Broker Check

Disability Insurance Underwriting

by Steve Crawford

Keep your expectations realistic when it comes to disability insurance underwriting.

Underwriting - 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

These are the personal views of the author and do not necessarily reflect the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries and affiliates thereof.