As with many application processes, the disability insurance application process can be daunting. A series of questions – medical, personal and financial – designed to give the insurance carrier enough information to assess your risk for disability. Your answers will be used to decide whether you will be issued disability insurance, in what amounts, with what coverage and at what cost.
Age and gender
Your disability premium, in part, will be based on your age and gender. The younger you are, the less your premium tends to be. If you are female, you will sometimes pay a higher premium than if you are male (unless the insurance company offers unisex pricing). It’s not necessarily a sexist thing, historically women file more disability insurance claims than men so insurance companies usually consider women a greater risk.
What you do for a living also plays an important role in determining what kind of disability coverage you can buy and how much your premium will be. The underwriter will consider your job duties as well as your title. Statistically, certain occupations pose less risk to the insurance company. For instance, if you are an architect, an engineer, or a CPA, you are less likely to file a disability claim than if you have a more hands-on career such as a mechanic or high-rise window washer.
Insurance companies group occupations together and assign them a rating class based on how hazardous the occupation is, how much income is earned and history of claims filed by others in the same industry. These ratings vary between insurance providers but most of them use a number and/or letter system to classify risks (such as class 1, 2, 3, and 4, or A, B, C, and D). You’ll most likely see classifications such as these on your disability insurance quote.
How healthy you are now and how healthy you’ve been in the past are the single most important factor when determining eligibility for disability insurance coverage. The application lists a series of questions designed to expose current and past health conditions. If you’ve had health problems, you’ll need to provide details including the name and address of your physician, duration of treatment and dates of the illness or injury. You’ll probably be asked to take a paramedical examination, including a blood test and a urinalysis. Depending on the situation, some people may be asked to undergo a full physical examination. You may also be asked questions about your family’s medical history to determine whether you are at high risk for developing certain medical conditions, such as diabetes, heart disease, cancer, Parkinson’s disease, etc.
While health is the most important component of disability insurance, income is a very close second. Disability insurance – also known as income protection – replaces part of your paycheck so your income becomes very important. The amount of money you earn affects the type of coverage you can buy, what your monthly disability benefit will be (how much you’ll get) and how high your premium will be. High-income professionals generally fall into higher ratings classes. If you have relatively high earnings, you may be able to buy a policy that has a more liberal definition of disability and more comprehensive coverage. Additionally, the benefit amount you may purchase is based on your gross earned income before taxes.
Each insurance company has a table that is used to determine how much monthly benefit you can receive based on your earnings. In general, the insurance company will try to replace 50 to 70 percent of your pretax earnings. This percentage may be higher if your income is low or less if your income is high.
Skydiving Means Higher Need for Disability Insurance… and Premiums
So, you like skydiving? Great, we love exciting lifestyles and hobbies just as much as the next guy! People in this situation need disability insurance more than ever but they should be aware that their premiums will reflect their adventurousness. Insurance carriers want to determine the likelihood that they’ll have to pay a claim. The higher the likelihood – like for a sky diving instructor – the more likely a disability claim will be filed.
Insurance carriers have to factor in risk factors prior to issuing a policy. They’ll ask supplemental questions like: have you ever been declined for other disability insurance, are you a pilot, do you travel out of the country, etc. Be truthful. Insurance companies have access to a lot of information. If your lifestyle or occupation is riskier than most, it may not affect your ability to buy disability insurance. It’s just one point insurance companies consider.
Other Disability Insurance Coverage
Insurance companies want policy holders to get better and return to work as soon as possible. To create incentive, they limit the amount of coverage you can buy, based on the amount of coverage you already have. They take into consideration if you own other private disability policies, if you’re covered by group insurance disability benefits through work and if you’re eligible for Social Security or other governmental disability coverage. Your new policy will be designed to supplement, not add to, the benefits of any other coverage you have.
TIP: answer all questions completely and truthfully – documentation will be required during underwriting and the insurance company can cancel coverage or deny a claim based on misrepresentations on your application.