Life License Qualification Program (LLQP) Practice Exam

Which statement about an individual Disability Income policy is TRUE?

1. Premiums are normally tax-deductible

2. Age of the insured determines the amount of the benefits

3. Normally includes an Elimination period

4. Benefits are normally taxable

The correct answer is: Normally includes an Elimination period

An individual Disability Income policy typically includes an elimination period, which is the waiting time before benefits begin after a disability occurs. This period allows the insurer to manage the risk and helps to prevent small claims; it ensures that the insured is truly unable to work for an extended period before payments start. The elimination period can vary in length and is an important aspect of the policy, as it affects both the premium rates and the overall structure of the insurance coverage. In contrast, premiums for individual Disability Income policies are usually not tax-deductible for the policyholder, as they are for business-related policies. The age of the insured does not determine the amount of benefits directly; rather, benefits are based on factors such as income and policy terms. Furthermore, benefits received from a personal Disability Income policy are usually non-taxable if the premiums were paid with after-tax dollars, making this statement misleading. Thus, the inclusion of an elimination period is a key feature that stands out as accurate regarding individual Disability Income policies.