LLQP Accident & Sickness · Component 2.1 · 30% of the exam
Which statement about the taxation of group STD and LTD benefits is correct?
- ABenefits are taxable only after the employee reaches 65 and the benefit converts into pension income
- Benefits are taxable if the employer pays any part of the premium, tax-free if employees pay all
- CBenefits are always taxable because they replace employment income the employee would have earned
- DBenefits are always tax-free because they are insurance proceeds rather than salary or wages
Correct answer: B) Benefits are taxable if the employer pays any part of the premium, tax-free if employees pay all
The premium-payer rule applies to both STD and LTD. Plan design should be deliberate about it.
Why the other options are wrong
- AAge has no bearing on whether disability benefits are taxable.
- CEmployee-paid benefits are tax-free.
- DEmployer contribution makes benefits taxable.
Exam tip
Any employer contribution to disability premiums → taxable benefits.
Common mistake
Believing a small employer contribution leaves benefits tax-free.
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.