Chapter Six
Group Disability Income Insurance
A Review of Group Insurance Principles
Before we discuss the specific details of group disability income insurance, let's briefly review the basic principles of group insurance coverages. In general, group insurance refers to various insurance products available to those who collectively belong to a definable group, as opposed to individually purchased insurance policies. The most common type of group associated with group insurance is employment related. Employers frequently offer insurance to their employees as a way to attract and retain high quality people.
Although group insurance includes life and health coverages, this chapter addresses only group disability income insurance, which is a member of the health insurance family. While many benefits are the same as those found in individual DI policies, group DI insurance is defined by several distinctive features discussed in this chapter.
Eligible Groups
Exactly what constitutes an eligible group for group insurance purposes is regulated by law since certain tax benefits accrue to group participants. Following is a short summary of the common types of groups the law deems eligible for group insurance plans.
Single Employer Groups
A single employer group is probably the most familiar type. Under this arrangement, a single employer makes group benefits available to its employees. Employers can be sole proprietors, partnerships or corporations. Medium and larger sized companies provide the primary market for single employer groups, which account for most existing group insurance plans. They are also a lucrative source of new business for agents selling group insurance plans.
Multiple Employer Trust
Groups composed of two or more small employers who join together to receive the same group insurance consideration as larger employers are called multiple employer trusts or METs. Without METs, many small employee groups would be ineligible for group benefits since a group must have a minimum number of people-usually 10-to qualify. A separate trust is formed to handle the group business, from collecting and paying premiums to filing claims. Insurance companies and non-insurance organizations sponsor and administer METs.
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Organized Unions
Organized unions are groups comprised of workers in related fields, such as the Communications Workers of America, the United Auto Workers and any other organized labor or workers' union. Federal law requires a trust to be established to collect funds and otherwise administer employee benefits for unions.
Associations and Miscellaneous Groups
Associations and other miscellaneous groups encompass nearly any other type of group for whom insurance benefits are made available on a group basis. Types of eligible groups in this classification vary according to state law. Typical examples are professional associations such as the American Bar Association and the American Medical Association, associations made up of people who are members of automobile clubs, fraternities, sororities, and just about any other group with a common relationship that is recognized by state law.
Creditor-Debtor Groups
Creditor-debtor group insurance is offered by a lender to people who borrow money. The purpose of credit DI insurance is to protect the creditor to whom the policy's benefits are paid if the debtor becomes disabled (or dies, in the case of credit life insurance) before the debt is paid. Some credit coverages are provided as individual policies, rather than group policies.
What qualifies each of these entities for group insurance is the factor the members have in common-their employer, their union or association, or their group status as debtors to a particular financial institution. Some insurers also make group insurance available to those whose common relationship is even more tenuous, such as people who hold a major credit card through the same organization. Some of these less well defined groups are solicited for group insurance through the mail or other direct advertising. Because people so solicited essentially select themselves for coverage, rather than being qualified by an insurance agent and underwriter, these groups tend to have a greater tendency toward adverse selection-a preponderance of high-risk insureds who are most likely to have claims.
Group Underwriting
Naturally, insurers want to avoid adverse selection by balancing the number of high-risk insureds with low risk insureds. This is the essence of group underwriting. Most types of group insurance have this balance built in since there is a large pool of people of varying ages and health conditions who come and go and are being replaced in the group with some regularity. Group plans require the participation of a high percentage of eligible people to ensure that the plan is not composed primarily of those who are likely to have claims. Additionally, group members must sign up for insurance coverage very soon after they
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become eligible-usually within 30 or 31 days. This prevents those who do not purchase the coverage initially from changing their minds when they are injured or ill and want to use the plan's benefits-another feature of group underwriting that helps avoid adverse selection.
Of the eligible groups, METs are scrutinized more carefully than others because each "sub-group" is small, whereas group insurance underwriting principles depend on larger numbers. The MET sponsor decides what requirements the smaller groups must meet in order to be accepted into the group. When enough sub-groups are included in the MET to form a large group, underwriting and resulting rates are essentially identical to those of larger groups.
Advantages of Group Coverage
The characteristics of group insurance we've described help insurers avoid adverse selection, but the same characteristics are also the foundation for the advantages group coverage offers the group members. One advantage is that people who sign up within the specified time are not normally subject to medical examinations that could uncover an uninsurable condition. Therefore, essentially everyone in the group may have coverage regardless of their current physical conditions. That's the general rule: there are exceptions.
