When an individual applies for insurance coverage, he or she is essentially asking the insurance company to take on the potential risk of having to pay a claim in the future.
In some cases – such as with disability insurance – claims can be relatively high, such as paying an individual a replacement income for life.
Applying for Disability Insurance
When you apply for disability insurance, you'll be asked to fill out a somewhat lengthy application that includes specific medical, personal, and financial questions designed to give the insurance company as much information as possible to assess your risk for future disability.
Your answers will be used to decide whether you will be issued disability insurance, in what amounts, with what coverage, and at what cost.
You will be asked to provide confidential information about your gender, age, occupation, income, medical history, personal habits, finances, and so on, as well as information on other disability insurance coverage you may have.
It is important to answer the questions truthfully: the insurance company has the right to cancel your coverage or deny a claim within a certain period of time (usually two years) due to errors or omissions on your application.
What Happens Next?
The next step in this process is for an insurance underwriter to evaluate the risk and the exposure of the person applying for disability insurance.
After your application is submitted (often through an insurance agent or broker), the insurance provider's underwriter analyzes it in detail. They are trained to determine risk based on the submitted information.
Upon completion of the initial analysis, you may be issued coverage right away, or you may have to submit additional information or reports to help the underwriter determine whether you are an acceptable risk.
Each application may be assigned one of two risk categories: standard risk or sub-standard risk. The category to which you are assigned determines what kind of coverage you can buy and how much the coverage will cost.
It is also possible that if an applicant for disability insurance presents too high of a risk to the insurer, he or she may be denied coverage altogether.
If the underwriter feels that you are more likely to file a future disability insurance claim than a standard risk, he or she may classify you as sub-standard risk, or you may be denied coverage; or you may be issued coverage, but with special terms and conditions. For example, an amendment may be attached to your policy that fully excludes certain medical conditions or excludes them for a period of time. In addition, you may have to pay a higher premium or settle for a longer elimination period, a shorter benefit period, or both.
Your assigned category (both standard and sub-standard) will be further classified by occupation. For example. a lawyer working in an office will be assigned a lower risk for disability insurance (and pay a lower premium) than a construction worker.
What If You're Denied Coverage?
Your insurance agent or broker can be your best resource if you are turned down for coverage. Your agent or broker is familiar with the underwriting for disability insurance process as well as your personal information provided to the insurance underwriter. As such, he or she is in a good position to plead your case. However, there may be nothing they can do if you simply don't meet the risk factors established by the insurance company.
Alternatively. your agent or broker may be able to place your case with a company that specializes in sub-standard insurance. However, you can expect the premiums to be higher and benefits to be limited with these types of policies.
Interested in learning more about Disability Insurance and how it can help you and your family? Download our free ebook: A Beginner's Guide to Disability Insurance.