Disability Insurance With A Pre-Existing Condition?
Medical Exclusion Riders
by Bill Olmsted
I get asked frequently how certain pre-existing conditions will be handled by the underwriter of a disability insurance policy. The truth is that if you have a pre-existing medical condition, it may affect the outcome of your disability insurance application.
Take the example of someone who has a bad back for which they have sought treatment in the past. Even though they may have never been disabled for this condition before, it doesn’t mean that it won’t happen in the future as they get older, and as the condition possibly worsens. I’ve been asked many times why the applicant simply can’t pay a slightly higher premium and have coverage for their back.
Paying a higher premium doesn’t work due to the nature of disability insurance. Let’s say the insurance company increased the premium for this person by 100%, but gave them full coverage for their back. That person could pay one monthly premium and then immediately turn around and go out on claim for a back problem. Since premiums are waived when someone is on claim, this person would have only paid one month premium and then be entitled to full benefits for their entire benefit period – usually to age 65, or possibly for life! Without this kind of rider, the medical risk would be too great for the insurance carrier to assume, and the insurance company would not be able to offer that person the disability income protection they need.
The Medical Exclusion Rider BECOMES NECESSARY WHEN:
- The insurance company has identified medical history that increases the chance of you making a disability claim at some point in the future.
- You have a specific medical problem with clearly identifiable symptoms, such as organ, joint or musculoskeletal disorders.
- An impairment is severe, recent, very specific or likely to recur.
- The risk can be clearly defined and easily excluded.
In assessing your situation, they take into account not only your present state of health, which may be fine, but also the risk of future problems. It is important to note that a medical exclusion rider doesn’t change the price of the policy.
It is also important to note that having an exclusion rider on your policy doesn’t automatically preclude you from having a claim paid for a disability completely unrelated to the pre-existing condition. Many times applicants will have a problem with their back that necessitates the exclusion rider, but that rider might include “except fracture” language. Always submit full and complete information on any claim and let the insurance company decide if it falls within the scope of the exclusion rider.
Once someone understands that they will most likely have a medical exclusion rider on their policy for a pre-existing condition, they usually ask me if they should wait to buy a policy, or if it’s even worth it. Our web site shows that if you saved just 5% of your income each year, a six-month disability would wipe out 10 years of savings, and when savings are gone your other assets would begin to dwindle as well. The smart thing to do is to get the best coverage you can get now, accept the medical condition exclusions, and then discuss with your agent whether you can subsequently apply to have the exclusion reduced or removed. If the condition isn’t degenerative, and get’s better over time, it’s possible that the insurance company may remove or reduce the exclusion after some time. In the meantime, you have coverage for everything else, and have locked in your rate when you bought your policy.
Disability insurance underwriting, and the prudent use of the medical exclusion rider, is an important process to ensure that insurance companies are able to offer you the disability income protection you need. Work with your agent to get the best offer you can, and then over time to see if that offer can be improved upon.
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, its subsidiaries or affiliates.
William Olmsted, Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY.
2015-6171 Exp 5/17