Final answer:
The factor that limits the monthly benefit amount of a Disability Income policy is the prospective insured's pre-disability earnings, intended to replace a certain percentage of income and avoid over-insurance.
Step-by-step explanation:
When determining the monthly benefit amount for a Disability Income policy, the factor that limits the amount a prospective insured may purchase is largely based on their pre-disability earnings. This is because disability policies are designed to replace a certain percentage of the insured's income to avoid over-insurance and adverse selection. The goal is to provide necessary financial support without creating an incentive to remain disabled. Insurers take into account the individual’s income to ensure that the monthly benefit does not exceed what was typically being earned, thus promoting the return to work when possible. The factor that limits the monthly benefit amount of a Disability Income policy is the prospective insured's pre-disability earnings, intended to replace a certain percentage of income and avoid over-insurance.