This is the sixth article in an eight-part series, discussing disability income insurance.
It's a fact that disability income insurance (DI) claims have increased dramatically over the last several years, along with a disproportionate number of inappropriate denials. The claims departments of too many insurance companies have been told to "tighten-up." Claims that once would have been routinely paid are now being denied due to industry trends, contractual misunderstandings and consumer lack of knowledge and inability to contest.
During my 35-plus years as a disability income specialist and expert witness/consultant, I have been called upon by attorneys and claimants in dozens of cases to either testify or submit written opinions on denied claims. As a result, most were then reversed and ultimately settled in favor of the claimant.
In this article, I am going to discuss claims that have been inappropriately denied and also pass comment on those which can or should be justifiably be denied due to the claim being invalid or fraudulent. Some of the reasons why the claim could be judged invalid are:
1. Elimination period not being satisfied, either due to the inadequate number of days or days not being consecutive
2. Definitions, terms and conditions for benefits to be paid are not satisfied
a) Total disability
b) Residual disability,
3. Renewability
4. Exclusions
There is a common denominator among these reasons for claims denial: Satisfying the definition of total disability. Some of the definitions that are commonly used by the industry and primarily based on occupation, etc., are:
- Own-occupation – This purely own-occupation definition allows payment to be made so long as the insured can't do the duties of their occupation even if the insured is working elsewhere so long as it is another occupation. Some carriers even offer an own-occupation medical specialty definition, based on AMA recognized specialties. The definition could be for the FULL benefit period, or for part of the benefit period. See below for examples.
- Own-occupation, not gainfully employed elsewhere – A policy with this type of split definition pays benefits (sometimes as per above for a period of time and then changes), if the insured can't do the duties of his or her occupation and is not working elsewhere. Working or not, then becomes the choice of the claimant. If they do work elsewhere, and there is a loss of income, residual benefits will then kick in (assuming this option is part of the contract and its terms/conditions are satisfied).
- Own-occupation, unable to work elsewhere – This is an other example of a split definition that gives true own-occ (see the first definition above) for a period of time, usually two to five years, then changes to unable to work elsewhere (by reason of education, training, experience, and sometimes prior economic status.) This is one of the least desirable of all and gives the carrier some control in minimizing the impact of the claim.
- Loss of earnings – This is the same as a residual (proportionate) definition. An example might be if an insured has a 30% loss of income while disabled (and under the care of a physician), they will be paid 30% of the monthly benefit. While this policy does pay proportionately, please note that the insured also starts off with an initial minimum 40% shortfall in view of the fact that the carrier's participation tables only allowed approximately 40-60% of pre-disability income to be covered/issued. Issued amounts in many cases are currently basically capped at $10,000-15,000/month, depending on occupation and income. Note: Additional coverage past these amounts (up to $50,000/month), are available in a secondary market.
Another major reason for claims denial has to do with misstatements and/or omissions which have been made on the application by the claimant. With regard to these, I can safely say that in some cases, they have been unintentional due to the poor wording of the questions appearing on the application. I've stated many times over and over in the last 20 years as an expert witness, that the claim starts with the application. Who is at fault? Is it the carrier's fault for poorly constructing the wording of the questions, or is it the applicant's who intentionally withholds pertinent information that could negatively impact the underwriter's decision as to whether or not to issue a contract as applied for? Some critical areas of the application which affect a claim and could be inadvertently answered incorrectly, or dishonestly, have to do with:
1. Occupation/duties
2. Health
3. Income
4. Other pertinent facts such as avocations, etc.
Incidentally, some of the "honest" mistakes unintentionally made by the applicant might be "overlooked" after two years, as outlined in the contract's incontestability clause, unless there is other wording or state statutes to over-ride that clause.
What may not be "overlooked" however, are fraudulent misstatements or omissions such as health or income (see above). Come on, can someone honestly say that they "forgot" that they had a back operation, or a heart attack two years ago?! With the same view in mind, let's not forget the agent's role in completing the application. Did the agent record all answers exactly as they were answered, or was there some hidden agenda or motive for writing them down in such a way so that the policy would be issued as "applied for" (without a declination, rating or an exclusion)? In this case, did the agent really do the proposed insured a favor, or were these omissions for the agent's own gain?