Some insurers routinely require individual medical exams and underwriting for the very smallest groups only, while members of larger groups need not meet this requirement. This is typical. but there are exceptions, so it is important to know exactly how a particular insurer writes group coverage. Some insurers require new group members to complete an application and answer medical questions, but not to have physical examinations.
However, a more recent trend among insurers is to require more medical exams and financial information about individual group members. These stricter requirements have arisen from the more liberal benefits appearing in many group DI plans-benefits similar to those provided in high quality individual DI policies that offer greater monthly benefits and fewer restrictions. You'll learn more about how insurers underwrite DI policies in Chapter Eight.
As long as individuals remain with the group, they have some measure of security that the coverage will remain in place. Group plans may be canceled only if the insurer cancels the entire group: no person's group coverage may be canceled individually because of poor claims experience. While it's possible for a particular group's experience to be so adverse an insurer might choose to cancel the entire group, this is a fairly rare event. And finally, members of the group benefit from insurance rates that are lower than individual rates. The lower cost is possible because the insurer's risk is spread among so many people, most of whom will never have a claim. As a result, premiums from the entire group help offset the disability claims that do occur.
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Group DI Compared to Individual DI
How does group DI coverage compare to individual policies? Some of the primary differences and similarities are presented in this section, then expanded later under the descriptions of short-term and long-term DI coverage. While direct comparisons are difficult because of wide variations in benefits and other provisions among both types of coverage, this section highlights typical differences.
Employee Benefit Regulations
Like all employer-sponsored group benefits, group DI is subject to both state and federal regulation. Laws governing employee benefits address issues such as nondiscrimination. employees' rights and privileges, dependents' rights and privileges, to name just a few. The details of employee benefit plan regulation are beyond the scope of this course. If you plan to work this market and you are unfamiliar with the area, we encourage further study outside this course.
Eligibility
Employees must meet eligibility requirements for group DI coverage just as they do for other group benefits and the details may vary somewhat among employers and among particular group plans. A basic requirement for group DI is full-time employment, which is usually defined as 30 or more hours per week.
Workers must be continuously employed for a probationary or waiting period before becoming eligible for the plan. A 90-day period is most common. When that period expires, employees who are still actively employed full time may sign up for the coverage during the enrollment period, which typically extends for 30 or 31 days.
You'll recall that little or no medical or financial underwriting is usually required when eligible employees enroll promptly, unlike individual DI coverages that always require medical and financial information. Employees who fail to enroll during this period may still be eligible for the coverage at a later date, but generally would be required to undergo a medical exam at that time and take the chance of being rejected for coverage based on the results of the exam.
Policies and Premiums
Like all group insurance plans, group DI is written with the employer or other sponsor as the master policyowner. The employer holds a master policy and each enrolled individual receives a certificate of insurance detailing his or her particular coverage. While these plans must be nondiscriminatory, the certificates differ somewhat because of salary levels. For
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example, a maximum monthly dollar benefit must be specified in the certificate and that maximum will often be quite different for clerical workers than for highly-paid executives.
Because of group underwriting principles, premiums for group DI are typically less than for a comparable individual policy. However, because of the wide variations in benefits, direct comparisons are not easy to make. Employers may pay all or part of the premiums for employees, but tax rules make it more advantageous for employees to pay their own premiums. Remember that DI benefit payments are not taxable income to disabled employees who paid the premiums themselves. Conversely, any part of the benefit attributable to employer premium contributions is taxed as current income.
Many employers today pay the premiums for short-term disability (STD) benefits (often through salary continuation plans funded by DI insurance) and require employee contributions for long-term disability (LTD). STD benefits are generally defined as those extending up to 52 weeks (although 13 and 26 weeks are more common) and LTD benefits are those payable for longer than one year. It is also becoming more common to require employees who want to participate to pay 100% of the premiums for LTD plans. When employee contributions are mandatory, the employer must provide a way to collect the premiums and pay the insurance company, usually by payroll deduction.
Provisions for STD and LTD
When a group plan provides both short-term and long-term disability benefits, different provisions may apply to each. For example, the elimination period for STD benefits might be as short as seven or 14 days, compared to the typical 90-day elimination period for LTD. If the employee becomes eligible for STD benefits and later for LTD benefits, these must be carefully coordinated to avoid over insuring.
