Life & Health Insurance Practice Exam

Which type of insurance compensates for lost income due to a disabling condition?

1. Health Insurance

2. Life Insurance

3. Disability Income Insurance

4. Homeowners Insurance

The correct answer is: Disability Income Insurance

Disability Income Insurance is specifically designed to compensate individuals for lost income resulting from a disabling condition that prevents them from working. This type of insurance provides a replacement income, allowing policyholders to maintain their financial stability during periods of disability. Health Insurance, while essential for covering medical expenses associated with health conditions, does not provide coverage for lost wages or income. It focuses on the costs related to medical care rather than compensating for the income that a person loses when they are unable to work due to a disability. Life Insurance, on the other hand, provides financial protection to beneficiaries in the event of the policyholder's death. It does not address income loss due to disability since it is aimed at providing a death benefit rather than ongoing financial support due to an inability to earn income. Homeowners Insurance protects against damage to one’s home and personal property along with liability issues. While it is crucial for safeguarding assets, it does not offer any provisions for income loss as a result of disability. Thus, Disability Income Insurance stands out as the appropriate choice because it specifically addresses the need for income replacement in cases where individuals are unable to perform their work duties due to disabling conditions.