Purchasing individual long-term disability insurance is not a simple procedure. From understanding what policy features matter (for you) to taking your disability insurance medical exam, there are a lot of moving parts to consider.
However, if done correctly, it will be unlikely you must ever purchase another policy.
If you’re just beginning the process of learning about disability insurance and would like more information, check out Your Complete Guide to Buying Disability Insurance. If you’d like to get more in the weeds, we’ve also published guides on insurance underwriting, disability insurance companies, and disability insurance policy design .
If you’d like to know how your health affects your ability to purchase a long or short-term disability insurance policy, then read on…
Disability Insurance Underwriting
Underwriting is the process an insurance company uses to determine whether to offer you a policy and at what cost. It can also determine for how much benefits you’re eligible and what other features or riders may be included in your policy.
Nearly every insurance product has some type of formal underwriting process.
For your auto insurance, the company will look at the make and model of your car and your driving record and geographical location (most insurance is regulated at the state level, so what might be offered in New Jersey may not be offered in neighboring Pennsylvania).
Life insurance places most of its focus on your health. A life policy may have from 1 to 20 health classifications, everything from preferred best (normally reserved for monks and triathletes) to table 16, which is a 500% increase in price over “standard” rates.
With individual disability insurance, sometimes called paycheck insurance or personal income insurance, the insurance companies will normally look at three main areas when underwriting your policy:
- Your health
- Your occupation
- Your financials
There are also other areas of focus. Those would include:
- Your motor vehicle history report (history of speeding?)
- Your avocations (hobbies, such as sky diving, are not normally viewed favorably)
- Foreign travel (certain countries aren’t exactly known for their safety)
How stringent all these requirements are will also be based on the policy for which you’re applying. If you’re looking for a high limit disability insurance policy then expect all of these factors, from income to your disability insurance medical exam, to be highly scrutinized.
However, if you’re looking for lower limits or a simplified issue policy, some of the preceding requirements may be relaxed or even waived.
For this article, we will focus on your health, how they evaluate it, and what effect it has on your ability to get the policy you want.
If you’re interested in learning more about the other aspects of disability insurance underwriting, check out our primer: Disability Insurance 101: Insurance Underwriting.
How Do Disability Insurance Companies Evaluate Your Health?
Our process in selecting a disability insurance product that fits your goals and budget is exhaustive. We help you buy disability insurance by following a procedure called K.E.E.P. and during it, you will learn everything you need to know about making the best decision in purchasing a short or long-term disability insurance policy.
Once we’ve selected the best policy for a client based on our phone and/or email discussion, the next question invariably becomes:
How does the insurance company get all this information?
There are four key areas the disability carrier will use to assess your health:
- Your application
- Your disability insurance medical exam
- Your drug prescriptions
- Your doctor records
All once all this information is compiled into a file, it will be reviewed by an underwriting to determine your eligibility for disability insurance.
While this process might seem to be overkill, please realize two things:
From the applicant’s (your) perspective, little time is required. Outside of completing the application (often by phone and eApp) and taking your disability insurance medical exam, there won’t be much else for you to do (for the health evaluation portion). Disability insurance underwriting can take from 2 weeks to 2 months, but your time spent applying is often less than 2 hours.
Second, the disability insurance company is taking a relatively large financial risk in issuing a disability insurance policy. Usually, they can’t change the terms of the contract. In some policies, you might even increase your benefits without evidence of medical insurability.
Let’s look at an example.
Let’s say you’re a 35-year-old male working in an office job. Your current income is about $200,000, annually. Typical disability or income protection insurance will cover about 60% of your income.
Remember, if you pay for your disability policy with your own money, your income protection benefit is tax-free.
Using a 200k salary, your benefit amount would be somewhere around $10,000 per month. Since most disability policies are written to cover you to age 65 (or 67 or 70), the total value of the policy should you become immediately and totally disabled would be 3.6 million dollars.
To use a more reasonable example, according to the council for disability awareness, over 1 in 4 of today’s 20-year-olds will become disabled before they retire.
