International Baccalaureate (IB) Practice Exam

Which of the following statements about disability insurance is false?

1. A longer elimination period will lower your premium cost.

2. Disability insurance is not necessary if you have a good health insurance policy.

3. Your coverage should be for 65% of your income.

4. After college, short-term disability should be covered by your emergency fund of three to six months' worth of expenses, staying out of debt, and having a money plan.

The correct answer is: Disability insurance is not necessary if you have a good health insurance policy.

The statement that disability insurance is not necessary if you have a good health insurance policy is false because these two types of insurance serve very different purposes. Health insurance covers medical expenses resulting from illnesses or injuries, but it does not replace lost income if a person becomes disabled and unable to work. Disability insurance, on the other hand, is specifically designed to provide a portion of an individual's income in the event of a disability that prevents them from performing their job. Therefore, having a health insurance policy does not eliminate the need for disability coverage, as they address different financial risks. The other statements are accurate in their context: a longer elimination period can indeed lower premium costs because it reduces the insurer's risk by delaying the payout of benefits. Coverage typically being around 65% of income is a common recommendation because it aims to provide sufficient income replacement while accounting for taxes and other deductions. The suggestion that short-term disability should be managed through an emergency fund is practical, as it emphasizes financial preparedness and self-insurance for temporary income loss while relying on savings rather than waiting for insurance benefits to kick in.