In most cases, my clients ask me to challenge the underwriters’ decisions.  I will usually comply with their wishes, even though I know my efforts will often be futile.  Occasionally, with additional medical documentation, we can get the exclusion lifted or, at the least, assigned a temporary, rather than permanent status.

I always tell my clients that, because the underwriter can exclude their pre-existing condition from the policy, they are able to issue a disability policy for them.  Without the exclusion – no policy.  If I feel the underwriter is being “unfair” about he exclusion, I will sometimes check with other underwriters  to see if a “no-exclusion” policy might be available from their company (this is one of the benefits of working with a broker rather than an agent who is “captive” to one company).

I have had clients (of the “outraged” variety noted above) who have refused to accept a policy based on an exclusion.  I always point out how short-sighted this could be, as there are many possible diseases and other physical ailments that could potentially cause one to be unable to work.

In one case, my client refused a policy because the insurance company excluded his shoulder from the coverage, due to a recent (minor) shoulder injury.  Even though he knew his shoulder injury wouldn’t keep him out of work, he was willing to risk being without coverage for anything else that might prevent him from working.

If you should be offered a policy with an exclusion, contest it by all means.  However, if you don’t get the exclusion lifted, take the policy anyway.  You’ll still be covered for the majority of illnesses and/or conditions that might keep you from working.

• The Council for Disability Awareness** (CDA), an association of 16 insurance companies that comprise 75% of the commercial disability insurance marketplace, reports that 95% of all CDA Member Company disability claims are not work-related.  For the Social Security Administration, 90% of all disabilities are not work-related.

• 31.2% of individuals who received long-term disability benefits from CDA Member Companies in 2009 did not qualify for disability benefits from  Social Security.  While the number of workers receiving Social Security Benefits has increased, only 35% of workers applying for SSDI disability claim payments in 2009 were approved; 10 years ago, the approval rate for workers applying for disability was 52%.

• In spite of the limited protection afforded by Social Security and Workers’ Compensation, the US Bureau of Labor Statistics reported in an April 29, 2010 press release* that 46% of full-time workers had short-term disability benefits and only 39% had signed up for long-term disability.

The conclusion:  Many of the disabling incidents that could keep you from earning an income are not going to result in payments from either the SSA or Workers’ Compensation.  If you don’t have disability insurance, you should definitely look at acquiring it to protect your income.

*April 29, 2010 Press Release from Business Wire, “Mos Americans Live to Work But Don’t Prepare for Illness or Injury that could Put Their Income at Risk.

I was recently competing with another agent for someone’s business.  I presented 5 different options for this person, while the other agent represented one company.  While the other company is an excellent insurance company and offers a decent disability insurance policy, the premiums, if offered with all the benefits the client should have, would have been significantly higher than four of my offerings.

The only way this agent could compete was to strip the policy of some very essential benefits, thereby reducing the premium to a somewhat competitive level.  The problem with this strategy was that he was now offering a significantly inferior policy and, if he wanted to make the sale, he would have to convince the client that some of the stripped benefits were not essental.

As an example, he removed the Non-Cancellable clause of the policy, which means that the insurance company could raise the premium or change the benefits or even cancel the policy in the future.  He justified this by saying that the client didn’t need this feature because the insurance company has never raised the premiums on these types of policies.   Even if this was true, every agent knows that past performance is no guarantee of future performance.  This is terrible advice given to a potential client only for the purpose of making the sale – not for the purpose of doing the best thing for the client.

So my suggestion, when interviewing a new agent or broker, is to ask them who they represent.  Now you know what the correct answer should be…”YOU.”

I have had several clients who have given a “yes” answer when asked the question, “are you depressed?” by their physicians.  In these cases, my clients had some situations in life that were “bringing them down,” or upsetting them in one way or another and thought that “yes” was the appropriate answer to that question.  However, when they went to apply for individual disability policies, those answers came back to bite them.  They were either declined coverage or had their policies severely restricted in regard to mental/nervous claims.

You see, in order for a physician to receive payment from an insurance company for services rendered, they must assign a code to the diagnosis and treatment given.  In the cases mentioned above, the physicians determined that my clients were Depressed and assigned them the relevant codes.  The word “depressed” had very different meanings to the insurance companies than to my clients.  To my clients, they were upset about something or had some difficulties at work or with a spouse, etc.  To the insurance companies, based on the codes assigned by my clients’ physicians, they were suffering from DEPRESSION!!!  There’s a big difference between those explanations and, as a result, my clients paid the price when the underwriters reviewed their medical records.

I’m not condemning the physicians who assigned those codes or the insurance companies that require these types of codes in order to pay a claim,  Nor am I condemning the disability insurance companies for their underwriting practices.  These condemnations belong in another BLOG on another subject.  I merely wanted to point out to you the liability of discussing your personal problems with your medical doctor.  It might cost you in the future if you apply for a disability insurance policy.

This BLOG post should in no way be construed as medical advice.  If you have a serious medical problem, by all means see a physician.

MIB Group is a membership corporation owned by member life insurance companies in the United States and Canada.

They maintain a database for member companies to exchange confidential information of underwriting significance when an individual applies for life, health, disability income, long term care or critical illness insurance.  This information is maintained and safeguarded in a coded format that is accessible only to authorized personnel of a member company to which you have applied for insurance and have authorized the company to use MIB as an information source.

How does your information get into your MIB file, you might ask?  When an application is made to an MIB Member company, any information that is of significance to health or longevity (whether admitted on the application or discovered during the underwriting process) is sent to MIB by the Member company in a coded, encrypted format.  Use of these codes ensures that the confidential information is protected.