The average disability lasts 34.6 months.
That means, if your disability insurance company wasn’t rigid in their evaluation of risk, for every 4 policies issued like yours, they would have a $346,000 risk.
Disability insurance can be expensive, but there is no way they would even break even given those numbers.
This is why disability insurance has the underwriting procedures they do; the risk to the carrier is substantial should they make reckless decisions.
Once you have a solid foundation of knowing how a disability policy works and we determine what policy is the best for your needs and goals, the next step is to complete an application.
An individual disability insurance policy is a lot like a life insurance application. There is a section for basic info, such as your name, address, date of birth, social security number etc.
There is also a section with health questions. Answer the questions accurately, so you own a policy you can make a claim on (since claims can be denied if there are misrepresentations on the application).
There will also be a HIPAA release (more on this later), an HIV testing form, some questions about your hobbies and tobacco use, and some additional, optional forms (mainly related to funding and timing of coverage).
The main difference between individual disability insurance and life insurance applications is the financial section.
Life insurance applications ask about your income and net worth and that is it. In some circumstances, like business uses or estate planning, there may be more financial documentation required. Usually, just a few financial numbers are about as deep as the financial underwriting for life insurance will get.
Disability insurance underwriting is a little more comprehensive for income disclosure. They will typically ask for earning for the last 2 years and year to date. In addition, they will want a breakdown of your income, specifically the sources of income. Last, you’ll be required to provide a pay stub and tax returns or even 2 years of tax returns with all schedules if you’re self-employed.
Since disability insurance is based on your income, it makes sense the insurance companies would scrutinize your income more than other products. Although you need to provide additional information, completing a disability insurance policy application is a relatively painless process.
There are three main options to complete a disability insurance application. Not all insurance companies will offer all options, so this isn’t really a consideration when selecting a disability insurance policy; however, some carriers are easier to apply with than others.
The three main options are:
- Complete a paper application over the phone, securely email or mail the application for signatures, and then return it to us (either via secure upload or via the included pre-paid USPS envelope).
- Complete an eApp over the phone and esign the application.
- Complete an eApp or paper app. Sign accordingly. Complete the medical interview with the carrier and voice sign that portion.
As mentioned, not all of these options will be available from all carriers. We recognize our clients are busy and use the option that best suits their needs. We select the carrier prior to selecting the application process since we would not want to choose an inferior policy simply because it has a better application procedure.
Your Disability Insurance Medical Exam
The next step in the process is normally to take a disability insurance medical exam. While this isn’t always required, anyone looking for a high limit disability policy or any substantial income protection insurance is likely to be required to take a disability insurance medical exam.
As an aside, if you’ve already purchased a non-cancellable, fully underwritten long term disability insurance policy from a major carrier (such as Guardian or Ohio National) within the last 90 days, you can secure a supplemental no exam disability insurance policy for up to 10k additional per month in just a few simple steps. Please contact us for more information.
Every company will have different requirements as to how extensive your disability insurance medical exam is. They normally use two factors to determine the requirements:
- Your age
- The amount for which you’re applying
Someone who is younger (under 40) applying for a high limit disability policy (10k+ per month) will typically need a disability insurance medical exam that includes a blood profile, urinalysis, and physical measurements. Some carriers may require a paramed exam.
Someone on the older end of the spectrum (50+….and before we get a lot of angry emails, most disability insurance carriers only issue to age 60 or 64) applying for disability coverage would need a more extensive exam that could include an EKG.
What Do All of Those Terms Mean?
In disability insurance and in most insurance product industries, a lot of vernacular get thrown around like everyone should know what we mean. So, let’s define a few terms as it relates to your disability insurance medical exam:
Blood Profile: A test used to get an overall picture of your health. After a blood draw, the sample may be tested for everything from high cholesterol to HIV and everything between. The results are one of the best tools an underwriter has at his or her disposal in determining your overall health.
