In General, You Must be a Good Risk
If you are buying a group insurance policy during an open enrollment period, you won’t have to prove that you are insurable. However, if you are purchasing an individual disability policy, you will have to meet certain standards before you are issued a policy. On an application, you will answer questions regarding your age, income, occupation, health, and hobbies, and you may be turned down for coverage if you pose too great a risk to the insurance company or if you can’t meet minimum age or income requirements.
Example(s): Captain Crook applied for disability insurance. On his application, he listed the following information:
- Occupation: Pirate
- Income: $250,000 annually
- Current Health: Excellent
- Past Health: Arm severed 10 years ago, requiring prosthesis; had 40 stitches 3 years ago after
- sword fight; hospitalized six months ago after shark attack.
- Hobbies: Searching for buried treasure, making sailors walk the plank
Unfortunately, although Captain Crook met his insurance company’s age and income requirements, he was denied disability coverage due to his dangerous occupation and lifestyle.
You Can’t be too Young or too Old
Most disability policies are issued to people between the ages of 18 and 60, although coverage may continue to age 65 (and sometimes for a lifetime). In addition, age is a factor in pricing the policy; since younger people are less likely to become disabled, they pay the least expensive premiums.
You Can’t be too Rich or too Poor
You don’t have to be rich to buy disability insurance, but most companies won’t insure individuals who make less than $12,000 (sometimes $15,000) a year. This is because individuals with low income may not be able to afford the premiums and may not have a great need for insurance. Conversely, you may also have trouble buying disability insurance if you make a lot of money or if your net worth is too high. The insurance company may decide that you don’t need disability insurance because you can afford to self-insure, or it may determine that you pose too great a risk to the company (because any benefit paid to you over a long period would cost the company a lot of money).
You Can’t Work in an Extremely Dangerous Job
Statistically (and according to common sense), some jobs are more dangerous than others. For example, construction workers, firefighters, truck drivers, and mine workers are employed in dangerous occupations, whereas architects, schoolteachers, and lawyers are not. If you work in a dangerous occupation, you may be denied disability coverage outright, and if you are able to buy a disability policy, you will pay a higher premium. Unfortunately, it’s not up to you to decide whether your occupation is dangerous; the insurance company decides that for you, grouping occupations in categories based on job duties and frequency of claims experience.
Example(s): Phil and his twin brother, Bill, applied for disability insurance coverage on the same day. Phil, a chemist, had no trouble buying a policy at a reasonable price, even though he worked with dangerous chemicals every day. On the other hand, Bill, an air traffic controller, was turned down for coverage. Even though Bill had never filed a disability claim, his insurance company considered him a poor risk due to the fact that many air traffic controllers had, in the past, filed a large number of claims because of the stressful nature of their jobs.
You Can’t be too Sick
You won’t be disqualified from buying disability coverage if you have a cold on the day you apply for it, but if you have a heart attack in the insurance agent’s office, you might be out of luck. To get individual disability income insurance, you have to prove that you are currently healthy by disclosing any known physical or psychological problems on your insurance application and, in many cases, by taking a physical exam. In addition, your past medical history and any hereditary traits will be evaluated to determine what disability claims risk you pose to the insurance company. If you have had past medical problems, you won’t necessarily be disqualified if the condition occurred long ago and you are now completely healthy. However, that specific condition may be excluded from coverage, or you may pay a higher premium.
You Must be an Upstanding, Careful Citizen
Unfortunately, disability insurance companies have to guard against fraud. To prevent fraudulent claims, insurance companies may disqualify anyone who may have a criminal past or a history of substance abuse. In addition, the company will also try to determine your attitude toward risk. If you regularly engage in dangerous hobbies (such as cliff diving), you may pose a greater claims risk to the insurance company than someone who does not.
Next week, we’ll discuss optional benefits and riders for disability insurance. If you have questions, contact the Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
