South Carolina Life and Health Practice Exam

What is one of the primary benefits considered in a disability income policy?

1. Cost of living adjustments

2. Bonuses for long-term claims

3. Replacement of lost wages

4. Tax-free payouts

The correct answer is: Replacement of lost wages

The primary benefit of a disability income policy is the replacement of lost wages. This type of policy is designed to provide financial support to individuals who are unable to work due to a disability, whether temporary or permanent. When a policyholder suffers a qualifying injury or illness, the disability income policy pays a portion of their pre-disability earnings, ensuring they can maintain their standard of living despite being unable to work. While other options may have their relevance in specific contexts, they do not align with the central purpose of a disability income policy. Cost of living adjustments may be included in some policies but are not guaranteed in all cases. Bonuses for long-term claims could be a feature of certain policies but are not a standard benefit meant to address the immediate need for income replacement due to a disability. Tax-free payouts can occur in certain situations based on the policyholder's tax status and how premiums were paid, but again, this is not a primary aim of the policy itself. The core objective remains providing necessary financial support through the replacement of lost wages during a period of incapacitation.