A dual definition of total disability is common in-group DI policies. For both STD and LTD benefits, the "own occupation" definition is typically used initially. Then, if disability continues beyond a stipulated period, the disabled person must qualify under the "any occupation" definition.
Other Group Provisions
Group DI policies usually cover only nonoccupational injury or sickness, specifically stating that benefits provided by workers compensation or similar disability plans will not be duplicated or replaced by the group policy.
The pre-existing conditions provision in-group DI policies is sometimes more restrictive than its counterpart in individual policies, largely due to the absence of medical underwriting. However, sometimes the pre-existing conditions provision must be eliminated from a group DI plan when the plan replaces an existing one under which an employee had already
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satisfied the pre-existing condition requirements. For example, suppose the existing plan did not pay for a pre-existing condition until after the employee had been in the plan for 12 months. Employee Baxter has met that 12-month requirement under the existing plan for herniated disk. Now Baxter's employer drops the plan and installs a new plan with another insurer. The new insurer is prohibited from imposing another pre-existing condition restriction on Baxter for the disk problem. Whether or not this restriction applies may depend on state regulations and/or the insurers involved.
We have discussed a number of desirable benefits and optional riders that are often available with individual DI policies. Many such benefits and rider options are not available for group DI policies.
One of the most significant differences between group and individual policies is that most group DI coverage may be canceled for the entire group at the insurer's option. The insurance company also may raise premiums for the entire group. You've learned that individual policies, on the other hand, are often noncancelable and for the best classes of risks, premiums remain level throughout the policy term. Now we will look in more depth at group STD and LTD plans.
Short-Term Disability (STD) Plans
In the previous chapter, we discussed salary continuation or sick pay plans that provide short-term disability (STD) benefits for employees. You learned that one way to fund such plans is with disability income policies. Another market for STD policies exists in some of the five states that require employers to provide short-term temporary benefits for nonoccupational disability. If you plan to do business in any of these States-California, Hawaii, New Jersey, New York and Rhode Island-you must determine whether a commercial DI plan may be used. Some states require a state-operated plan to provide these benefits while others allow employers to use commercial policies.
Another name for STD benefits that you will encounter in some jurisdictions is weekly indemnity insurance. In some locales, the term used for STD benefits is accident and sickness insurance. This can be misleading since the accident and sickness terminology more often refers to medical expense insurance.
Probationary Period
For group STD policies, the probationary period following employment and during which the employee establishes eligibility extends for three months or less. A few STD plans eliminate the probationary period completely, but these are rare. On the eligibility date, the employee must be actively at work in order to enroll in the plan.
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Elimination and Benefit Periods
STD policies have a very short elimination period for sickness-either seven or 14 days. There is usually no elimination period for accidents, so benefits begin on the first day of disability.
By definition, STD benefit periods are short, generally six months or less. Some STD policies pay for as long as 52 weeks, but overall, periods of 13 and 26 weeks are the most common. Some insurers identify their short-term disability plans by numbers that describe the elimination periods for accidents and for sickness as well as the benefit period. For example, an STD plan referred to as a "1-8-13" plan is one that pays accident benefits beginning on the first day of disability, sickness benefits beginning on the eighth day of disability and, in both cases, for a 13-week benefit period.
Figure 6-1 illustrates how the probationary, elimination and benefit periods might apply. In this example, the probationary period is three months, there is no elimination period for disability from accidental injury and the benefit period is 13 weeks.
STD Benefits
The actual amount of the STD benefit is based on weekly income, rather than monthly income and there is wide variation in the percentage of income paid for the short term. While 662/3% is common, the range is from 50% to 70% and even 100% in some cases. Following are several ways STD benefits are handled.
Some employers provide a STD policy that pays a certain percentage of the employee's gross weekly earnings and the employer bears the balance, so the employee actually receives 100% of earnings in the form of salary continuation or sick pay benefits. For example, let's say the STD policy pays 60% and the employer pays the 40% balance. A certain employee earns $700 per week. Here's how the plan works:
STD Policy: $700 x .60 = $420 per week
Employer: $700 x .40 = $280 per week
Employee receives: $700 per week
You'll recall that disability income policies typically pay less than 100% of earnings. However, when salary continuation or sick pay benefits are funded by a short-term disability income policy, full income may be paid either through the STD policy itself or through a combination of the employer's direct contribution plus a percentage of income provided by the disability policy as illustrated above.
