South Carolina Insurance Practice Exam

In what form do disability income policies typically pay benefits?

1. Lump sum payments

2. One-time cash payout

3. Periodic income

4. Equity shares

The correct answer is: Periodic income

Disability income policies are designed to provide financial support to individuals who are unable to work due to a disability. The primary goal of these policies is to replace the income lost as a result of the disability, ensuring that insured individuals can meet their ongoing living expenses during their recovery or adjustment period. Benefits are typically paid in the form of periodic income. This means that once a claim is approved, the policyholder receives benefits on a regular schedule (often monthly) rather than in a single lump sum. This structure closely mimics the regular paychecks that the insured would have received had they not become disabled, making it easier for them to manage their day-to-day financial obligations, such as rent, mortgage, utilities, and groceries. Lump sum payments, one-time cash payouts, and equity shares are not standard forms for disability income benefits, as these methods do not provide the sustained support needed during a prolonged disability. Regular, ongoing payments ensure that the insured's financial needs are met as they navigate their recovery or adapt to their changed circumstances.