Which statement accurately describes group disability income insurance?
a) It only covers permanent disabilities.
b) Coverage is limited to workplace injuries.
c) It provides income replacement for a group of individuals.
d) Premiums are solely paid by the insured individual.
The Correct Answer and Explanation is:
The correct answer is:
c) It provides income replacement for a group of individuals.
Explanation:
Group disability income insurance is a type of insurance typically provided by employers or other organizations to a group of people, offering financial protection in the event that a covered individual becomes disabled and unable to work. The key point about this insurance is that it replaces a portion of the insured person’s income if they are temporarily or permanently disabled, depending on the terms of the policy.
Here’s why option c is the correct answer:
- Income replacement: Group disability income insurance is designed to replace a portion of an individual’s income when they are unable to work due to illness or injury. The amount replaced is typically a percentage of the person’s salary, usually around 50%-70%, though this can vary.
- For a group of individuals: This insurance is offered as part of a group plan, meaning it covers multiple individuals under the same policy. It’s not individual insurance but is designed to provide coverage to an entire group, such as employees of a company, members of a union, or participants in an association.
Now, let’s go over the incorrect options:
- a) It only covers permanent disabilities: This is incorrect because group disability insurance typically covers both temporary and permanent disabilities. The policy will specify whether it provides short-term or long-term disability benefits. Short-term disability benefits are often for temporary disabilities, while long-term disability benefits are for permanent or prolonged conditions.
- b) Coverage is limited to workplace injuries: This is incorrect because group disability insurance covers a wide range of disabilities, not just those that occur at the workplace. Injuries or illnesses, regardless of whether they happen at work, can be covered depending on the policy terms.
- d) Premiums are solely paid by the insured individual: This is also incorrect. In most cases, the employer or organization offering the group disability income insurance pays at least a portion of the premiums. In some plans, employees may be required to contribute to the premium cost, but the employer usually shares the burden.
Thus, option c accurately describes the purpose of group disability income insurance.