What does an MIB file say about you?  Coded information identifies medical conditions or medical tests that are reported by MIB members to MIB under broad categories.  There are also a few codes that are non-medical.  Those codes report potentially hazardous avocations or hobbies, or results of a motor vehicle report showing a poor driving history.  MIB has no actual “reports” or “medical records”on file, only the coded “resume” provided by the Member.

What do these companies do with your information?  Authorized underwriting personnel of the Member company review the application information provided by the person applying for insurance and compare it to what is in the person’s MIB file.  The information in the person’s MIB file is used only as an alert.  No underwriting decision can be made solely on the basis of a coded report, such as issuing a policy with an extra premium or declining to offer coverage.

How can you find out if you have an MIB file and what information about you it contains?  The federal Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, allows a consumer to request free disclosure of his or her consumer report annually.  Only you can request an MIB file on yourself.  If you are a US resident, call MIB’s toll-free telephone number – 866-692-6901 (TTY 866-346-3642 for hearing-impaired) to request disclosure of your file.  You will be asked for some personal identifying information  so that your record can be located, if one exists.

While I understand his frustration and would be equally frustrated by being asked repetitive questions, I also understand why the insurance company does this.  You have to first understand that you are passing a specific risk to the insurance company.  As such, the insurer must do its due diligence to ensure that they understand the risk and then underwrite it accordingly.

I asked an underwriter why they repeat the same question, sometimes exactly as written and sometimes re-worded.  This underwriter told me that quite often an applicant doesn’t always remember answers to some of the questions and the repetition serves to jog an applicant’s memory.  Sometimes, an applicant won’t feel the answer to a question is relevant and will leave out some of the information.  Most often, the applicant has no intention of deceiving the insurance company, but literally forgets the information or just doesn’t think the insurance company wants “all the details.”  By asking multiple times, the insurance company usually gets all the answers they’re looking for.

My advice is to always answer all the questions honestly and to the best of your recollection.  The insurance company will probably ask some or all of the questions again.  Don’t take it personally or think that they don’t trust you – they do this with all applicants.  By doing so, they can accept your risk of becoming disabled and insure you for it properly.

Janice, a partner in a dental practice, one day felt a lump and sought a medical explanation.  Early diagnostic efforts suggested it was a benign mass but treatment would reveal a form of leukemia that would lead to a more aggressive treatment regimen. Devoted to her practice, Janice worked regularly though early treatment, often working up to three out of every four weeks, leaving little time to recover from the rigors of chemotherapy. However, the next phase of treatment would include added challenges, including a bone marrow transplant, for which she had to relocate to another city.

As Janice was not able to return to her practice during this period, she naturally received benefits for total disability. Furthermore, given that she also had coverage for residual disability, and a qualifying loss of income, she received residual benefits beginning with the onset of her chemotherapy, even though she was continuing to work at that time.

While her transplant was a success and she was able to return home, Janice will be unable to return to her practice of dentistry for some time. Fortunately, her disability insurance will be there for her and the insurance company will continue to pay her benefits until she returns to work.

I will try to include these claims stories in future blog entries, as we hear of them.  I think these stories make a better case for the need for disability insurance than any hypothetical I can conjure up.

According to Principal Life insurance:

• In 2007, 12.8 percent of people ages 21-64 surveyed had a disabling illness. [1]
• 43 percent of people age 40 will have a long-term disability event prior to age 65. [2]

Many assume if they became too sick or hurt to work, they could rely on Social Security or disability insurance benefits from their employer to replace their income. These are great sources of income protection, but they may be unavailable or not enough. Even a short-term disability could eliminate years of savings.

So, it’s Disability Insurance Awareness Month.  What better time is there to research disability insurance and discuss your needs with a disability expert?

[1] U.S. Census Bureau, American Community Survey, 2007
[2] JHA Disability Fact Book, 2006

Mutual insurance companies have never been looked upon as very exciting or sexy, but they are finally getting some respect.  With the stocks of publicly held life insurers taking a nose dive in this past year  (according to Forbes Magazine), they are scrambling for cash by cutting dividends, issuing new shares (diluting existing investors) and begging regulators for a relaxation of capital requirement and lobbying Washington for a cut of the $700 Billion Wall Street bailout.

Mutual companies, on the other hand have not held out a hand to Wall Street and have statutory surpluses that make their publicly-held brethrens’ mouths water.  Many are paying record-breaking dividends to their policyholders.  A check of the various company ratings (A.M. Best, S&P, and Fitch) validates the financial soundness of these mutual companies.

Why am I mentioning this in a blog about disability insurance?  It’s simple -  two major players in the disability marketplace (and two of the companies we represent) are mutual companies.  They are Guardian Life Insurance (also written by Berkshire Life, a wholly-owned subsidiary of Guardian Life) and Mass Mutual Life Insurance.  Financial strength of the insurance company should be a major factor in your decision when evaluating different policies, so I thought a brief discussion about mutual companies in the environment we are in now was in order.

When you file disability claims for most diseases, the medical department of the insurance carrier can review the diagnosis, blood tests, x-rays and any other diagnostic tests performed to arrive at the diagnosis. It is black and white and pretty difficult to refute. The insurance company MD might questions the claimant’s physician about some aspects of the diagnosis but for most claims, it’s fairly cut and dry.

However, such is not the case with Mental/Nervous claims. There are no tests that can corroborate the physician’s subjective diagnosis, which is typically based on his observation of the patient alone and does not include any blood tests, x-rays or other diagnostic tools used by most physicians.

The insurance company would have to take the physician’s word and base the claim on that alone. Basing claims on this type of diagnosis alone would leave the insurance companies wide open to paying fraudulent claims. Because of this potential for fraud, insurance companies have had to limit these types of claims to two years.