Question

Life Insurance Questions:

1. Heather is a single mother of 2 sons, Tyler (3) and Malcolm (5). As a dentist, Heather earns $125,000 annually. As the sole income earner for the family, Heather is considering buying disability insurance in order to receive an income replacement benefit should she experience a loss of income is she becomes disabled or ill and cannot work. Heather wants the policy to pay her benefits if she cannot perform her work and functions as a dentist. Heather also wants the policy to be guaranteed in terms od both premiums and benefits for the life of the contract, with the option of converting the policy at age 65. Which of the following disability insurance policies will BEST meet Heather’s objectives?

1. Any occupation, guaranteed renewable
2. Own occupation, guaranteed renewable
3. Any occupation, non-cancellable
4. Own occupation, non cancellable

2. Bonita and Vincenzo are in the process of obtaining a mortgage through Sovereign National Bank to purchase their first home. Simpreet, the mortgage advisor at Sovereign National Bank, tells them that they should consider applying for the creditor disability insurance for their mortgage. However, Bonita and Vincenzo already have group disability coverage through their employer plans. When they ask their insurance agent, Maureen, about the difference between creditor disability insurance and their group disability coverage, which of the following statements is CORRECT?

1. Bonita and Vincenzo would be considered the policyholders of the creditor disability policy.
2. The premiums on the group disability policy would be higher than the creditor disability policy.
3. Sovereign National Bank will be the life insured for the creditor disability policy.
4. Both the group and the creditor insurance plan would have limited underwriting.

3. Bracklin, a lawyer age 55, would like an individual disability insurance policy. His main objective is to ensure that once he is issued the policy, he will always have the same coverage with the same terms until the policy matures at age 65. At age 65, he wants to have the option to convert the policy, without medical evidence, to mature at age 75. Which of the following policies BEST meet Bracklin’s twin-objectives?

1. Non-cancellable policy
2. Cancellable policy
3. Guaranteed-to-issue policy
4. Guaranteed renewable policy

Answer 1

Ans. 1. Correct option is option D. Own occupation, non-cancellable.

Own occupation clause means that the insurer will pay the disability insurance benefit if the insured becomes disabled to perform his/her own occupation. This is in contrast to “any occupation “clause wherein, the insured will be paid benefits only if he or she becomes disabled to perform any occupation (i.e., his/her main occupation or any other similar occupations too). Further, non-cancellable clause means that the insured is required to pay fixed amount of premium throughout the life of contract, as against “guaranteed renewal” wherein, the premiums may go up or down or remain same every year.

So, since Heather wants the policy to pay her benefits if she cannot perform her work and functions “as a dentist”, therefore, own occupation clause. Further, since she wants guaranteed premiums throughout the life of the policy, so non-cancellable clause.

Therefore, option D is correct and rest are incorrect.

Ans. 2. Correct option is option A. Bonita and Vincenzo would be considered the policyholders of the creditor disability policy.

In a creditor disability policy, the policy covers insured (policyholder) against defaults in payments to the lender in the event of disability or illness of the insured. Here, Bonita and Vincenzo will be considered policy holders. A group disability insurance, however, is taken by the employer (considered the policyholder) to cover its employees in the event of their disability.

Further, option B is incorrect since premiums in group disability policy are generally lower. Option C. is also incorrect since Bonita and Vincenzo will be life insured under creditor disability policy. Option D. does not point out difference between two.

Ans. 3. Correct option is option A. Non cancelable policy, to ensure constant premium and coverage terms till age 65, post-which he can opt for Guaranteed-to-issue policy since under Guaranteed-to-issue policy, insurance is irrespective of the health status of the insured ,i.e, without medical insurance. So, this way the twin objectives are met by taking a non cancelable policy at age 55 with the option to convert to guaranteed-to-issue policy at 65.