An applicant is buying an individual disability income policy and asks what the relation-of-earnings-to-insurance provision is for. What is its purpose?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
The relation-of-earnings-to-insurance provision, listed among Virginia's optional provisions for individual accident and sickness policies at Va. Code § 38.2-3504(6) and addressed in the state's A&H rules at 14 VAC 5-141-60, exists to prevent overinsurance. Disability insurance is meant to replace income, so the provision ties the maximum benefit to a reasonable proportion of what the insured actually earns, discouraging buying coverage that would pay more than the lost income. The Virginia Bureau of Insurance recognizes this safeguard because benefits exceeding earnings would reward disability rather than replace wages.
Why the other options are wrong
- A) Occupation changes are handled by separate optional provisions such as change of occupation, not by the earnings-relation rule.
- C) Automatic inflation increases are a different feature entirely; the earnings-relation provision caps benefits relative to income rather than raising them.
- D) Lump-sum conversion at retirement is not the provision's function; it governs how much ongoing disability benefit is payable relative to earnings.
Memory hook
Disability pay replaces wages, not wealth — earnings cap the benefit.