Some STD plans provide two different percentages of earnings, depending on the income level. For example, a higher percentage, perhaps 70%, might apply to weekly earnings up to $999 and a lower
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Figure 6-1
STD Application
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percentage, 50% perhaps, to weekly earnings of $1,000 and over. Then, a maximum weekly benefit is likely to apply to all levels, such as $1,000 per week regardless of actual income. Here's an example:
Weekly STD Weekly
Earning Benefit
$3,000 50% $1,000
$1,200 50% $ 600
$ 500 70% $ 350
In the first example, notice that although a 50% benefit would equal $1,500, the $1,000 weekly maximum applies. Usually, the policy also stipulates a minimum weekly benefit of perhaps $100.
Still another method for paying STD benefits is to pay 100% of weekly earnings for a certain period-four to six weeks are common-followed by 70% or some other percentage for the duration of the STD benefit period. Here's a comparison of the total STD benefits paid under this arrangement versus two other, lower percentages paid uniformly for the same period. We're assuming weekly earnings of $500, 12 weeks of benefits with 100% of wages paid for six weeks in the first example.
$500 @ 100% = $500 x 6 weeks = $3,000
$500 @ 70% = $350 x 6 weeks = $2,100
Total Benefits = $5,100
$500 @ 70% = $350 x 12 weeks = $4,200
$500 @ 66% = $333.50 x 12 weeks = $4,002
These are some of the more common ways percentages of earnings and duration of benefits may be applied. You will want to determine the details of the STD plans you sell.
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Definition of Disability
Most STD policies use the liberal "own occupation" definition of total disability to trigger benefit payments. This means the insured is unable to perform the substantial and material duties of his or her own occupation. A few STD policies still include the more restrictive definition, requiring the inability to work in any gainful occupation, but these policies are rare.
The federal Pregnancy Disability Act requires businesses that offer disability plans to employees to treat pregnancy and childbirth as a sickness under disability income policies, triggering benefits on the same terms as any other sickness. A few states have even more stringent laws concerning pregnancy disability benefits, so you will want to be familiar with the exact requirements where you do business.
STD and Major Medical Plans
Today, some employers are including STD benefits as a standard part of employee health plans, right along with major medical expense coverages. Other employers offer STD coverage separately as an option the employee may choose or not. In whatever form, many employers offer STD benefits at every income and occupational level within their companies. As you will see in the next section, long-term disability benefits may be offered differently.
Long-Term Disability (LTD) Plans
After the short-term disability benefit period ends, many group plans provide long-term disability benefits when the employee is still disabled. However, LTD benefits, unlike STD, are sometimes made available only to higher-income, usually salaried, personnel rather than to both salaried and hourly employees. For example, the LTD plan might be available only for employees earning $30,000 or more annually. There are two reasons for this. First, lower-income earners are often covered adequately by social insurance programs. Second, because insurance company experience shows that lower-income and hourly employees as a group incur greater claim costs, the risk is less desirable from the insurer's point of view.
Probationary Period
Different LTD and STD plans might have probationary periods as short as three months before the employee is eligible to enroll. On the other hand, some LTD group policies require an employee to be continuously employed for as long as one year before becoming eligible.
Some LTD plans also require the employee to be actively at work for a specified period-30 days, typically-without illness or injury in order to enroll. For example, suppose the three-month required probationary period has passed for a certain employee, but the employee has
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been ill for the final four days of the last month of the probationary period. This person would be ineligible to enroll until 30 more days have passed during which the individual was at work full time, with no intervening illness.
Elimination Period
Insurance companies offer a wide range of elimination periods for group LTD plans, from as few as seven days to as long as one year. In between, 30, 90 and 180-day periods are generally available, with the 180-day, or six-month, period most common. Unlike STD plans, LTD plans do not usually specify different elimination periods for injury and sickness. Many employers offer STD benefits or salary continuation for the full span of the LTD elimination period. For example, if the LTD elimination period is 90 days, the employer has a salary continuation plan that allows the employee to receive full salary for the first 90 days of disability before LTD benefits become available.
Figure 6-2 (on page 114) combines several of the features we've been discussing. Refer to this figure as you read the paragraphs following.
