Question

Under a disability income policy, the insurer pays a monthly benefit that is less than the insured's income. What is the reason for that?

A) The insured receives additional income from other sources
B) The policy has a waiting period before benefits begin
C) The policy is designed to encourage a quicker return to work
D) The insured's income is adjusted for inflation

Answer 1

The reason a disability income policy pays less than the insured's income is to encourage a quicker return to work, avoiding over-reliance on benefits and ensuring the sustainability of the insurance system.

Step-by-step explanation:

Under a disability income policy, the insurer pays a monthly benefit that is less than the insured's income for a specific reason. The primary goal is to ensure that the policyholder has a financial incentive to return to work once they are able. Therefore, the correct answer is C) The policy is designed to encourage a quicker return to work.

Disability income policies are structured this way to prevent over-reliance on benefits, which could discourage the insured from seeking employment again. Additionally, if disability benefits were equal to or greater than one's income, it could lead to financial strain on the insurance system. Insurance companies need to maintain reserves for claims while also managing the overall risk of their policy portfolio.