Definition of Total Disability
Residual Disability Insurance
- Insurance Company Risk Selection Process
Disability insurance underwriting has been known to upset many people
who apply for disability insurance. People go into the process with unrealistic
expectations, this is a result of agents not properly preparing their
clients for what to expect during the disability insurance underwriting
process. My goal here is to let people know what they can expect during
the disability insurance underwriting process.
One important thought should be in the head of
everybody who applies for disability insurance, do not expect to receive
an issued policy exactly as applied for. A DI underwriter can reduce
the amount of coverage applied for, place exclusion riders on the policy,
increase the rate, decrease the benefit period, offer an entirely different
policy series than the one applied for, or decline the coverage outright.
As a consumer you need to understand that very few contracts get issued
exactly as applied for. Let's dive into the process step by step.
1. Filling out the Application
Do not simply sign an application and expect the agent to fill it out
correctly for you, this could do a lot of damage to your MIB file, and
scar your insurability for life. It is important to answer all questions
in detail, and leave nothing to question. As a consumer you have several
goals here; to obtain the highest occupational class possible, eliminate
the need for follow-up questions during underwriting, and eliminate the
need for physicians medical records during underwriting.
There is a section of a disability application devoted to describing your
occupation, try to put yourself in the best possible light for the underwriter.
The higher the occupational class he gives you, the lower your rate will
be. As an example, one may be tempted to describe your occupation as computer
consultant. This is a class 4 with one insurance company, but computer
engineer or analyst is a class 5, and hence a higher rate. Some occupations
are straight forward, but if your occupation is somewhat vague, or open
for interpretation give the underwriter a full and complete picture of
what you are doing. Include a breakdown of your time including travel,
client meetings, etc.
Another section of the application has to do with financial history, most
insurance carriers will want to know your current earnings structure,
and what you earned for the past two years. This will always have to be
supported with financial documentation in the form of a W-2, tax return,
or pay stub. A hard and fast rule of disability insurance underwriting
is you will always get an offer based on exactly what you verify through
financial documentation. If you are making $150,000 this year, made $100,000
last year, and can only show the $100,000 via financial documentation
only expect to get an offer based on the 100K. There really is no way
around this, only expect coverage based on what you can prove.
The third major section of the application causes
most of the problems, and this is your medical history. Understand that
life insurance policies are much easier to underwrite, the underwriter
only needs to see if you have a life threatening pre-existing condition.
A DI underwriter has to deal with the millions of possible
disability insurance claims. The most common disability insurance
underwriting problems are spinal, mental and nervous, or lab work related.
To come out of underwriting at all is a success with an issued policy,
to come out of underwriting with one or two pre-existing condition riders
is a great job, and to come out with coverage exactly as applied for is
a miracle. There are just so many ways to receive a rider, reduced benefit,
or some other policy modification that to expect a perfect policy is unrealistic.
Disability insurance applications take into account your medical history
for the past ten years, the more details you provide the underwriter up
front, the less discovery the underwriter will have to do, and the more
comfortable the underwriter will feel issuing your coverage. It is vital
that you list every physician you have seen for the past ten years, their
locations, and exactly what the visit regarded. The goal of disability
insurance underwriting is to put the warm and fuzzy feelings into the
underwriter handling your case, so take all the guess work out of it.
Disability insurance underwriting is quite a simple process when you break
it down to the basic components.
Fill out the application in detail
Provide detailed financial verification of your income
Complete your labwork quickly
Keep a realistic goal for the result