Disability income insurance claims have increased dramatically over the last several years. It seems that there are also a large number of claim being denied. Insurance companies claims departments 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. So, it is important to look at the company behind the policy when making your decision. For my money, I would rather go through the underwriting process when I apply and not when I might file a claim and hold my coverage with a financially sound company that has a long history of stability and positive claims payments.
Some of the reasons a claim might be judged invalid:
1) Elimination period not being satisfied, either due to the inadequate number of days or days not being consecutive as required by a number of companies.
2) Definitions, terms, conditions for benefits to be paid not satisfied (e.g., total disability or residual disability). There is no “standard”, industry definition. Each carrier defines what constitutes disability under their contract.
3) Renewability (Is the policy both guaranteed non-cancellable AND guaranteed renewable. Ask us how these terms differ.
4) Exclusions or Riders (these could be medical, such as exclusions for back due to recent back surgery or occupation)
Definitions on which disability claims are based:
- 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.
- 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.
- 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. That being said, the premiums for these definitions can be lower, so having a knowledgeable agent help you through the decision process is important.
- 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-occupation definitions. Loss of earnings is incorporated in the 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 pre-disability income to be covered — now capped at $10,000 to $15,000, depending on occupation and carrier. (Note: Additional coverage past these amounts up to $50,000 per month are available in a secondary market, such as Lloyd’s of London, but can be expensive.)
Misstatements or Omissions
Another major reason for claim denials has to do with misstatements or omissions which have been made on the application by the insured. Misstatements or omissions are usually unintentional — a result of poorly worded questions on the application, perhaps. 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, by the insurance company, after two years, as outlined in the contract’s incontestability clause unless there is other wording to override that clause. Most companies have a much more difficult time proving fraud, but fraud can extend the contestable period for many years, way beyond most carrier’s two year contestable period.
What may not be overlooked, however, are fraudulent statements or omissions such as major misstatements regarding health or income. Keep in mind that your agent can play an important role in the completion of the application and explaining the contract provisions. A good agent should want you to understand what is not covered almost as much as what is covered, or how it is covered.
Insure With the People You Trust
Auto-Owners Insurance and the Kasmann Insurance Agency have established an extensive number of clients and years helping our client that have unfortunately had to file Long Term Disability claims. The claims have been paid by Auto-Owners as we had explained and although our clients are not happy that they are disabled, they are quite happy with the product and service over the years.
Contact us so we can show you how you can secure Long Term Disability that will not open you up to surprises at claims time.