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82 - Insurance Planning and Risk Management 3 Elimination period (waiting period) is the deductible for a disability income insurance policy The purpose of the waiting period is to eliminate coverage for short-term disabilities and to help control the moral hazard By denying replacement of income for a period, the insurer can deter the insured from faking a disability to enjoy a paid vacation The longer the elimination period, the lower the premium 4 Bene t amount A Disability income plans are designed to provide a bene t level that replaces a percentage of regular earnings (excluding bonuses and overtime) (1) Short-term disability plans range from 50 to 100 percent, but 70 percent is usually the upper limit Some short-term plans use different percentages for example, paying 100 percent of earnings for four weeks and then 70 percent of earnings for the rest of the time (2) Long-term disability plans typically provide bene ts in the range of 50 to 70 percent of an employee s gross income; 60 and 662 3 are the most common percentages B These plans often place a maximum dollar amount on the bene t that is provided 5 Riders A Cost-of-living allowance (COLA) riders provide for periodic increases in the disability income bene t after the insured becomes disabled B The presumptive disability provision states that the loss of the use of two bodily members or the loss of sight or hearing will be presumed to be total disability, whether or not the insured is able to do any work for compensation C The guaranteed insurability provision permits the insured to purchase additional amounts of coverage if his or her income has increased D The automatic bene t increase provision increases the bene t each month to re ect the increased cost E A waiver of premium provision exists if the insured becomes totally disabled and the disability lasts for a period of time F The Social Security substitute rider permits the coordination of disability insurance with the Social Security insurance program G The probation period is the period of time after issuance of a policy in which speci ed illnesses or injuries will be excluded from coverage H The preexisting conditions clause covers a physical condition that the insured had before the disability income policy was issued Preexisting conditions are typically excluded from coverage under individual disability income policies I The change of occupation provision allows the insurer to reduce the bene t payable if the insured changes to a more hazardous occupation J The relation of earnings to insurance clause (also called average earnings clause) states that if the total disability income provided by all policies exceeds the insured s earned income, or average earned income for the preceding two years (whichever is greater), the income bene ts under the policy will be reduced proportionately The clause is designed to protect the insurer from the moral hazard associated with a situation in which the disability bene ts payable may exceed the normal income of the insured K Policy continuation provisions (1) Noncancelable policy The insurer may not cancel or increase premiums (2) Guaranteed renewable policy The insurer may not cancel, but may increase premiums for an entire class of policy owners.



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Since the subscription is durable, the subscriber application can crash all it wants and still be assured that messages missed during the crash will be available for retrieval when the subscriber returns to listening Asynchronous Message Processing As we discussed earlier, we need to decide how messages will be delivered to the client: synchronously or asynchronously In our example, we choose the latter, and to accomplish this we need to develop a JMS MessageListener object and register it with the TopicSubscriber object This listener will be invoked as necessary when messages arrive The requirements for developing a listener are to have it implement the MessageListener interface and, in particular, the onMessage() method For example, the listener can be defined as shown in Listing 9-2 Listing 9-2 A Listener for Red Planet Price Updates

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1 /** 2 * PriceUpdateListener can be used by a subscriber to the PriceUpdatesTopic 3 * to process messages asynchronously 4 */ 5 import javaxjms*; 6 7 public class PriceUpdateListener 8 implements MessageListener 9 { 10 public void onMessage(Message a_mesg) 11 { 12 try { 13 if (message instanceof TextMessage) { 14

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Topic 28: Long-Term Care Insurance (Individual and Joint) - 83 (3) Conditionally renewable policy The insurer has the right to terminate the contract by not renewing it (4) Policy renewable at the company s option (optionally renewable) Usually tied to association-type plans The insurance company has the right to cancel the insured s policy at the end of the policy year (5) Policy with no provision The insurer has complete exibility to renew or refuse to renew the policy The insured must apply for new coverage rather than a renewal (6) Cancelable policy This is an even more common clause used in association with group plans The insurer can terminate this policy anytime during its term 6 Taxation of bene ts A If disability bene ts are received from an employer-provided disability policy, such bene ts are totally included in taxable income B If disability bene ts are received from an employee-paid disability policy, such bene ts are excluded from taxable income C If disability bene ts are received from a policy paid by both an employer and an employee, then bene ts are included in income to the extent of the employer pro rata share of premiums Example: Steve is covered under a long-term disability income insurance plan of his employer Steve pays 75 percent of the premium cost, and the employer pays 25 percent of the premium cost The income tax treatment is as follows: (1) The employer s contributions are deductible and are not taxable as income to Steve (2) Steve s contributions are not tax deductible (3) 25 percent of any disability income payments are tax free to Steve, and 75 percent are taxable as income

(5A.39)

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 }

where gQAM = 3/ [2 (M 1)]. Thus, analogous to (11.22), the average SER is given by Ps (E) = 4 4 1 1 M 1 I

TOPIC 28: LONG-TERM CARE INSURANCE (INDIVIDUAL AND JOINT)

/* Process price update */ } else { /* Report unexpected message type */ } } catch (JMSException jex) { /* Handle JMS exceptions */ } catch (Throwable tex) { /* Handle misc exceptions */ } }

investment Alternatively, for any fixed down payment, the bigger the house, the more profits The road to riches in the US housing market has been to buy as much property as possible and borrow as much as possible to leverage profits It has truly been an astounding way to make money There are two risks to leverage One is individual, and the second is the spillover effect on others Groucho Marx learned the individual consequences of leverage in the 1929 stock market crash11 Groucho was opposed to gambling but had nevertheless invested his life savings into stocks And he bought stocks on margin In the 1920s the customary margin requirement was 10% This allowed a speculator (or investor) to buy $1,000 worth of stock with $100 of cash A 10% margin requirement allows for 10 to 1 leverage.

1 Basic provisions A The National Association of Insurance Commissioners (NAIC) model legislation emphasizes two areas, policy provisions and marketing provisions B Policy provisions (1) Certain terms can be used in the policy only if de ned These include adult day care, skilled-nursing care, and the like (2) The renewal provisions are only guaranteed renewable and noncancelable (a) Guaranteed renewable Premiums can be adjusted (b) Noncancelable Premiums cannot be changed (3) Exclusions are prohibited except for some conditions (a) A maximum look-back period of six months relating to preexisting conditions (b) Mental and nervous disorder (but not including Alzheimer s disease) (c) Alcoholism and drug addiction (d) Suicide and war (e) Services available under Medicare and other social insurance programs (4) A policy must offer the ability to purchase more coverage (5) It must offer the right to purchase a nonforfeiture option (6) An in ation protection bene t must be offered (7) The policy must have a provision that waives premiums if the insured has been receiving bene ts for a speci ed period of time, such as 60 or 90 days

We can then register our handler with the TopicSubscriber object:

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