Private disability insurance policies that include a true own occupation definition of total disability have long been considered the most favorable form of disability income insurance sold, particularly for highly trained and specialized professionals like physicians. One reason these policies can be so comprehensive is that insurance companies typically review each applicant’s medical and financial history to evaluate the risk of them becoming disabled and to determine the terms, features, and pricing that they’re willing to offer.
This process, known as medical underwriting, can feel intrusive for many but especially those who have pre-existing conditions and imperfect medical histories.
But what if you do have a pre-existing condition before you obtain disability insurance? Here’s what to know.
Disability Insurance Medical Underwriting with Pre-Existing Conditions
Most physicians consider securing a disability insurance policy somewhere between their late 20s and late 30s. While we may still feel invincible at that age, not everyone will be fortunate enough to have an unremarkable medical history. Applicants with pre-existing conditions can commonly still secure disability insurance, but insurance companies will often modify the policy to reduce their exposure to those particular risks. The most common implications of pre-existing conditions are:
Medical Exclusion Rider
If an individual has a pre-existing condition that increases the risk or likelihood of becoming disabled in the eyes of the insurance company, the insurance company may exclude the pre-existing condition by adding a medical exclusion rider to the policy. This means that the insurance company will not pay benefits if the insured becomes disabled as a result of the excluded pre-existing condition or anything related to the pre-existing condition. Medical exclusion riders are most commonly used for pre-existing conditions that can be clearly defined, have symptoms that can easily be identified, and that can be directly excluded.
An example would be an applicant suffering from chronic symptoms in their right shoulder. By adding an exclusion rider for the right shoulder, the insurance company can reduce their risk without needing to take further adverse action.
In situations where applicants have pre-existing conditions that broadly increase their risk of becoming disabled, the insurance company may issue coverage at an increased cost. Disability insurance is generally priced based on a standard health category, where all applicants are priced similarly based on their age, gender, medical specialty, and state of residence. Applicants with certain pre-existing medical conditions that cannot be easily identified and excluded may be offered coverage at a higher rate. Depending on the perceived risk of the pre-existing condition, ratings generally range from a 25% surcharge to 100%. As the rating increases, other modifications and limitations may also be applied to the policy. Once the rating gets too high, an insurance company may end up denying coverage altogether.
Modified Policy Structure
With some pre-existing conditions, insurance companies will offer coverage with extended elimination periods and/or limited benefit periods.
This can be used in lieu of a medical exclusion rider for conditions that increase an applicant’s risk of becoming disabled but not enough that the insurance company needs to outright exclude it. Using the shoulder example from above, the insurance company may offer to pay benefits following a 180-day elimination period (as opposed to a 90-day period for all other conditions) and limit benefits to just a 24-month benefit period (as opposed to age 65 for all other conditions) for any claim related to the right shoulder. This would obviously be more favorable to the insured than a medical exclusion rider that outright excludes the right shoulder altogether.
This can also be used for applicants with broader and more concerning pre-existing conditions that are not easily definable, like those who are subject to rate increases. This type of modification will often be paired with a premium rating. The insurance company will charge more than the standard cost of coverage AND limit the maximum benefit period payable for all disability claims to two years, five years, or 10 years instead of allowing long-term benefits to age 65 or longer.
Reduced benefit periods may be better than nothing but are highly restrictive because they generally limit the benefit period for all claims—not just those relating to the pre-existing condition.
Removal of Benefit Increase Riders
One of the features that nearly all early-career physicians should consider including in their policy is a future benefit increase option. There are numerous names given to these features, but the intention is to allow policyholders to increase their coverage levels as their incomes increase throughout their careers without requiring updated health-related information at the time of the increase.
Some pre-existing conditions present a low enough risk that insurance companies will offer coverage with long-term benefits payable to age 65 or longer but not allow for future benefit increase riders to be included with the policy. The insurance company may be comfortable offering coverage based on the information available to them at the time of application but may prefer to maintain the opportunity to conduct further medical screening if additional coverage is applied for in the future.
In many cases, modifications like the four listed above may be reconsidered at a future date. It may be difficult for an insurance company to extend a perfect offer to someone who was recently treated for a pre-existing condition in the few years prior to applying for coverage. Once that person is symptom- and treatment-free for a longer period, however, the likeliness of recurrence may decrease enough that the insurance company would be willing to remove the exclusion, rating, or other modification. It may seem unlikely that an insurance company would be willing to improve the terms and conditions of a policy once an individual already has a policy with them, but our experience has been favorable when it comes to reconsiderations.
More information here:
General Pre-Existing Condition Limitations for Disability Insurance
Most individual disability insurance policies include a provision often referred to as a pre-existing condition limitation. This provision protects the insurance company for a limited timeframe in case the insured person did not properly disclose a pre-existing condition when initially applying for coverage. Insurance companies expect applicants to be honest and thorough when completing their application for insurance but also understand that honest mistakes happen.
This provision typically states that the insurance company will not cover any loss that begins in the first two years following the effective date of the policy from a pre-existing condition that was not disclosed on the original application. Most companies consider pre-existing conditions to include any physical or mental condition:
- For which you received professional medical advice, diagnosis, or treatment, or
- That caused symptoms for which a prudent person would usually seek professional medical advice, diagnosis, or treatment.
Each policy is different, so it is best to review the exact wording of your own policy or a policy you’re considering applying for, but most insurance companies will look back 12-24 months prior to the policy effective date when determining what qualifies as a pre-existing condition for the purposes of the pre-existing condition limitation.
It is vital that individuals be transparent when completing an application for disability insurance. The general pre-existing condition limitation protects the insurance company from covering pre-existing conditions that were not disclosed on an application, but this is only one method of protection for the insurance company. If an applicant materially misrepresents, misstates, or omits information on an insurance application, the insurance company could rescind or void the contract outright. To help reduce the risk of a complicated claim, applicants should take their time and answer each application question honestly and thoroughly.
A Must-Know for Medical Residents and Fellows
At the time this post is being published, there are unique offerings of own occupation disability insurance on a Guaranteed Standard Issue (GSI) basis to medical residents and fellows affiliated with over 150 (and growing) hospitals/GME programs nationwide. These programs allow eligible medical residents and fellows to apply for private disability insurance without requiring medical underwriting. GSI programs provide a streamlined process for any applicant applying for disability insurance, but it can be particularly attractive for those with pre-existing conditions or imperfect medical histories.
One major caveat to GSI offerings is that they are not generally available to those who have already applied for coverage and either were denied or offered modified coverage by a different insurance company. For this reason, it is imperative that medical residents and fellows learn that these programs exist and investigate the availability of a GSI program before applying for a medically underwritten plan.
GSI offerings are exclusively available through an individual agent, agency, or group of agents. This can create a potential conflict of interest for agents and brokers who are not able to sell them. That agent can either recommend the GSI offering and “give away” the case or recommend a different policy which can sell and receive a commission. