Disability income policies typically pay benefits in the form of “periodic income.” This means that when an insured individual becomes disabled and is eligible for benefits under the policy, the insurance company makes regular, scheduled payments to the policyholder to replace a portion of their lost income.

These payments are often made on a monthly or weekly basis and continue for the duration of the disability or until the policy’s specified benefit period expires. Below, I’ll explain why “periodic income” is the correct answer and why the other options are not accurate descriptions:

Periodic Income (Correct Answer):

Disability income insurance is designed to provide financial support to policyholders when they are unable to work due to a disability. The benefits are structured as periodic income payments, which are similar to a salary or wage. These payments help the insured person cover their everyday living expenses, such as rent or mortgage, utilities, groceries, and other bills, while they are unable to earn their regular income.

Disability income benefits are typically paid out on a regular basis, such as monthly or weekly, to help maintain the insured’s financial stability during the period of disability. The specific terms and conditions of the policy, including the benefit amount and duration, are outlined in the policy contract.

Now, let’s explain why the other options are not correct:

Lump Sum:

A “lump sum” payment is a single, one-time payment of a specified amount. It is not the typical form of payment for disability income insurance.

While some insurance policies, such as life insurance or critical illness insurance, may provide a lump sum benefit in the event of specific events, disability income insurance is structured to provide ongoing financial support over a period of time, making “lump sum” an inaccurate description of how these policies pay benefits.

Tax Credit:

A “tax credit” is a financial incentive offered by the government to reduce an individual’s tax liability. It is unrelated to disability income policies. Disability income insurance provides financial assistance to replace lost income due to disability and is not a tax-related benefit. Therefore, “tax credit” is not an accurate description of how disability income policies pay benefits.

Annuity:

An “annuity” is a financial product that provides periodic payments over a specified period or for the life of the annuitant. While an annuity can be used to provide income, it is a separate financial instrument from disability income insurance.

Disability income policies do not typically pay benefits in the form of an annuity. Instead, they provide periodic income payments to replace lost earnings during a period of disability.

In summary, disability income policies pay benefits in the form of “periodic income” to provide financial support to insured individuals when they are unable to work due to a disability. This helps them cover their ongoing expenses and maintain their financial stability.

The other options, including “lump sum,” “tax credit,” and “annuity,” are not accurate descriptions of how disability income policies pay benefits, as they do not reflect the periodic and income-replacement nature of disability insurance payments.