State RegulationsPA specificDifficulty 3/5
A consumer buys several individual disability income policies whose combined monthly benefits exceed his pre-disability earnings. Under the relation-of-earnings-to-insurance provision (40 P.S. § 753(B)(6)), how is the excess handled when a claim is paid?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
The relation-of-earnings-to-insurance provision, one of the uniform general provisions in 40 P.S. § 753(B)(6), prevents overinsurance: when monthly benefits from all coverage exceed the insured's pre-disability earnings, the insurer reduces the payable benefit so it does not exceed those earnings and refunds the premium attributable to the excess. Pennsylvania uses this design to keep disability insurance as income replacement and to remove any profit motive from a disability claim, while the rest of the coverage still functions.
Why the other options are wrong
- A) Paying the full excess would defeat the provision's purpose; Pennsylvania law caps the combined benefit at pre-disability earnings.
- B) The excess is not confiscated by the state; the insurer refunds the excess premium attributable to the overinsured amount.
- C) The provision does not void the coverage; it trims the benefit to the earnings ceiling and refunds the excess premium.
Memory hook
Overinsured? Benefit trimmed to earnings, premium refunded — no profit from a limp.