Applying for Personal Disability Insurance
You've decided to buy a policy. You've requested an instant disability insurance quote, talked to a couple of agents and reviewed with them the options on the policies they recommend. It's now time to fill out an application and see if you qualify for a policy. You might think that the hard part is over and simply applying for a policy is a formality. Don't be fooled - this is the time to get it right. Making errors or misrepresentations on the application can cause problems at the time of a claim, making all your efforts in finding the right policy useless.
There are three major sections to the disability insurance application, and all are designed to give the insurance company an accurate picture of the risk they are about to undertake, should they chose to do so. These sections relate to your occupation, your income, and your health. Filling out each one accurately and completely with your agent ensures that you will give the underwriter the information to give the best possible offer.
Personal and Occupational Information
The first part of an application is the general information about the applicant. This is comprised of the applicant's name, social security number, date of birth, and other pertinent information. Occasionally, an applicant will not wish to divulge their social security number due to concerns over privacy. This is a necessary part of the application, however, and without it, the application will not be considered.
Applicants who are concerned with giving their social security number should ask for a copy of the insurance company's privacy guidelines, and talk with their agent about who has access to this information. Also ask what safeguards are in place to ensure security when transacting business via email. The best agents will use secure encrypted email, so that only the intended recipient can access sensitive information.
Each application asks what the applicant's occupation is, as well as what his or her duties are and a percentage of time that they are doing these duties. It's tempting to just put one word answers here, but you could be doing yourself a disservice. The intention of this section of the application is to provide the underwriter an accurate picture of what you're doing on a daily basis. This gives them the information needed to confirm the occupational classification that the agent used when they ran the illustration.
Just because an agent ran the quote at the best occupation class, it doesn't mean that the underwriter will agree. Since the occupation class has a direct bearing on the price of the coverage, giving the detail needed to assess this accurately is very important. If you have a unique occupation, or one that requires more detail than what the application provides for, be sure to ask your agent to include a cover letter with details. Often times, this can help get the best offer from the underwriter. More details are better than fewer.
The amount of disability insurance that you can purchase is based on your taxable income. Because of this, you must report on the application what your income has been for the past 2 years, as well as year to date.
The underwriter will want to see a history of income to ensure that you are a good risk at whatever level of benefit you are applying for. They look at the history over a couple year period to make sure that the applicant hasn't simply had one very good, or one very poor year in terms of income. In cases such as these where there is an outlying year, often times the underwriter will use an average.
Business owners should be sure to report net income after expenses, not gross income. Often times, I will talk with a business owner who wants to insure his or her gross income before they accounted for deductions. For example, a business owner who has a gross income of $200,000, but $50,000 of business expenses, would qualify for coverage based on the net income of $150,000.
DI is designed to protect the net income earned, not the gross. If the client wanted to also insure the $50,000 of expenses that he or she has, they could do that by using a business overhead expense policy.
Some applicants have unearned income from rental properties, investments, or other sources. Since this unearned income will continue whether or not the person is working, it can count against how much coverage they qualify for. If you have unearned income, be sure to talk with your agent about the nature of it, and if it is something that will be recurring or if it was a one time event. If it was a one time event, this should be explained to the underwriter in a cover letter in order to get the best possible offer.
Finally, high net worth and bankruptcy can have an impact on an applicants ability to get a policy. Generally, if an applicant has a net worth in excess of $10,000,000, their need for disability insurance is not as significant, and most major carriers will not issue a policy. This is especially true if a large portion of this net worth is liquid.
On the other hand, if the majority of the wealth is illiquid, be sure to have your agent explain this to the underwriter, as it may make a difference. Similarly, if an applicant has recently filed for bankruptcy, they cannot qualify for a policy. The underwriter will want to see the bankruptcy discharged and some financial stability returned before considering for coverage.
Medically underwritten means that not only do you have to have an occupation that is insurable, and an income that qualifies you for a particular benefit amount, but you also must be in good health. The application for coverage contains many questions about pre-existing conditions and medical history. It is very important to answer these completely and as accurately as possible.
I often am told by clients that they can't remember the actual date they saw a doctor many years ago. I always advise them to provide as close a date as possible, and then note on the application that they are unsure of the actual date. The underwriter will obtain the medical records from the doctors that are listed on the application and review them with medical staff at the insurance company.
Many insurance companies are moving toward a professional service to conduct the medical questions. In these cases, your agent might not ask you many questions regarding your health; instead, allowing the representative of the insurance company to call you and ask these detailed questions.
The results of the medical underwriting portion of the application often dictate whether or not an applicant can get a policy, and what that policy will look like. Often times, any pre-existing medical conditions are excluded from coverage. If you are offered a policy with a pre-existing exclusion be sure to talk with your agent about it, and fully understand why it is required. Most times, if one company is going to exclude something, others will too, and you're probably looking at the best offer possible.
Most importantly, don't withhold any information on this section of the application. Answer each question thoroughly and honestly. There is no sense getting a disability insurance policy that will simply be rescinded at claims time because they found out that you withheld pertinent medical information.
In golf, many players have played a tournament to the best of their ability, felt they have played well, and then made an error on their scorecard only to be penalized or disqualified. It's the same with disability insurance. The application is just as important as the process of determining the right policy.
Once you have decided on which policy is best for you, be sure you work with your agent to completely and accurately fill out the application. Doing so will ensure you get the best offer on your coverage, and a policy that will perform as you intended.
William Olmsted holds a Financial Representative contract with The Guardian Life Insurance Company of America based out of New York, NY.
Individual disability insurance policy Forms 18ID, 18UD, 18GI, 1400, 1500, and 1600 underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. In New York: These policies provide disability insurance only. They do not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. For policy forms 18ID, 1400, 1500, and 1600 the expected benefit ratio is 50%. For policy forms 18UD, 18GI, 18UD-F, and 18GI-F, the expected benefit ratio is 60%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits, when averaged over all people with these policy forms.
2017-51633 Exp: 12/2019