Disability Insurance

Denied Claims

I have noticed with some interest the huge number of radio ads regarding lawyers who will fix your denied disability claim. For individual policies the payout rate exceeds 90%. Of the others most have not exceeded the elimination period, or the policy was not inforce when the claim appeared. So the problem seems odd to me.

Perhaps I do not understand the extent of it because I deal only with individual insurance policies. Possibly group insurance claims and auto insurance are materially different.

I doubt many people understand their policy

Disability insurance is a contract of promises and definitions. Like all insurance, the company promises to pay upon the happening of the covered event. Disability insurance is a more difficult promise because the event is not as easy to see as you died. The essentials of disability insurance are important.

What does the disability promise to pay mean

How long will they pay? Usually the plan has a term of payment. Two years, five years, and to age 65 are most common. Once the agreed term ends, the payments stop. Longer periods have higher premiums

What is the elimination period? How long must you be disabled before they will start to pay,. Much like a deductible on you auto policy. Shorter elimination periods cost more to buy.

What decides whether you are disabled or not for purposes of the contract? Disabled for purposes of the contract is not the same thing as disabled. Many people can be disabled and unable to do what they did before, but are not disabled for purposes of the contract

Individual policies have three 
occupation levels

Any occupation means if you are disabled, the company will pay the agreed amount if you are incapable of performing the duties of any occupation for which you have the necessary education and training. This is a fairly normal definition in auto policies and in some group plans. In theory, if you could not be a dentist but could stock shelves at the local grocery store, you are not disabled within the definition. Usually any occupation definitions pay for two years based on regular occupation and then revert any occupation.

Regular occupation means the company will pay if you are disabled so that you are unable to carry out the duties of your regular occupation, and are not working at anything else. 

Own occupation means the company will pay if you cannot perform the duties of what you did before, even if you are working at something else. This one requires that your occupation be clearly definable. For example, a neurosurgeon is different from a general surgeon. It would take smaller accidental damage to disable a neurosurgeon. A burned finger maybe. Despite the injury they could be a general surgeon and with the right contract could collect the promise.

As you might expect, the premiums for own occupation are highest and regular occupation policies are more than for “any occupation” policies.

There are many other definitions that matter. Partial disability being the most common. You should know a little about those too.

How insurance works.

The company charges premiums so the expected claims are a fraction of the premiums collected. The investment return on the premiums received, less taxes, and expenses consume the rest.

If the company has an expectation of paying more they charge more. Price is not a good indicator of value when it comes to disability insurance. If you need the coverage because you needed your job, a small saving when creating the policy can prove very costly if there is a claim.

Cheap is expensive

As my late friend Moe would say, “I can’t afford anything that cheap.” 
A disability policy is never both good and cheap.

I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

In previous careers, I have been a partner in a large, international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

2 Comments on “Disability Insurance

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