Class Notes (834,656)
Canada (508,678)
MTHEL 131 (111)
David Kohler (106)
Lecture 9

MTHEL 131 Class Note Lecture 9

7 Pages
Unlock Document

Mathematics Electives
David Kohler

[Nov. 16, lecture 9] 1 What a manual labor would charge higher than a lawyer? 1. The underwriters for disability income said the Class 1 people (lawyers, doctors, dentists) went to school for long time to get their qualifications, to attain their professional qualifications; and if they become disable, the statistic states that they are more motivated to go back to work generally than people in lower classifications 2. Moral Hazard: The underwriters believe that the moral hazard is higher the lower class; or the less the higher class → Pricing in disability income insurance is important role for actuary  Residual Disability Benefit  Less expensive plans and policies are available to Class 4 and 5, they are generally any occupation; and cannot go back work 3 days a week.  But with the better policies for professions do have the flexibility to go back work 3 days a week  If the person has been on claim (cannot do his job and receiving benefit), and the physician suggests might be able to go back to work 2 days a week, plans that have residual disability benefit would allow the person to go back to work few days a week and correspondingly reduce the amount of disability benefit to reflect the fact that they are getting some income from the employer  Presumptive Disability If loss of two limbs, loss of hearing, loss of sight, loss of speech occurs, and whether a person can work or not, the insurer will presume you are disable and make payment; the person will get full benefits, regardless if the person can work or not Tailoring the disability plan to their needs (3 processes):  Benefit Amount  The insurer restrict the maximum amount to somewhere between 60%-70% gross income [ex. 67%] (they can purchase anything less than the maximum amount)  It always expresses into monthly payment Ex.Aperson earning $3,000/month, can purchase maximum amount of disability benefit $2,000/month  Waiting Period (Elimination Period)  Number of days that must pass from the day of the disability until you receive your first benefit payment [Nov. 16, lecture 9] 2  Generally waiting periods are expressed into 30, 60, 90, 180 days  Factors of determining selecting a waiting period: how much saving they have; how long could we go without a pay check if they become disable today; what the budget is; the higher the amount of benefit, the higher the premium; the longer waiting period, the less expensive the premium become  Benefit Period - If I am disable, I satisfy waiting period and now I am receiving monthly benefit payments, how long do they continue? - It stops when death and recovery (return to work) - The benefit period can be 1, 5, and 10 years, (common) “to age 65” or “for live time” - The longer the benefit period, the higher premium Case Study 1:  Male, 30 years old, non-smoker, chartered accountant, earning $48,000 annually, $4,000 monthly  Class 2 (because he is earning less than $100,000)  Maximum benefit amount he could qualify for: $2,667 monthly    Maximum BenefitAmount (monthly) $2,667 $2,667 $2,667 Benefit Period ToAge 65 ToAge 65 ToAge 65 Elimination Period (days) 30 90 180 Premium (per month) $95 $56 $51  Mortality table measures likelihood of death at certain age  Morbidity table measures likelihood of disability Case Study 2:  Male, 40 years old, non-smoker, earning $35,000 annually, monthly expenses $2,000  Commit $50 a month to a disability program    Maximum BenefitAmount (monthly) $2,000 $1,000 $700 Benefit Period 1 year 5 years ToAge 65 Elimination Period (days) 60 60 60 Premium (per month) $50 $50 $50 [Nov. 16, lecture 9] 3 Monthly Benefit per Month Benefit Amount Plan 1 $2,000 Plan 2 $1,000 Plan 3 $700 0 Benefit Period 1 year 5 year To age 65 Total Payment Length of Disability (year)   1 $24,000 $12,000 $8,4000 2 $24,000 $24,000 $16,800 5 $24,000 $60,000 $42,000 10 $24,000 $60,000 $84,000 → Disability insurance after all lean toward the worst case scenarios, and the longer benefit period can pay huge evident overtime Aperson has gross income $3,000/month, and the most he can get with disability policy is $2,000. If he becomes disable, he is not really short for $1,000/month. In fact, he might be getting $2,200 deposited because of the taxes or other pension funds. For the person in case study 1, earning $4,000/month gross, take home pay is $3.000/month, and getting benefit $2,667/month. Is the $2,667/month going to be taxable?  If you have paid for the disability insurance premium yourself, it is tax free  If it is an employer provided program (long term disability program through the employer group), and if the employer pay the premium or part of it, the whole amount of disability is taxable  Generally, the employee would pay some portions (might be 50% 50% with employer)  The best strategy is for the employee pay for the premium association with the long term disability, and then the employer pay for the dental plan, health plan, etc. [Nov. 16, lecture 9] 4 Disability Insurance Policy Riders/Options:  Future Purchase Option (FPO) Ex. In Case Study 1 and he sees his income raising overtime; as his income goes up, he qualifies being to take more benefit Adding the FPO, and if his income is $60,000 annually, $5,000/month, he could qualify for $3,333 benefit, an extra $700. The insurer just need him to sign the paper, and he take the extra cover, pay the extra premium, but he does not need to worry if he uninsurable or not, he still can get the coverage  Cost of LivingAdjustment (COLA)  If you have this rider and you are on claim, the insurer will index or increase your monthly benefit every year base on the consumer price index/inflation
More Less

Related notes for MTHEL 131

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.