LLQP Accident & Sickness · Component 2.1 · 30% of the exam
The tax treatment of benefits from an individually owned DI policy with premiums paid by the insured from after-tax income is:
- Tax-free benefits, with the premiums not deductible
- BDeductible premiums and tax-free benefits, as with medical expenses
- CFully taxable benefits, with the premiums not deductible either
- DBenefits taxable at half the insured's marginal rate, like capital gains
Correct answer: A) Tax-free benefits, with the premiums not deductible
Personal DI follows the rule: no deduction, no tax. The tax-free benefit is what makes 60–70% of gross income an adequate replacement.
Why the other options are wrong
- BPremiums are not deductible.
- CPersonally paid DI benefits are not taxed.
- DThere is no half-inclusion for disability benefits.
Exam tip
Personal DI: premium not deductible, benefit tax-free.
Common mistake
Advising a client that DI premiums are deductible.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Accident & Sickness module. Written against the published curriculum.
More from component 2
- A group benefits booklet lists AD&D coverage alongside life and LTD. The AD&D benefit pays:
- A hospital indemnity (hospital cash) policy pays:
- Employment Insurance sickness benefits are available to:
- Which government program coordinates with an individual DI policy through a possible offset AND also affects the definition of insurable income?
- A group plan's 'eligibility waiting period' (probationary period) is:
- A CI policy that is 'convertible' allows the insured to:
Practice the whole Accident & Sickness module
Timed sets weighted like the exam, and review of every question you miss. Free to start.