Much has been published in the mainstream media about the fact that disability income insurance claims have increased dramatically over the last several years, along with a disproportionate number of inappropriate claims denials. And the claims departments of many insurance companies have been told to "tighten-up." Claims that would have once been routinely paid are now being denied due to industry trends, misunderstandings, lack of consumer knowledge, inability to contest, and lower returns on investment.
Some of the reasons a claim might be judged invalid could be because (but not limited to):
1) Elimination period not being satisfied, either due to the inadequate number of days or days not being consecutive
2) Definitions, terms, conditions for benefits to be paid not satisfied (e.g., total disability or residual disability)
3) Renewability
4) Exclusions
Definitions on which disability claims are based include:
o Own occupation: This pure own-occupation definition allows payment to be made as long as the insured can't do the substantial and material duties of their occupation, even if the insured is working elsewhere, providing it is in another occupation. Some carriers even offer an "own-occ" specialty definition. This is the most desirable definition of all. It is based on AMA-recognized specialties.
o Own occupation, not gainfully employed elsewhere: A policy with this type of split or modified definition pays benefits if the insured can't do the duties of their occupation and is not working elsewhere. Working or not then becomes the choice of the claimant. If they do work elsewhere and there is a loss of income, residual benefits will kick in, assuming this option is part of the contract and its terms and conditions are satisfied.
o Own occupation, unable to work elsewhere: This is another example of a split definition that gives true own-occ for a period of time -- usually two to five years -- then changes to either not working (more advantageous definition for claimant) or "unable to work elsewhere" (more advantageous definition for insurer) by reason of education, training, experience, and sometimes prior economic status. This is one of the least desirable definitions and gives the carrier some control in minimizing the impact of the claim.
o Loss of earnings: This definition has been around for a long time, but more and more carriers have begun to stipulate this definition instead of any of the own-occ definitions. Loss of earnings is the same as a residual (proportionate) definition. For example, if an insured has a 30 percent loss of income while disabled and under the care of a physician, they will be paid 30 percent of the monthly benefit. While this policy does pay proportionately, note that the insured also starts off with an initial 40 percent shortfall because the carrier's participation tables only allow approximately 40 to 60 percent of predisability income to be covered -- now capped at $10,000 to $15,000, depending on occupation. (Note: Additional coverage past these amounts up to $50,000 per month are available in a secondary market.)
Another major reason for claims denials has to do with misstatements or omissions which have been made on the application by the claimant. Misstatements or omissions are usually unintentional -- a result of poorly worded questions on the application. Some critical areas of the application which affect a claim and could be answered incorrectly or dishonestly have to do with occupation/duties, health, income, and other pertinent facts such as avocations. Incidentally, some of the honest mistakes might be overlooked after two years, as outlined in the contract's incontestability clause unless there is other wording to override that clause.
What may not be overlooked, however, are fraudulent statements or omissions such as major misstatements regarding health or income. Keep in mind that you, as an agent, play a role in the completion of the application. It is imperative that all answers be recorded exactly as they were stated. If not, it could appear that there is a hidden motive for writing them down in such a way that the policy would be issued as applied for -- without a rating or exclusion.
Larry Schneider, a disability insurance specialist with over 30 years of experience, is the owner of Disability Insurance Resource Center. He can be reached at 800-551-6211 or info@di-resource-center.com. For more information, visit www.di-resource-center.com.
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