Anyone familiar with disability insurance knows that it can be a headache to underwrite a case. Disability insurers underwrite their applicants with great care and deliberation - and for good reason, since many illnesses and injuries can lead to a claim. In my experience, many agents and brokers avoid selling disability insurance simply because they've had poor DI underwriting experiences. After such a bad experience, the producer must deal with their client's frustration, and some producers just decide it's not worth it.
However, there is a program that sidesteps the headaches of a fully underwritten case, and which may help bring DI back to many producers' stable of regularly sold insurance products and services: simplified underwriting. This is designed for clients with smaller, well-defined financial needs. There is minimal underwriting, no required financial documentation, and no paramedical exam.
Simplified underwriting may be used for most personal disability products, including individual disability insurance and retirement disability insurance. Simplified underwriting may also be useful if you have a business owner client with a fluctuating income. For example, a realtor or consultant may find that simplified underwriting is a good option if they want a specific, smaller amount of disability coverage.
This also may be a good option if you have a client who is concerned about going through the underwriting process for medical reasons, as long as they don't have any of the severe medical conditions delineated in the pre-existing conditions part of the application (cancer, heart attack, etc.). Remember that simplified underwriting is not a magic bullet to provide coverage for the uninsurable.
If you have a client who already has individual disability insurance and is looking to protect their retirement savings, this may be a good option as they won't to go through the entire underwriting process to obtain more coverage. Sometimes, clients balk at the hassle of blood tests and interviews required to obtain additional or supplemental disability coverage, and simplified underwriting can smooth the way to the sale.
Each company has its own guidelines, but here are some general parameters:
- The application asks minimal medical questions, typically if the client has had any major problems such as cancer or a stroke.
- No income documentation required.
- No medical exams or testing required.
- No attending physician statements or medical records required.
- No personal history interview.
What is included?
- $3000-$5000 per month of disability benefit (depending on company).
- Same definition of disability as the fully underwritten policies, including own occupation (contact your company for full details of their policy definitions).
- Limited increase options available (depending on company and initial benefit amount).
- Available to applicants ages 18-60.
- Available to most occupational classes.
- All waiting and benefit periods available.
- Cost of Living Rider typically not available on simplified underwriting cases.
In sum, simplified underwriting can be a good solution to avoid many of the underwriting headaches that deter producers from making disability insurance sales. It is not a panacea, or a blanket cure to all underwriting problems on disability cases. However, for the subset of prospects for which the program was designed by the insurance companies, it provides an abbreviated application and underwriting process, less client (and producer) frustration, and can facilitate sales of disability insurance. It is certainly worth your time to learn about whether your prospect (and you) can benefit from its advantages. I have found it to be a useful tool in my insurance practice.
Jamie K. Fleischner, CLU, ChFC is the president of Set for Life Insurance, a national disability insurance brokerage based in Greenwood Village, CO. For more information, please visit www.setforlifeinsurance.com.