In most cases, when you apply for an individual disability insurance policy, you must prove you are in good health in order to qualify for a policy.
This is typically done by filling out a health history and taking an insurance exam and blood/lab tests. Most physicians & dentists who apply for policies are able to prove to the insurance company that they are acceptable health risks and are issued regular disability policies.
However, if you have any health conditions that have a higher than average likelihood of causing you to become disabled, you could be declined or offered a modified policy. After all, the insurance companies could not stay in business if they were in the habit of offering regular policies that cover potentially serious pre-existing medical conditions, or as we say in the business, if they were in the habit of “buying claims”.
If you apply for a policy and have a health history that overly concerns the insurance company, you can expect one or more of the following actions from the insurance company:
If your health history is serious enough that the insurance company cannot accept you as a reasonable risk, they may decline to issue a policy to you. In my experience, declines are relatively rare. There are two primary reasons for the rarity of declines:
- Most people are not in poor enough health to justify a decline.
- Most insurance agents screen potential applicants, informally inquiring about their medical history before submitting an application. If the agent is concerned that the application could result in a decline, the medical information is presented to the insurance company for informal review. If the insurance company suggests that a decline is indeed likely, the insurance agent may not submit the application.
2. Exclusion Rider
If you have a health condition that increases your chance of becoming disabled but are otherwise healthy, the insurance company may issue a policy with an Exclusion Rider. The Exclusion Rider will exclude disabilities caused by the existing health condition but will cover other disabilities.
The Exclusion Rider is typically used when the excluded health condition could be easily identified as the cause of a disability, such as a bad back or a disease of the eye.
The insurance company may also exclude more than one medical condition if they believe they both deserve to be excluded.
In some cases, an insurance company will declare that an Exclusion Rider is permanent. In others, they will declare that the exclusion can be reconsidered after one or two years. In the case of reconsideration, if you do not have any further symptoms or treatment for the excluded condition during that time, it’s possible that the insurance company will remove the Exclusion Rider. I’ve seen it happen many times.
In my experience, Exclusion Riders are more common than declines.
3. Qualified Condition Rider (QCR)
The Qualified Condition Rider may be used in lieu of an Exclusion Rider when a medical condition represents a higher than average likelihood of causing a disability, but is not serious enough to justify an Exclusion Rider.
A QCR will provide limited coverage for a specific medical condition without completely excluding it. Typically, a policy with a QCR will offer regular coverage for other medical conditions but will require a longer Elimination Period and shorter Benefit Period for the medical condition in question.
The QCR allows for limited coverage for the policyholder for the stated medical condition while protecting the insurance company if the medical condition eventually causes a disability.
In my experience, the QCR is not used nearly as often as the Exclusion Rider. It’s almost as if the insurance company wants to fully exclude the condition, but can’t quite justify it, so they slap on a less restrictive QCR instead.
4. Premium Rating
If you have a medical condition, such as untreated high blood pressure or obesity, that may not be easily identified as the cause of a potential disability, the insurance company needs to take more pervasive action than an Exclusion Rider or QCR. For instance, it’s not practical to exclude or limit all disabilities that could be caused by a condition such as high blood pressure. Instead, they would be more likely to issue the policy with a Premium Rating, which is an extra premium charge.
The Premium Rating is usually expressed as a percentage, such as 25% or 50%, which would mean that your premium would be 25% or 50% higher than the regular premium amount. Other than the Premium Rating, the policy could offer regular coverage with no limitations.
5. Modified Benefits
If you have one or more medical conditions that concern the insurance company and they do not think any of the actions listed above are suitable, they may issue the policy with Modified Benefits for all disabilities.
They may offer Modified Benefits such as:
- A longer Elimination Period than you applied for. For example, if you applied for 90 Days, they may offer 180 Days.
- A shorter Benefit Period than you applied for. For example, if you applied for benefits to be paid to Age 67, they might offer a 10 year or 5 year Benefit Period instead.
- Without certain optional benefits on the policy. Examples of optional benefits include, but are not limited to, Residual Disability, Cost of Living Benefit, Guaranteed Insurability Options, and Own Occupation Definition of Disability. They could offer the policy without one or more of these optional benefits.
Other than the Modified Benefits as described above, the policy would pay all other benefits as usual.
6. Combination of actions 2-5 above
Depending on the situation, the insurance company could include more than one of the actions described above. I’ve seen many policies issued with combinations of these actions, including some with an Exclusion Rider, Premium Rating, and Modified Benefits. The possibilities are not endless but they are numerous.
You Could Appeal, But…
Sometimes when insurance companies decline policies or issue modified policies, the applicant is surprised or even shocked, because they do not believe their medical condition warrants such restrictive action.
Precisely for that reason, insurance companies have formal and informal appeal procedures. If you ever get declined or offered a modified policy and believe you were not treated fairly, I encourage you to pursue your appeal rights and/or apply for a policy with another insurance company.
However, in my experience, even though some appeals are successful and the insurance company’s decision is reversed, these appeals do not usually result in a reversal. It’s the same with applying for a policy with another insurance company. Occasionally, it will result in a different outcome, but more often not.
In the event of a decline: If you appeal the decision or apply for a policy with a different insurance company and it does not yield a different outcome, you may have to accept the fact that you will not be able to get an individual disability policy.
In that case, you could either give up or pursue a different type of disability insurance policy, such as Group Long-Term Disability (LTD) or a policy through an insurance company that specializes in modified policies for people who have been declined for regular policies.
LTD is often offered to medical or dental practices as Guaranteed Issue, meaning you might qualify for a specified amount of coverage without proving you are in good health. Policies offered through Insurance companies that specialize in modified policies usually have different underwriting requirements than other companies, meaning they are not as likely to decline to issue a policy.
Neither LTD or the specialty modified policies offer the same high-quality benefits as the top individual disability policies.
In the event of a policy with one or more of the modifications 2-5 above: You will need to evaluate the benefits of the policy versus the cost of the policy to determine if you want to accept it. In that case, I encourage you to request the assistance of a qualified disability insurance professional to help you make your most informed decision.
In most cases, I believe it’s a good idea to accept an imperfect policy if it’s the best you can get. It’s better than nothing.