It's a fact that disability income insurance claimshave increased dramatically over the past severalyears, along with a disproportionate number ofinappropriate denials. Reasons for this include theelimination period not being satisfied; definitions,terms, and conditions not satisfied; and total disability,residual disability, and renewability exclusions.
Total disability comes in three types:
•Own occupation. Pays if the insured can't performthe various duties of their occupation, even ifthe insured is working elsewhere, as long as it isanother occupation.
•Own occupation—not gainfully employedelsewhere. Pays if the insured can't perform theduties of their occupation and is not working elsewhere.Working or not then becomes the choice ofthe claimant.
•Own occupation—unable to work elsewhere.Gives true own occupation for a period oftime (usually 2 to 5 years) then changes to unable towork elsewhere by reason of education, training,experience, or prior economic status.
Another major reason for denial has to do withmisstatements or omissions made on the application.Occasionally they are unintentional, due to the poorwording of the questions. Since the claim starts withthe application, who is at fault? Is it the carrier forpoorly constructing the wording of the questions, oris it the fault of the applicant who intentionally withholdspertinent information that could negativelyimpact the underwriter's decision as to whether ornot to issue a contract? Incidentally, some of the honestmistakes made by the applicant might be "overlooked" after 2 years, as outlined in the contract'sincontestability clause.
Denial of a Claim
Not overlooked, however, are fraudulent misstatementsor omissions such as a major misstatementregarding health or income (eg, omitting aprevious heart attack). This has a direct impact onthe agent's role in completing the application. Didthe agent record all answers exactly as they wereanswered, or was there some hidden agenda ormotive for writing them down in such a way sothat the policy would be issued as "applied for" without a rating or exclusion?
When a claim is submitted for payment, the fileis pulled and compared with the informationappearing on the claim form for any inconsistencies.Tax returns will be reviewed once again andwill be underwritten again. If the claim is invaliddue to fraudulent omissions or misstatements andis within the contestability period, the policy willusually be rescinded. If it is past the contestabilityperiod, it will usually be paid unless the carrierstrongly feels there was a deliberate intent to commitfraud, then rescission will take place. In anyevent, if it is a long-term claim, expect possible surveillanceand/or a buyout of the claim.
Larry Schneider is a disability specialist with over 30 years' experience
and owner of Disability Insurance Resource Center. He is
also an expert witness consultant for claims that have been inappropriately
denied and a national resource for hard-to-place
applicants and a brokerage for standard cases. He welcomes
questions or comments at 800-551-6211 or email@example.com. For
more information, visit www.di-resource-center.com.