Scenario 8: Which of the following statements about disability insurance is TRUE?

Question: Scenario 8: Which of the following statements about disability insurance is TRUE?

Answer options:

• It only covers disabilities caused by accidents, not illnesses. ✅ Benefits are usually tax-free if premiums were paid with after-tax dollars.
• It provides a lump-sum payment upon diagnosis of a critical illness.
• The waiting period typically begins after all sick leave is exhausted.

Correct answer: Benefits are usually tax-free if premiums were paid with after-tax dollars.

Explanation: If the insured pays the premiums with after-tax dollars, the disability benefits received are typically tax-free. If the employer pays premiums, benefits are usually taxable. The correct answer is "Benefits are usually tax-free if premiums were paid with after-tax dollars.". This capacity-fill scenario 8 reinforces the same competency for the cfp bank and follows the certified explanation standard.