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Disability Insurance
What Does Your Contract Say?
by Bill Olmsted
E-Mail Bill Olmsted

Disability Insurance The words in a contract matter. This is true whether the contract describes the terms of a loan, a business deal, or an insurance policy. Some insurance agents, however, emphasize the insurance company that backs the policy more than the contractual language of the policy itself. While insurance company financials are an important consideration, it’s a mistake to place more importance on them than it is on the terms and conditions of the policy.

The argument I have run into from certain representatives is that company financial strength should be of paramount importance, and the fact is that “we pay claims”. I have heard that line many times when talking to a prospective client about individual disability insurance (IDI). The problem that I point out is that if the language in the disability policy specifically states that a claim is limited to 24 months for all mental and nervous conditions, the claim won’t be paid for longer than is stated in the policy. At this point, it makes no difference whether the COMDEX rating for one company is 2 points higher than another. All that matters is how a claims examiner is going to interpret the language in the contract that the client purchased.

There are some well known, and some lesser well known contractual provisions that anyone who buys an individual disability insurance policy should be aware of, and a comprehensive individual disability insurance policy like ProVider Plus has these covered.

True own-occupation definition of total disability – This is a common one, and defines total disability as, you are unable to perform the material and substantial duties of your occupation. This makes it possible for you to work in another occupation and still be eligible for total disability benefits. Some IDI policies offer modified own-occupation that says the same thing as true own-occupation above but also states “and you’re not working in any occupation”. It’s a subtle difference, but one that can mean the difference between getting paid or not.
Mental disorders limitations – Many IDI policies limit benefits for a disability due to a mental and/or substance-related disorder to 24 months. If you don’t have to have this limitation, don’t.
Residual disability – In many IDI policies, a residual disability is when you have a loss of income as well as a loss of time and/or duties at your occupation. When reviewing the contract, it’s important to understand that this type of language requires you to either be working fewer hours, or be unable to perform all of the duties of your occupation. Some IDI policies only require a loss of income and this could mean residual benefits sooner. It’s also important to have a recovery provision included which could help you recovery financially following a disability.
Presumptive disability – A presumptive disability occurs when due to injury or sickness, there is a total and complete loss of sight in both eyes; hearing in both ears; speech; or the use of both hands, both feet, or one hand and one foot, in their entirety. In such a situation, you will be considered totally disabled even if you are still at work. The important thing to note in the contractual language of the policy is whether or not this loss has to be irrecoverable. A loss from which you could recover from would include a car accident where both legs were broken.

Small differences in the language of a disability policy can greatly affect the likelihood of having a claim paid. When you’re shopping for an individual disability insurance policy, make sure that you work with an experienced agent and he or she walks you through the seemingly small contractual differences between policies. It’s important to have the backing of a strong mutual life insurance company, but don’t sacrifice the details and language of the legal contract your buying.

The views and opinions expressed herein are that of the author and do not represent the views and opinions of The Guardian Life Insurance Company of America, or its subsidiaries or affiliates thereof.
Financial ratings and/or rankings are subject to change, please consult with your financial advisor for complete details concerning the ratings of the insurance companies you may be interested in.

*William Olmsted, Registered Representative of Park Avenue Securities, LLC (PAS), 1355 Piccard Drive, Suite 380, Rockville, MD 20850. Securities products and services are offered through PAS, 240-683-1400. Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. PAS is a member of FINRA, SIPC.

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