Note: Specific options for 'All of the above' are not provided in the original text.)

19. Tax Deductibility of Self-Employed Disability Premiums

Jack is self-employed and works on a contract basis. He recently purchased a disability insurance policy. He personally owns the policy and makes all of the premium payments. What is true regarding the deductibility of his premiums?

Jack's premiums are deductible by the company with which he contracts.

20. Disability Insurance: Individual Plan Benefits

One of your clients would like some information on various aspects of disability insurance. He has realized that, with his occupation and age, this type of insurance will provide a degree of financial protection for him and his family. What is a common claim about individual disability plans?

Individual plans offer the most extensive coverage at the lowest overall cost.