Earned Income
Wages, salary, and business earnings from active work, the base disability income insurance is designed to replace; investment income does not count.
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Practice This Concept
Which of the following is the loss that disability income insurance is designed to address?
The insured's loss of earned income while disabled — Disability income insurance replaces earned income that the insured loses when a covered disability prevents work. Its purpose is to protect the insured's ability to earn, which for most people is the most valuable asset they own. Losses of investment value, paid premiums, or credit standing are not the risks that this product is designed to address, and coverage is measured against the income the insured would have earned but for the disability.
National insurance concept
A family's primary wage earner is expected to be totally disabled for at least a year after major surgery. The family's major medical policy will pay the hospital, surgical, and physician bills. Which financial consequence of the disability will the medical policy NOT cover, creating the loss exposure that disability income insurance is designed to address?
The wage earner's ongoing loss of earned income during the disability — Medical expense insurance pays only treatment-related charges such as hospital stays, surgery, physician services, and drugs. It does nothing to replace the paycheck that stops when the wage earner cannot work, yet that income funds the family's housing, food, and daily living costs. Interruption of earned income is the family's largest uncovered exposure during a prolonged disability, and replacing it is precisely the purpose of disability income insurance.
National insurance concept
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