The rise of insurtech has made buying insurance easier than ever before. While buying online offers unprecedented convenience, there's still a lot more that goes into the process than just filling out a simple form.
For starters, there is a comprehensive underwriting process. Insurers underwrite disability coverage based on the risk of an applicant filing a claim.
And if that risk is too high, an insurance company may deny coverage to an applicant. According to LIMRA, 40 percent of disability insurance applications are either declined, rated, or are only accepted with an exclusion.
The reasons an applicant may be denied long-term disability coverage are usually based on one of two factors: the applicant’s medical risk or lifestyle risk. But that's still pretty broad. Here are six of the more common reasons you could be denied disability coverage.
The most common reason for declining coverage is because of the applicant’s health. People in less-than-average health, who have chronic conditions, or who have used tobacco are more likely to suffer disabilities.
Conditions that could lead to application denial include renal disorders, blood disorders, cancer, hepatitis, arthritis, multiple sclerosis, and Parkinson’s.
The insurance company’s underwriter will also ask about any upcoming medical or surgical procedures.
A pending surgery may cause a denial of a disability insurance application. That’s because complications sometimes result from surgery, which can lead to complications like sepsis or loss of motor ability.
If you know you’re going to have surgery, you may want to wait until after the procedure to apply for disability insurance.
Insurers measure your height and weight. They look to see if your weight is within a baseline range for your height. If your weight falls outside that range, you will likely pay more in premium than if it was within the range.
If your weight is too far outside the range, you may be denied long term disability coverage.
Obesity increases the risk of injuries and illnesses, such as heart disease or back problems, that can lead to disability claims.
People who are far below the baseline weight may also have their application denied because of the risk for serious health conditions that could cause disability in the future. Being underweight may also suggest nervous disorders like anorexia.
Insurers consider your job when assessing your disability risk. Some may find your vocation too risky to insure because they tend to have more disability claims than others.
Some jobs are more susceptible to injury or illness. Police officers, firefighters, construction workers, and manufacturing workers are more likely to get injured on the job than, say, your typical office worker.
Insurers also assess how specialized a job is. The more difficult it is to do a job with certain injuries or illnesses, the more the insurance company might have to pay in benefits. For example, an office worker who becomes confined to a wheelchair may return to their regular job at some point. The same can’t be said for a mechanic or plumber.
Insurance companies classify jobs based on the hazards of the work and the difficulty in returning to work. Occupation classes are based upon a job's duties, not on the job title. If an individual has multiple or part-time occupations, the occupation classification will be determined by the occupation with the greatest risk.
Depending on the insurer, jobs that may get an applicant denied long-term disability coverage include air traffic controllers, armored car drivers, explosives handlers, investigators, jailers, athletes, and law enforcement personnel.
During the underwriting process, you will likely be asked about hobbies and activities. The underwriting will take special note of activities that put you at greater risk for a disabling injury or illness.
Some of these may include rock/mountain climbing, scuba diving, racing, skydiving, BASE jumping, flying a plane, bungee jumping, parasailing, and off-roading. Frequent travel to foreign countries may also cause a denial of disability coverage.
You may be denied long-term disability coverage based on your driving record. A large number of moving violations signals an increased risk of being in a car accident. Serious accidents can cause serious injuries, the kind that limits a person’s ability to work.
Violations that can cause denial include reckless driving, DUIs, causing an accident, and excessive speeding. Having your driver's license suspended may also cause insurers to deny disability coverage.
Typically, having a clean record for five years will not have an impact on your application. On the other hand, more than two violations during, say, a three-year span may be problematic.
In some cases, you may not be denied coverage because of the above factors, but instead have an exclusion and/or limitation added to your policy.
Exclusions and limitations are added by the insurance carrier to mitigate their risk of paying a claim for an illness or injury resulting from high-risk conditions or activities.
If you are granted disability insurance coverage with an exclusion, the insurance company will insure you but will add language to your policy that they will not cover certain body parts, conditions, or disabilities resulting from certain activities.
You may have exclusions that restrict coverage for claims resulting from or related to a preexisting medical condition, or from participation in a potentially hazardous activity that presents an increased risk of a potential disability.
The underwriter may also consider some of your underwriting conditions risky enough to limit coverage. For example, the company may limit your benefits period to 10 years because of a pre-existing health condition, even if you applied for benefits to age 65. Some policies may also limit your ability to purchase additional coverage in later years without going through the underwriting process.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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