Post claim underwriting is a method by which an insurer will wait until a claim is made by the insured party before spending money to thoroughly determine if past health issues exist. The insurer can then deny the claim if it determines during an after-the-fact (post-claim) evaluation that the insured never should have had disability insurance to begin with. In order to deny payment of benefits, the insurance company just cancels the policy and returns the premiums paid. The justification is that answers given on the application were incomplete, inaccurate or a misrepresentation of the health history of the insured.
The Role of the Underwriter
Underwriting plays a vital role within the insurance company. Its job is to decide which risks the company can afford to take on, knowing that it can spread losses over risks in a manner that is feasible and economical, while still making a profit. An insurance underwriter evaluates the level of risk and exposure of each prospective customer before making a determination about how much coverage the applicant should receive and then how much they should pay for it in premiums. If the risk is deemed to be too great, the insurer will simply not ‘write’ the business. The application is denied. As you can see, underwriting in its truest sense is the process of evaluating risk before agreeing to do business with the prospective customer.
How Do You Know If Your Plan Practices Post-Claim Underwiting?
Insurance companies argue that it is too expensive and time consuming to conduct an individual investigation of the health history for each person applying to a large group plan. So, in order to keep costs low and streamline the process, they accept applicants with very minimal health screening. Typically, a medical exam is not required and questions on the application are “yes/no” or vague in nature, such as “Are you in good health?”
If you file a claim, the company may ask you to sign a release for your medical records or it will get the release on its own because it obtained the right to do so during the application process. During the review of your claim, the delay may seem like it is taking longer than you expected. The insurer is using the time it should have invested upfront to examine the claimant’s medical records and hopefully find an inconsistency, a concealment or misrepresentation in the application which will absolve them of paying the claim. If they succeed, the policy will then be rescinded and the premiums returned.
The unfortunate news is that the insured will not be covered for their disability. Most people likely haven’t given much thought to the small print within their disability policy. But, when the insured needed their coverage the most, they were left to twist in the wind. In our opinion, the practice of post claim underwriting gives a black eye to the industry because the insurance company has broken faith by seeking any possible method to avoid the very thing that it was paid to protect! All along, the insured had a false sense of security that they were covered for a disability, only to discover years later that they were actually left exposed.
What to Look for in a Disability Insurance Policy
One of the first things you need to ask is who the agent selling the policy works for – your employer or you. (Hint: It’s not you!) The agent has an incentive on each policy he or she can write in order to get their commission. Therefore, the application may be completed by the agent in a way that will allow it to get accepted, at least initially. A good practice is to have a professional review the application with you.
And, because there is a high likelihood that you’ll change jobs a few times during your career, your disability policy needs to be portable, so your coverage is never interrupted when you change jobs. A well-designed plan is put together with your needs in mind, not the employers.
Additionally, as a highly-skilled professional, look for “own-occupation” language within the policy. The more common “any occupation” definition used in group disability plans means you are required to take a lower-paying job in your field if it’s available with no insurance payments that make up for lost income. True own-occupation plans cover your full income if you cannot work in your specialty. That is a deal breaker.
Lastly, ask if the benefits you will receive in your group plan are taxable or tax-free. Individual plans are paid with after tax dollars, so your benefit is tax free. But group plans paid for by your employer are paid for with pre-tax dollars and could be offset by other forms of income. Therefore, take the expected benefit of your group policy and multiply that number against your tax bracket to determine the real amount of money you will receive on a monthly basis. You will be surprised.
We hope you’ve enjoyed this article and found the information to be useful. If you have additional questions about the differences between group and individual disability insurance or would like to speak with one of our advisors to design a customized plan for you, please click here.