Urinalysis: Another “catch all” test, the urinalysis, is a test of your urine. Results can indicate potentially hazardous health conditions like sugar (possible diabetes) or large amounts of protein (potential kidney issues). They can also test for drugs or nicotine.
Physical Measurements: This is fairly self-explanatory. Height, weight, and possibly body size (measurements around the waist, hips etc.)
Paramedical Exam: A paramedical exam, often called a paramed, is normally done in your home and at your convenience. Besides including all the preceding terms, a paramed will also include: blood pressure, pulse, and possibly a saliva sample and/or an EKG.
EKG: An EKG (or ECG) is short for electrocardiogram. This test (which is painless and involves attaching several electrodes to your skin) can be useful, since it can detect heart anomalies, such as abnormal heart rhythms or heart enlargement.
Your disability insurance medical exam should take only 30-45 minutes. We recommend the exam be completed in the home (since you’re like more comfortable there) and you take it first thing in the morning. We request you schedule a morning appointment for two reasons:
- While not required, it is best to take your test fasted (overnight being fine) and hydrated. This will allow for the best possible test results.
- Like taking a flight somewhere, the early planes take off on time. One hiccup during the day can throw off the entire schedule. Paramedical examiners are no different. Scheduling one in the morning helps to ensure they are on time.
While all of this sounds daunting, it is quite a simple procedure. Like the application process, each carrier has their own set of requirements based on your age and the coverage you’ve requested. We select no carrier based on their disability insurance medical exam requirements, but we try to make the process easy.
Your Drug Prescriptions
After your application has been submitted to the insurance carrier and your disability insurance medical exam, the insurance company will check your Rx or prescriptions.
How do they have access to this information?
That is a two pronged question.
First, they need legal permission to access this information. Do you remember earlier in this article when it was mentioned you would need to sign a HIPAA release?
That’s all the permission the carrier needs to access the medications you’ve been prescribed.
HIPAA stands for the Health Insurance Portability and Accountability Act. It was created in the 1990’s by congress to protect your privacy and to protect against your healthcare records being released WITHOUT YOUR PERMISSION.
That’s the key. Once you sign the release, the insurance carrier can pursue all available medical records, including any medications you were prescribed, regardless if you’re still taking them.
Not comfortable signing a HIPAA release from a disability insurance carrier? Then they won’t allow you to buy a policy from them. It’s that simple.
Second is the logistics.
Let’s say you’re perfectly comfortable signing a HIPAA release and you really want to purchase a disability policy. So, you complete your application, take your disability insurance medical exam, and patiently wait for the carrier to gather your information.
How do they get your prescription information?
The answer is simple; there are several for-profit companies that specialize in scouring medical databases looking for this information. The most well-known is probably ScriptCheck, so common it has become the Kleenex (a brand name for facial tissue) of the medical database search world.
ScriptCheck searches its extensive network of databases to which it has access and returns prescription medications to the requesting party. Sometimes, a basic ScriptCheck can be performed while you’re on the phone with the company.
It can be that fast.
Once the insurance company has this information, it can be cross-referenced with what you wrote (or said, if you applied over the phone) on your application, what you told your examiner during your disability insurance medical exam, and what’s in your doctor records.
Doctor records? Where does the insurance company get those from?
Your Doctor Records
Back to the HIPAA release and the earlier parts of this process (your application and your disability insurance medical exam), you shared the name, address, and phone number of your primary care physician.
From there, the disability insurance company contacts your primary care physician and requests an APS, also known as an attending physician statement.
Attending physician statements are your doctor records. Information, test results, diagnoses, and anything else your doctor feels is pertinent to your health.
Sometimes, a medical group, such as Kaiser Permanente or Sutter, will require their own HIPAA release.
In some doctors’ offices, fulfilling an APS request from an insurance company is low on their list of priorities.
If you’ve ever wondered why it can take several weeks to months to purchase a large life or high limit disability insurance policy, this is it. Obtaining doctor records is normally the longest part of the process.
To add insult to injury, sometimes, your physician names a specialist you saw or another doctor he or she recommended you see.
