South Carolina Insurance Practice Exam

What key characteristic differentiates an employer-paid disability policy from an individually purchased one?

1. The tax implications for the employer

2. The waiting period for benefits

3. The premium payment schedule

4. The payout structure

The correct answer is: The tax implications for the employer

The key characteristic that distinguishes an employer-paid disability policy from one that is individually purchased lies in the tax implications for the employer. When an employer provides a disability policy, the premiums paid are typically tax-deductible as a business expense. This feature can influence the way premiums are structured and managed within the corporate budget. On the other hand, premiums for an individually purchased disability policy are not tax-deductible, and the benefits received are generally tax-free. Thus, the tax treatment affects how these policies are viewed by employers and employees and can impact the overall cost to the employer and the net benefit to the employee when they receive payouts from the policy. This understanding is crucial for both employers considering offering such benefits and individuals evaluating their disability income options. While waiting periods, premium payment schedules, and payout structures can vary in both types of policies, they do not carry the same tax considerations that significantly influence employer-paid plans.