CMFAS HI Regulations & Financial Needs Analysis question: deferred (elimination) period for a Disability Income Insurance policy

CMFAS HIRegulations & Financial Needs Analysis

When helping a client select the deferred (elimination) period for a Disability Income Insurance policy, which guidance is correct?

A The deferred period should always be as short as possible for every client, regardless of the extra premium this costs
B The deferred period has no effect on the premium, so it should be matched only to the client's savings
C Self-employed clients generally need a shorter deferred period as income stops at once; employees still paid can take a longer, cheaper one
D A self-employed client can accept a longer deferred period than an employee, since he can draw on business income while unwell

Show the answer and explanation

Answer: C. Self-employed clients generally need a shorter deferred period as income stops at once; employees still paid can take a longer, cheaper one

A self-employed person needs cover to begin sooner (shorter deferred period) as his income stops immediately; an employee who continues to receive salary for a period can take a longer deferred period. The longer the deferred period, the cheaper the premium.

Common mistake

The relationship is reversed in the wrong options: the self-employed generally need shorter, not longer, deferred periods, and a longer deferred period does reduce the premium.

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