You can guess what happens next. The disability insurance company then orders records from THAT doctor, prolonging the time it takes to complete your file.
At some point, the company you’re buying your disability coverage from will gain possession of all records they deem necessary. At that point, your file will be complete.
Your underwriter will have all the health information they need to make a medical decision on your policy. Once a file is completed, the process will normally move fairly quickly depending on the underwriter’s case load. You still must provide financials, occupational details, and the rest of the information provided in this article.
Food for thought
Although this might seem like a lot of effort for an insurance policy, please remember three things:
This is a huge financial commitment by the disability insurance company as evidenced in an earlier example.
The insurance company only gets one bite at the apple. Meaning you may own this policy for 20+ years, but they only get to underwrite you once. They will be meticulous.
Little of this activity requires action on your part. Aside from completing the application, providing your tax information, and completing your disability insurance medical exam, there isn’t much else for you to do aside from waiting for an offer.
Is Any of This Optional? Such as…The Disability Insurance Medical Exam?
If you still think it sounds like a lot, there are other options.
When applying for a high-limit policy or if you’re a high-income earner, it is unlikely you’ll be able to skip much of this process. Large disability policies are simply too valuable to offer without following all protocols.
However, if you’re in the market for a smaller policy or one with relaxed underwriting requirements, much of this can be avoided.
Policies that fit the definition of being “simplified” or “accelerated” are normally smaller in benefit amount (6k and under). Sometimes, the benefits and ability to go on claim may be reduced.
Disability policies that offer simplified underwriting will not normally require financial documentation or a disability insurance medical exam. Some of these policies are identical to their high limit counterparts, while others are dramatically inferior.
There are even “no occupation” policies that will issue you a policy without considering your job. Understandably, this policy won’t pay if you’re injured on the job or become sick because of your job, but every product has its place.
In a perfect world, you would be healthy, have a job with the highest possible occupation class, and need a limited disability policy to expedite the normally lengthy underwriting process by skipping your disability insurance medical exam and financial requirements.
That isn’t reality for most people. For most of our clients, a limited benefit policy just isn’t an option since they are high-income earners. Also, most people aren’t extremely healthy. A medication here, a bicycling accident there, and suddenly, you have a medical file that must be evaluated.
THAT is the reality, and THAT is where we can help. Whether you need special consideration due to a health issue or more in-depth policy shopping because you work a hard-to-insure occupation, our agency is here to make sure you get the best disability insurance policy for your needs.
It is important to understand your options. Let us help guide you.
Can I Still Get Disability Insurance With A Health Condition?
Many health conditions are fully insurable, often at the same premiums that someone without those conditions would pay for the same disability insurance policy.
However, there are a lot more health conditions that CAN affect your policy, some of which can even cause a decline.
What Effects Can A Health Condition Have On My Disability Insurance Policy?
Since disability insurance has such a complex underwriting procedure, it’s difficult to determine exactly what your policy premium will be and what benefits will be offered prior to completing the process.
If there are not major medical issues, you’ll likely receive a quote as “standard” (most disability companies don’t have preferred and other classes like life insurance does).
If you have medical conditions outside the norm, we can often approach carriers individually to see who might provide the best offer based on your health prior to taking an application. This is part of our process in helping you shop for the best disability insurance policy for your needs.
Those preliminary inquiries are not binding (on either party), so occasionally, we’ll receive offers due to a health condition that’s beyond our control.
Those offers typically come in four forms:
- Limited benefits
Let’s look at each one and see how it affects your disability insurance policy.
A rating in disability insurance is normally expressed as a percentage (as opposed to life insurance, where it is called a “table” followed by a letter or number).
For instance, if a policy is offered to an insured with a 100% rating, that policy will cost twice what a “standard” policy would cost.
Ratings can be temporary (subject to the discretion of the underwriter) or permanent. Policies receive ratings when the insured has a health condition that may cause a disability; the carrier requires a higher premium commensurate with that risk.
