You can expect to pay anywhere from one to four percent of your annual gross income for a non-cancelable, guaranteed renewable policy. With disability insurance, you get what you pay for (cheaper does not mean better – like parachutes and brain surgeons).
Individual Disability Insurance
Disability contracts can vary greatly from company to company, which is why it is difficult to compare on price alone.
Insurance companies are rated by five major rating services: A. M. Best (which specializes in insurance only), Fitch, Moody’s, Standard & Poor’s, and Weiss. Some of these services rate only a few hundred companies, while others rate thousands. Each service has its own criteria and philosophy for judging insurance companies. Most services base their ratings on both qualitative and quantitative factors, such as debt, claims-paying ability, investment portfolios, financial reports, and historic performance.
Each of the rating services uses a variation of an A through F scale to rate insurance companies. However, an “A” from one rating service does not necessarily equate to an “A” from another rating service. For instance, an “A” rating from A. M. Best is an “excellent” rating, while an “A” rating from Moody’s is only “good.”
Rating services stress that their ratings are not a guarantee of the financial strength of an insurer, nor are they recommendations to buy a policy or product from a particular insurer. Ratings are merely opinions based on data as interpreted by the insurance industry and financial experts. They should not be used as the sole measure of a company’s quality. Other factors, such as reputation, claims-handling procedures, and customer satisfaction, are also important.
Rating information is available from a variety of sources. The easiest way to get rating information is to contact the rating service directly, either through its website or by calling its customer service department. Most rating services provide free rating information to consumers, although you may have to pay if you need more than a few ratings. Ratings are also published in books and magazines that can be found at your local library. If you don’t want to look up the information yourself, ask your insurance agent or financial planner to do some research for you.
Contact information for the major rating services:
A. M. Best Company
Oldwick, NJ 08858
Phone: (908) 439-2200
Standard & Poor’s Corporation
55 Water Street
New York, NY 10041
Phone: (212) 438-2000
One State Street Plaza
New York, NY 10004
Phone: (212) 908-0800
Moody’s Investors Service
99 Church Street
New York, NY 10007
Phone: (212) 553-0377
The application process is as follows:
Underwriting is the process by which an insurance company examines, accepts, or rejects insurance risks so as to charge the proper premium for the coverage. The insurance company will review:
The underwriting process generally takes three weeks to two months from the time we receive all completed paperwork. The average time is one month. Most of the time spent in underwriting is collecting information (medical records, tax returns, etc.) the underwriter needs to make an informed decision.
A brief medical exam is required for the purchase of disability coverage. The exam is paid for by the insurance company and performed by a third party examination service at your home or office. The exam may include a physical exam, blood work, urine analysis and in some cases, an EKG. The results are sent directly to the underwriter for review along with the proposed insured’s application. A copy of the exam is available upon request.
How long will it take? The medical exam will take approximately 20 to 30 minutes.
Where and when is it done? The exam can be performed at home or in your office, Monday though Saturday.
Who does the exam? Licensed paramedical examiners in your area complete the exam.
What is included in the exam? A typical exam consists of height, weight, blood pressure, blood sample, urine sample, and brief medical history. With larger amounts of insurance, an EKG or treadmill test may be required.
What kind of medical history will be asked? The examiner will ask about medications, surgeries, treatments, and other medical conditions. They will ask for the names and addresses of any doctors you have seen in the last five to ten years. To speed up the process, you will want to have this information handy.
How can I best prepare for the exam? Blood pressure and pulse can be artificially raised by stress, alcohol, caffeine, and tobacco.
It depends on the type and severity of the medical problems. The insurance company has three options:
If you have a condition you’re concerned about, the best option may be to have Doctor Disability submit an informal inquiry to multiple insurance carriers. Just because one company denies or limits coverage, doesn’t mean they all will.
Common exclusions are:
A medical condition that existed prior to the purchase of your disability policy may be excluded from coverage. Depending on the condition, the exclusion may be permanent or temporary.
Most disability insurance does not cover “normal” childbirth. However, many will cover complications to pregnancies that prevent you from working, so long as you satisfy the policy’s elimination period (typically 90 days). If you are already pregnant, you may need to wait until you have delivered your baby and have returned to work to obtain disability insurance.
The residual benefit pays you a partial benefit in the event you suffer a partial disability. The percentage of your benefit paid is typically proportionate to your loss of income.
Most policies are priced to favor the 90-day elimination period. In many cases, the premium doubles by decreasing the waiting period to 60 days.
If your policy is non-cancelable and guaranteed renewable, the policy benefits will not change as long as you continue to pay the premium.
Most companies will allow you to see your own doctor if you are disabled. In some cases, the insurance company may require a second opinion.
Generally, if you pay your premiums with after tax dollars, your benefit is tax-free. If you deduct the premiums or your employer pays the premiums, the benefit will be taxable to you at the time of claim. Always talk to your accountant for tax advice for your unique situation.
Your employer can pay for your disability insurance coverage, but it may cause the benefit to be taxable to you at the time of claim.