In this application, the probationary period extends for 90 days after a new employee begins work, but because this employee was sick and off work during the last several days of the probationary period, he is not eligible to enroll until 30 more days of continuous employment. When this requirement is fulfilled, he enrolls and is eligible for LTD benefits.
The employee works for some indefinite time, then suffers an accidental injury that leaves him disabled. His group LTD plan has a 90-day elimination period, but the employer provides salary continuation through a STD policy that has no elimination period for disability from accidents. At the end of the 90-day elimination period, the STD benefits stop and, since the individual is still disabled, LTD benefits begin.
This is just one way STD or salary continuation benefits and long-term disability benefits might be combined to provide significant income replacement under a group disability plan. As usual, you must be fully aware of the types and duration of benefits available from the insurers you represent in order to offer options that will meet the needs and desires of different group sponsors.
Benefit Period
By definition, the benefit periods for LTD are longer as compared to short-term disability plans, but some LTD plans pay benefits for no more than two or five years. Of the longer periods available, two of the most popular are benefits paid to age 65 and lifetime benefits.
Lifetime Restrictions
When a long-term disability plan pays benefits for a lifetime, insurers usually impose
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additional restrictions. Some policies stipulate an upper age before which the coverage must be purchased. As an example, if an individual is covered by the LTD plan before age 45, the lifetime benefit period applies. For those age 45 and older when the plan becomes effective, the benefit period is restricted to age 65.
Other LTD plans specify an age before which disability must begin in order for lifetime benefits to be paid. For example, a person age 50 or younger when disability begins receives lifetime benefits, while a disability that begins at a person 5 age 51 or older pays benefits only to age 65.
Figure 6-2
Application of Salary Continuation and LTD Benefits
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Age Discrimination in Employment Act
While insurers and employers may place some restrictions on lifetime benefits, they also must consider the requirements of the Age Discrimination in Employment Act. Under this law, the upper age limits must be adjusted in some cases. The general requirements include:
*Extending benefits to age 70 when disability occurs before that age.
*Paying benefits for disability that occurs after age 70, tempered by a shorter
benefit period than if disability had occurred earlier.
As an example of how the shorter benefit period might apply, the plan could be written in such a way that any disability occurring at age 70 or earlier calls for a benefit period of 18 months. However, if the individual is age 71 or greater, the benefit period is shortened to 12 months.
Benefit Amount
The monthly benefits paid under group LTD policies are determined in various ways, with
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a percentage of gross earnings being the most typical method. While options range from 50% to 70%, 60% or 66b% are common. An upper limit generally applies to the amount of monthly benefits available-such as $6,000 or $8,000 per month. In other words, the benefit paid is the lesser of the dollar maximum or the specified percentage of earnings. Different maximums apply at different income levels in order to retain the incentive to return to work and avoid overinsuring. As is true for STD policies, different percentages maybe used at different income levels: higher percentages for lower incomes, lower percentages for higher incomes. Similarly, LTD plans specify monthly minimum benefit amounts as well.
Some plans use different percentages for the same individual's income, paying a higher percentage for income up to a certain dollar amount and a lower percentage for all income that exceeds that amount. Suppose Rosanne O'Malley earns $7,000 per month. The LTD plan her employer provides pays 66b% of earnings up to $5,000 and 40% of amounts from $5,001 up. O'Malley's monthly benefit is determined like this:
$5,000 x .667 = $3,335
$2,000 x .40 = $ 800
$4,135 Total Monthly Benefit
The actual percentages that apply when this split percentage arrangement is used vary from insurer to insurer.
Rehabilitation Benefit
Because of the good experience insurers have had in providing payments for rehabilitative services for disabled insureds, more and more group LTD plans today pay some form of rehabilitation benefits as discussed in Chapter Three.
While the specific details vary from plan to plan, it is typical to as encourage a disabled employee to return to work by paying a reduced benefit during a “trial” work period. Instead of discontinuing benefits as soon as the employee returns to work, the insurer pays the smaller benefit for a short period during which the employee determines whether he or she will be able to be gainfully employed.