While a rating isn’t positive, having a health condition that causes a rating may make owning a disability policy that much more important. If you receive a disability insurance policy offer that has a rating attached, we will evaluate the situation and move forward with a plan of action. Sometimes, that means shopping the policy amongst other carriers; other times it may involve accepting the policy as is.
There is no rule of thumb for a policy being offered with a rating. We handle each situation individually and make sure, no matter what the offer is, it is the best one you have the possibility of receiving.
If your disability income policy has an exclusion, then you have a health condition the company is not willing to insure.
Exclusions are offered when the potential insured has a pre-existing condition with a history of causing disabilities.
Back problems or anything musculoskeletal are likely to be an exclusion on any income protection policy.
Having an exclusion isn’t normally a reason not to take a policy. Some people might see the writing on the wall with a specific medical condition, know it could eventually cause them to become disabled, and then apply for a policy.
In those cases, a disability insurance company would be out of business if they took on those risks.
This is called adverse selection.
If the disability insurance company covered the person with the back problem at the same costs and benefits as the person without the back problem, then people with back problems would flock to that carrier, the carrier would incur huge claims, and likely become insolvent.
The companies that offer individual or personal disability insurance protect themselves against this issue by offering policies to back pain suffers that do not allow the insured to make a claim for a back problem.
Earlier in this section, it was mentioned that an exclusion shouldn’t stop you from purchasing a policy. This is largely true.
While we encounter people that only care about covering a condition they already have (which they’re not likely to find in the individual disability insurance market), most people recognize there are a myriad of health conditions that can cause a disability.
Think About This
Let’s say there are 100 medical conditions likely to cause a long-term disability in your life. The average disability is 31-34 months.
You have 1 of the 100, and there isn’t anything you can do about that one condition.
Would it make sense to focus on covering that one condition, which is not possible?
Or, would it make more sense to protect your income from the other 99 conditions for which you are insurable.
You can either be exposed to a substantial loss of income from 1 medical condition (the one you have) or 100 (the one you still have plus 99 other ones).
Even when offered disability insurance with an exclusion, it often makes sense to purchase the policy. Exclusions do not increase your premiums (that’s what ratings do) and will still allow your income to be protected from all of the other illnesses, sicknesses, and accidents that can cause a disability.
In your disability insurance policy, there are several moving parts. We discuss the components of a disability policy in our series: Disability Insurance 101: Policy Design.
In that article, you’ll see terms like benefit length, benefit amount, and elimination period. These are all parts of your disability insurance policy, and their definitions are beyond the scope of this guide.
What is important to know is this:
Your health can dictate whether you’re offered the top benefits allowable by your occupation and income.
If your occupation and income allow for a benefit length that lasts until age 65 at a benefit amount of 10k per month, a health condition may cause the underwriter to offer you a 5-year benefit at 5k per month.
Should you still take that offer? That is for us to discuss and determine if the offer is fair. We help people in this situation.
A decline is when the disability insurance carrier does not wish to offer you a policy. It could be because of a specific medical condition or a combination of other factors. Whatever the reason, it doesn’t always mean you’re unable to purchase paycheck protection or an alternate disability income insurance product.
Some carriers are more favorable to certain health conditions than others. A few carriers have policies with more liberal underwriting requirements.
Outside of serious medical conditions (HIV, metastasized cancer etc.), we will shop a declined policy until either no one will accept it or the cost outweighs the benefits you’re purchasing.
No matter the underwriting outcome, our goal at High Income Protection is to find you the best disability insurance policy you can qualify for.
We provide expert, unbiased advice on purchasing individual disability insurance. From the initial consultation to your taking of your disability insurance medical exam to the policy offer, we are with you every step of the way.
If done right, you should only have to apply for one disability insurance policy in your lifetime. As your agency of record, we not only help you find the best policy for your needs, but we can help you evaluate future coverage, review your group coverage, and if needed, help you process a claim.
Our clients are clients for the rest of their working lives.
We’re here to help. Contact us today.