Underwriting Individual Disability Income Insurance (NM)

A handyman applies for an individual disability income insurance policy. Which definition of total disability will the insurer most likely use when issuing the policy?

• own occupation

• any occupation

• presumptive disability

• all occupation

Answer explanation

The any occupation definition of total disability requires that the insured be unable to perform any occupation for which he or she is reasonably qualified. This definition is usually used with policies insuring those in blue-collar positions, such as handymen.

Why does a disability income insurance policy limit the maximum benefit to a percentage of the insured's pre-disability wages and earnings?

• to encourage the insured to return to work

• to make the premium affordable for the insured

• to keep the insured from profiting from insurance

• to save the insurer's expense in paying the claim

Answer explanation

Disability income policy benefits are a percentage of the insured's gross income. This encourages the insured to recover from the disability and return to work.

Debbie owns a noncancelable individual disability income policy. She receives benefits for one year and then returns to work. Which statement is correct about the policy's renewal?

• The insurer can cancel the policy.

• The insurer can increase the premium.

• The insurer can reduce the benefits.

• The insurer must renew the policy if Debbie pays the premium.

Answer explanation

The insurer must renew a noncancelable policy as long as the insured pays the premium. It cannot cancel the policy, increase the premium, or reduce the benefits as long as the insured pays the premium.

Which statement is CORRECT about a guaranteed renewable disability income policy?

• The insurer can increase the premium if it increases the premium for all policies in the same class.

• The insurer can increase the premium only if the insured makes a claim.

• The insurer can never reduce the benefits.

• The insurer can never increase the premium.

Answer explanation

Under a guaranteed renewable disability income policy, the insurer may increase the premium only if it increases the premium for all policies in the same class. It must continue coverage as long as the insured pays the premium.