South Carolina Life and Health Practice Exam

When underwriting a disability income policy, which factor is most commonly used?

1. Employment history

2. Annual earnings

3. Credit score

4. Age of the applicant

The correct answer is: Annual earnings

When underwriting a disability income policy, annual earnings are a critical factor because they directly impact the amount of coverage needed and the premium costs. Insurers assess an applicant's income to ensure that the disability benefits will adequately replace lost income if the individual becomes disabled and is unable to work. A higher income usually translates to higher benefit amounts, necessitating a thorough evaluation of the applicant's earnings to determine the level of financial protection required. Annual earnings not only reflect the applicant's current financial situation but also help insurers gauge the level of risk they are assuming. This ensures that the policy aligns with the applicant's lifestyle and financial obligations, preparing them for potential income loss due to disability. By understanding the applicant's earnings, the insurer can tailor the policy benefits appropriately, making this factor central to the underwriting process for disability income policies.