What defines a group disability policy that Wanda paid for fully?

What defines a group disability policy that Wanda paid for fully?

• A. Taxable benefits
• B. 100% tax-free benefits
• C. Guaranteed renewability
• D. Adjustable premiums

Answer: (B)

A group disability policy paid for fully by the employee, in this case, Wanda, provides benefits that are generally tax-free. When an employee pays the premiums for a group disability insurance policy using after-tax dollars, the benefits received when a claim is made will not be subject to income tax. This is a significant advantage for individuals in similar situations, as receiving tax-free benefits means a larger portion of the income is available to replace lost wages during a period of disability. In contrast, tax implications apply differently depending on who pays the premiums. If the employer pays for a group disability policy, the benefits could be taxable to the employee upon receipt. Thus, since Wanda fully funded her group disability policy herself, she qualifies for the tax-free benefit upon making a claim. Other options discuss features of policies that do not directly pertain to the tax status of benefits. For example, guaranteed renewability refers to the assurance that a policy can be renewed regardless of health changes, which doesn’t impact whether benefits are taxable. Adjustable premiums pertain to how premiums can change over time and do not play a role in determining the taxability of the benefits paid out.

A group disability policy paid for fully by the employee, in this case, Wanda, provides benefits that are generally tax-free. When an employee pays the premiums for a group disability insurance policy using after-tax dollars, the benefits received when a claim is made will not be subject to income tax. This is a significant advantage for individuals in similar situations, as receiving tax-free benefits means a larger portion of the income is available to replace lost wages during a period of disability.

In contrast, tax implications apply differently depending on who pays the premiums. If the employer pays for a group disability policy, the benefits could be taxable to the employee upon receipt. Thus, since Wanda fully funded her group disability policy herself, she qualifies for the tax-free benefit upon making a claim.

Other options discuss features of policies that do not directly pertain to the tax status of benefits. For example, guaranteed renewability refers to the assurance that a policy can be renewed regardless of health changes, which doesn’t impact whether benefits are taxable. Adjustable premiums pertain to how premiums can change over time and do not play a role in determining the taxability of the benefits paid out.