One of the problems with getting disability insurance is the process of medical underwriting. The exam. The blood and urine samples. The wait for results.
Many insurers require medical underwriting to assess the risk of applicants. This, in turn, guides insurance companies on how much to charge you in premium. In some cases, medical underwriting can even disqualify a candidate from coverage. This is because your health can often predict the likelihood of having an illness that impacts your ability to work.
For people who know they’re healthier than most, disability insurance medical exams can seem like a waste of time or even an intrusion of privacy. For those who have health issues, the medical exam portion of the application process may result in limits to their coverage or even disqualify them from obtaining a policy.
However, insurers typically offer several disability insurance options that do not require full medical underwriting. These are known as no exam disability insurance policies. In this article, we cover:
- What is no exam disability insurance?
- Various types of no exam disability insurance
- Pros and cons of no exam disability insurance
Read on to learn more!
No exam disability insurance enables eligible applicants to skip the paramedical exam, providing a faster and easier way to obtain coverage. In some cases, these types of policies provide coverage to people who may not be able to get traditional disability coverage.
Although no exam disability insurance seems pretty straightforward, there are actually several different types you should know about. These include:
- Traditional no exam disability insurance
- Simplified issue disability insurance
- Employer-sponsored (group) disability insurance
- Guaranteed standard issue disability insurance
Traditional no exam disability insurance
Most long term disability insurance carriers have special programs that enable applicants to skip the standard medical exam during underwriting. Insurers offer this option to select applicants as a way to save on the cost of conducting an exam and sending samples to a lab.
These programs are often restricted to certain occupations, benefit amounts, and age limits. For example, an insurance company may only allow an applicant to apply for a monthly benefit amount up to $5,000 without a medical exam. For older applicants, that benefit amount may be reduced.
Keep in mind, there is still an underwriting process for this type of policy — it just doesn't include that pesky medical exam. You will still likely have to fill out a health questionnaire, and you may also be required to authorize the release of medical records.
The application process may also include financial underwriting. This helps determine your overall income for the purpose of establishing a benefit amount.
A traditional no exam disability insurance policy can be a good option for applicants that aren't looking for high monthly benefit amounts.
Simplified issue disability insurance
Simplified issue disability insurance is another form of income protection that does not require applicants to complete a paramedical exam.
These policies are called simplified issue because many of the steps and provisions of applying for a standard policy have been removed.
In addition to having no paramedical exam, simplified issue disability policies often feature:
- A shorter application
- No requirement for medical records or attending physicians statement (APS)
- No requirement to provide financial records
- A faster approval process following a short phone interview between the carrier and the applicant
- Fewer underwriting classes (for example, some insurers have two classes: a professional class for office workers and a class for laborers)
Of course, there are potential downsides to simplified issue policies.
The main disadvantage is that they typically offer fewer benefits. The benefit is typically capped at a smaller amount than standard coverage. Fewer optional rider benefits are available on simplified issue policies as well.
In addition, consolidated occupation classes can be a detriment, especially to white-collar professionals. That’s because they may be forced into a classification with jobs that have a higher incidence of claims. The result is you may pay a higher premium than you would if your occupational class was more narrowly defined.
Some simplified issue policies have no occupational class at all. This is often done for policies that do not pay benefits for work-related illnesses or injuries. In this case, your only recourse for a work-related incident is workers' compensation or some type of government benefits.
The combination of limited underwriting and benefits makes simplified issue disability insurance ideal for individuals with:
- Pre-existing conditions
- High-risk occupations
Like most individual disability insurance policies, simplified issue coverage offers a variety of benefits periods (2, 5, and 10 years) and waiting periods (30 to 180 days).
Although simplified coverage is by no means the most complete coverage option, it can certainly be worthwhile under the right circumstances.
Employer-sponsored group disability insurance
In a group plan, the members of a particular group or organization are all offered the opportunity to receive disability insurance coverage. The coverage benefits and premium costs are generally the same for all members.
Employers that offer group disability insurance typically pay the full cost. According to the Bureau of Labor Statistics, private employers in 2018 paid the full cost for 85 percent of workers with short term disability coverage and 94 percent of workers with long term disability coverage. State and local government employers paid the full cost for 87 percent of workers with short term disability coverage and 83 percent of workers with long term disability coverage.
Some membership organizations also offer group disability insurance. Examples include labor unions, guilds, and professional organizations. These plans are similar to those offered by employers. They may be an option for those who can’t get a group policy through their jobs.
Even if you have to pay all or some of the cost of a group policy, it’s typically cheaper than an individual policy. There is typically no underwriting and you are guaranteed coverage if you opt into the group plan.
The downside is that the benefits are far less than those offered by individual disability policies.
In general, group disability policies replace about 60 percent of your income. Group plans may also place a cap on benefits. That means if you earn a higher income, your disability benefits may cover much less than 60 percent of your income. Another thing to keep in mind is that a group plan usually only uses your base salary to determine your income. It may not include bonuses and commissions.
Also, it’s possible to lose coverage because it’s contingent on your employment or group membership. If that changes, you lose the insurance.
Guaranteed standard issue disability insurance
This is a type of no exam disability insurance that is similar to a group plan. It provides disability insurance to an eligible group of employees on a simplified basis. That means no medical or financial underwriting.
One of the main differences between guaranteed standard issue (GSI) disability insurance and group coverage is that GSI is individually owned. Therefore, it’s portable and does not require employment or group membership for the insured to keep the policy.
GSI coverage is designed for employers with at least five employees. It can be written for most occupation classes.
Another advantage of GSI compared to group plans is that it often offers benefits based on total compensation, including bonuses. It is often purchased by executives or high-income earners of a company.
Because there is no underwriting, GSI is an ideal way for employers to offer an employee benefit, especially those who may have pre-existing conditions. It also provides employers the flexibility of paying the cost for employees, having employees pay, or splitting the cost.
Like standard group coverage, GSI plans typically allow employers to capitalize on major group discounts, making it an affordable option for everyone who participates.
Disability insurance is a worthwhile investment for anybody who earns an income and would suffer major financial consequences if they couldn’t work due to injury or illness.
Disability insurance companies have provided a number of options for people who need this coverage. That includes no exam disability insurance.
The benefits of no exam disability coverage include:
- The ability to get coverage without completing a medical exam.
- Not having to give blood (especially for those who hate needles).
- The ability to qualify for coverage if you have health issues or pre-existing conditions.
- Often more affordable than standard individual coverage.
- Faster approval process.
The downsides of no exam disability coverage include:
- Shorter benefit periods.
- Limited benefits, especially to those with high incomes.
- Limited availability based on the applicant’s age and/or occupation.
No exam disability insurance is great for those who need supplemental coverage or who can’t qualify for a traditional policy. But if you can get a traditional individual policy, chances are you will get superior coverage.
Jack Wolstenholm is the head of content at Breeze.
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