LLQP Accident & Sickness · Component 1.3 · 35% of the exam
Why do insurers limit disability benefits to a percentage of income rather than 100%?
- ATo keep premiums affordable by lowering the amount the client must insure each month
- BBecause provincial insurance acts cap disability benefits at a fixed percentage of pay
- CBecause disability benefits are taxable and the limit compensates for the tax
- To preserve the incentive to return to work, since tax-free benefits already near net pay
Correct answer: D) To preserve the incentive to return to work, since tax-free benefits already near net pay
Issue and participation limits keep the insured better off working than claiming. Because individual benefits are tax-free, a percentage of gross income can replace most of net pay.
Why the other options are wrong
- AThe limit exists for the insurer's risk control, not the client's budget.
- BIssue and participation limits are underwriting practice, not statute.
- CIndividually paid benefits are tax-free; the limit is about moral hazard.
Exam tip
Issue and participation limits protect the return-to-work incentive.
Common mistake
Promising a client full income replacement.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Accident & Sickness module. Written against the published curriculum.
More from component 1
- The single most important fact for sizing a client's disability income need is:
- A client's beneficiaries for assets are listed in the fact-finding. Why does this matter for A&S planning?
- A client asks why the agent wants to know how assets are owned (jointly or individually). In the A&S context the answer is:
- A client mentions a back injury five years ago that fully resolved. The agent should:
- Which element of a client's situation most affects the definition of disability that should be recommended?
- Which of the following health facts is most relevant to a client's disability insurance situation?
Practice the whole Accident & Sickness module
Timed sets weighted like the exam, and review of every question you miss. Free to start.