Can a Disability Insurance Claim Be Denied? YOU BET!

November 27, 2009

Physician can and do become disabled. It’s why all providers, physicians or not, should acquire and maintain long-term disability coverage. According to insurance professionals I have talked to, Disability Income Insurance claims have increased dramatically over the last several years, along with a disproportionate number of inappropriate denials.

Some of the reasons for this are:

1.  Elimination period not being satisfied;

2. Definitions, terms, conditions not satisfied, such as (a) total disability and (b) residual disability;

3. Renewability; and

4. Exclusions.

Some Definitions of Total Disability are:

  • Own occupation – Pays if the insured can’t do duties of their occupation even if the insured is working elsewhere so long as it is another occupation.
  • Own occupation, not gainfully employed elsewhere – Pays if the insured can’t do duties of their occupation and is not working elsewhere. Working or not then becomes the choice of the claimant.
  • Own occupation, unable to work elsewhere – Gives true own-occupation (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).

Another major reason, has to do with misstatements and/or omissions made on the application. Occasionally they are unintentional, due to the poor wording of the questions. Since the claim starts with the application, who is at fault? Is it the carrier for poorly constructing the wording of the questions, or is it the fault of the applicant who intentionally withholds pertinent information that could negatively impact the underwriter’s decision as to whether or not to issue a contract? Some critical areas of the application which affect a claim and could be inadvertently answered incorrectly, have to do with 1) occupation/duties, 2) health, 3) income, 4) and other pertinent facts such as; avocations, etc… Incidentally, some of the “honest” mistakes made by the applicant, might be “overlooked” after two years, as outlined in the contract’s incontestability clause.

What is not “overlooked” however, is fraudulent misstatements or omissions such as a major misstatement regarding health or income. Come on, can someone honestly say that they “forgot” that they had a back operation or a heart attack two years ago?! With this 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” (e.g. without a rating or an exclusion)?

So what actually happens when a claim is submitted for payment? The file is pulled and compared with the information appearing on the claim form for any inconsistencies. To support the claim, Attending Physician Statement’s will be ordered. Tax returns will once again be reviewed and it will be re-underwritten. If the claim is invalid due to fraudulent omissions, etc. and it is within the contestability period, the policy will usually be rescinded. If it is past the incontestability period, it will usually be paid unless the carrier strongly feels there was a strong intent to commit fraud, then rescission/denial will take place. In any event, if it is a long term claim, expect possible surveillance and or a possible buy-out of the claim.

So when was the last time you had your disability policy checked out to make sure all of the “I’s” are dotted and the “Ts” are crossed? If it’s been a while, it is definitely in your best interest to have it done. You don’t want to leave yourself and mainly your family exposed financially should unfortunately a disability occur.

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