During the trial period, the employee receives both the reduced DI benefit and current income. The amount of the rehabilitation benefit is generally determined by reducing the total disability monthly benefit by a certain percentage of current earnings-usually from 50% to 80%. Let’s say employee Trevor Brandt has been receiving a $2,000 per month disability benefit. He returns to work part time for a trial period during which he earns $1,400 per month. This particu1ar insurer pays a rehabilitation benefit that is the disability benefit reduced by 70% of current income.
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Current earnings of $1,400 x .70 = $ 980
Monthly total DI benefit = $2,000
Minus earnings reduction = -980
Rehabilitation benefit = $1,020
Plus current earnings = $1,400
Income during trial period = $2,420
Thus, the rehabilitation benefit allows the disabled employee to return to work gradually, possibly improving the changes the individual will be able to return to full time gainful employment. The reduced DI benefit supplements the income so the individual is not discouraged from returning to work at a lower income than before the disability occurred since current income and the rehabilitation benefit combined provide more income that the total DI benefit alone.
After the trial period, the individual would norma1ly either return to work full time and DI benefits would stop, or, if the trail employment indicates that the individual is unable to continue working, the full DI benefits would be reinstated without requiring a new elimination period.
Remember, too, that many insurers pay rehabilitation benefits in the form of payments for vocational rehabilitation or medical rehabilitative services, whether or not such benefits are specifically mentioned in the policy. Insurers recognize that helping disabled insureds in this way can reduce the insurance company's outlay in the long run by making it possible for the individual to become employable again, rather than continuing to receive DI benefits.
Residual Disability Benefit
Another partial benefit that goes hand in hand with rehabilitation is the residual disability benefit discussed at length in Chapter Two. When residual disability is covered in a group LTD plan, the insurer may agree that, if the individual's post-disability earnings are at least 20% less than pre-disability earnings, a proportionate residual benefit will be paid.
For example, suppose a disabled employee was receiving $2,000 in DI benefits each month. He returns to work, but earns 30% less than his pre-disability earnings. The insurer pays a residual benefit equal to 30% of $2,000 or $600 per month to this insured. A time limit is placed on the period for which the residual benefit will be paid, often up to two years as long as the post-disability earnings are reduced. Like the rehabilitation benefit, a residual benefit encourages the insured to attempt to return to gainful employment.
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Some LTD policies call this a partial benefit rather than residual benefit, although it does not operate like a true partial disability benefit. These partial or residual benefits are often found
in-group LTD plans for the best classes of risks-professionals and a few other high-income earners.
Definition of Disability
Group LTD policies often use a dual definition of total disability. The "own occupation" definition probably applies for a period ranging from one to five years, with 24 or 36 months the most commonly used time. If the insured is still disabled after the stipulated period, the "own occupation" definition Is then replaced with the "any occupation" definition. This requires the insured to be unable to engage in any gainful employment for which he or she is reasonably suited by training, education or experience.
Some group LTD policies include a presumptive disability benefit that is paid when the insured suffers loss of limb or eyesight. The elimination period is typically waived for presumptive disability and monthly benefits begin at once.
Benefit Coordination
Avery few group LTD policies provide coverage for both occupational and nonoccupational injury and sickness, rather than just non-occupational disability. Even so, the benefits must be coordinated with any other DI benefits from programs such as workers compensation.
Additionally, group LTD benefits will always be coordinated with any other potential or existing DI benefits such as Social Security, state cash sickness temporary benefits or other government-sponsored benefits. Other possibilities include any STD or sick pay plan the employer provides, pension benefits that might be available earlier than retirement age because of the disability, and any individual disability income policies the individual owns.
Survivor Benefits
Some group LTD policies pay survivor benefits when a disabled insured dies after having received DI benefits from the policy. Typically, the survivor benefit is paid only if the deceased received benefits for a certain length of time, such as six months. The LTD policy specifies who are “survivors” for purposes of receiving the benefit. Survivors generally include a spouse or children younger than age 25 or 21, depending on the policy. If the deceased has no such survivors, the benefits are paid to the estate.
There are at least two different ways survivor benefits might be paid. Under some policies, the survivors receive a reduced monthly benefit for a short period or up to as long as two years. Other policies pay survivors a single lump sum equal to two or three times the monthly
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benefit the disabled person was receiving before death. Both of these methods are illustrated in Figure 6-3.
Figure 6-3
Payment of LTD Survivor Benefits
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Exclusions in Group DI Plans
Exclusions most frequently written into group disability income plans include these:
*Disability resulting from acts of war.
