Activities Of Daily Living

Architect Solveig Bergqvist, 44, owns an individual disability income policy that includes a RESIDUAL disability benefit. Following a serious injury she returns to work part time and earns $4,200 a month, against pre-disability earnings of $7,000 a month. Under a typical residual disability provision, she will receive:

1. A.Nothing, because she has returned to work and is therefore no longer disabled under the policy.Incorrect. The entire purpose of a residual provision is to continue paying after a return to partial work, so that recovering income is not penalized.
2. B.The full monthly benefit for as long as any degree of impairment persists.Incorrect. The full benefit is payable during TOTAL disability. Once she is working and earning, the residual provision scales the benefit to the income actually lost.
3. C.A partial benefit proportionate to her income loss - here about 40% of the full monthly benefit, since her earnings have fallen 40%.Correct. ($7,000 - $4,200) / $7,000 = 40%, so she receives roughly 40% of the full monthly benefit while that earnings loss continues.
4. D.A benefit only if she is unable to perform at least two of six activities of daily living.Incorrect. The two-of-six activities of daily living test is the benefit trigger for tax-qualified long-term care insurance, not for disability income coverage.

Why: A residual (partial) disability benefit pays in proportion to lost income once the insured returns to work at reduced capacity. The proportion is the percentage of earnings lost: ($7,000 - $4,200) / $7,000 = 40%. She would therefore collect roughly 40% of the policy's full monthly benefit while the earnings loss continues. The feature exists because many disabilities are partial, and without it an insured would face a financial penalty for going back to work at all.

Ottilie Vance, 68, is buying a TAX-QUALIFIED long-term care insurance policy and asks her IAR when benefits actually become payable. Under the federal standard for a tax-qualified contract, a licensed health care practitioner must certify that the insured is:

1. A.Totally and permanently disabled and unable to engage in any occupation.Incorrect. That is an occupational disability standard. Long-term care benefits turn on functional or cognitive impairment, not on the ability to work - and most claimants are already retired.
2. B.Unable to perform at least three of six activities of daily living for a period expected to last at least 30 days.Incorrect on both numbers. The federal standard is at least TWO of six activities of daily living, for a period expected to last at least 90 days.
3. C.Unable to perform, without substantial assistance, at least two of six activities of daily living for a period expected to last at least 90 days, OR requiring substantial supervision because of severe cognitive impairment.Correct. These are the two alternative triggers for a chronically ill individual under a tax-qualified contract; satisfying either one is sufficient.
4. D.Confined to a licensed nursing facility for a continuous period of at least six months.Incorrect. Confinement is not required. Qualified policies pay for home care, adult day care and assisted living as well as nursing facility care, once a trigger is met.

Why: A tax-qualified long-term care contract pays only when the insured is certified as chronically ill under one of two alternative triggers. The functional trigger is an inability to perform, without substantial assistance, at least two of the six activities of daily living - eating, bathing, dressing, toileting, transferring and continence - for a period expected to last at least 90 days. The cognitive trigger is a need for substantial supervision to protect the insured from threats to health and safety because of severe cognitive impairment, such as advanced dementia. Meeting either trigger is enough; the cognitive path deliberately does not require any ADL deficit, since a person with dementia may remain physically capable.