*Disability resulting from participating in criminal activities.
*Disability resulting from self-inflicted injury and/or attempted suicide.
*Disability resulting from certain mental conditions and substance abuse, although these may be covered for limited periods.
*Periods during which the individual is not under a physician's care.
*Disability that began before the individual was covered under the group plan.
*Employment of the insured in any gainful occupation.
*Disability from pre-existing conditions as defined in the policy.
Remember, however, that pre-existing conditions for certain individuals must be covered when a group plan replaces another group plan under which the requirements for pre-existing conditions had already been met.
Opportunities in the Group Market
The group disability income insurance market is a large, potentially lucrative source of new business for you. Although many businesses already have group health and life insurance plans, fewer plans include group DI insurance. The less stringent underwriting and lower individual cost that characterize group disability plans are just two features that make this
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coverage attractive to both employers and employees. The trade-offs in benefit restrictions as compared to individual policies are often worth the difference in price and availability to more people.
Because only a small percentage of people have individua1 disability income policies, group DI coverage fulfills a genuine societal need. Group DI is the only income protection that some people have, barring catastrophic disabilities that qualify them for government DI benefits. And, people whose incomes fall in the lower range and who are therefore not good candidates for individual policies are usually eligible for group DI.
Finally, group DI can be incorporated into an employer's benefit package at very little cost to the employer since there are tax advantages to having premiums paid by the employees themselves rather than by the employer. These are some of the advantages you are in a position to promote with employers and other groups as you work in this market.
Chapter 6 Review Questions
1. Which of the following are typical employee requirements for being included in a group disability income insurance plan with little or no medical underwriting?
a. Serving a probationary period, often 90 days.
b. Full-time employment, usually 30 or more hours per week.
c. Enrolling within a specified enrollment period, usually within 30 or 31 days after becoming eligible.
d. All of the above.
2. When monthly benefits are paid to an employee under a group DI plan. the benefits are not taxed as current income when the premiums have been paid by (the employee/the employer/either the employee or the employer).
- The term "weekly indemnity insurance is sometimes used to refer to (short-term disability plans/long-term disability plans/both of the preceding).
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4. Which of the following correctly describes a common way for the STD elimination period to apply?
a. No elimination period for sickness and seven or 14 days for accidents.
b. No elimination period for accidents and seven or 14 days for sickness.
c. Seven or 14-day elimination period for disability from any cause.
d. Thirteen or 26 weeks' elimination period for disability from any cause.
5. While STD plans vary in the percentages of income actually paid to a disabled employee, STD plans are generally based on (weekly/monthly) income.
6. At least at the beginning of a disability, both STD and LTD plans most frequently use what definition of total disability? (own occupation/any occupation)
7. Under group LTD plans. the elimination periods for accidents and for sickness are usually (different/the same/seven days apart).
- When group LTD plans provide a lifetime benefit and a certain employee enrolls at age 50, the benefit period for this specific person might be (limited to age 65/extended to age 70).
9. Under its group LTD plan, a certain employer wants to pay a monthly benefit that is the total of 70% of employees' monthly earnings up to $4,000 and 60% of all earnings over $4,000. This arrangement is (illegal/legal for all employees/legal only for employees earning more than $5,000 per month).
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10. A certain insurer agrees to pay a rehabilitation benefit under a group LTD plan for a disabled insured who is returning to work on a trial basis. This particular insurer
determines the amount of the rehabilitation benefit by reducing the benefit for total disability by 80% of monthly earnings during the trial period. The monthly benefit for total disability is $3,000. The monthly earnings during the trial period equal $2,000. The amount of the rehabilitation benefit is ($600/$1,400/$1,600/$2,400).
11. When a group LTD plan pays a residual benefit, this benefit is generally paid only when the individual's post-disability earnings are at least how much less than pre-disability earnings?(20%/50%/80%)
- A person who was receiving group LTD monthly benefits dies before the benefit period ends. This particular insurer continues paying the monthly benefit to the deceased person's spouse for three months. This type of benefit is called a (partial/residual/survivor/STD) benefit.
Answers
- d is correct
- the employee
- short-term disability plans
- b is correct
- weekly
- own occupation
- the same
- limited to age 65
- legal for all employees
- $1,400 determined like this: 80% of $2,000 = $1,600
- 20%
- survivor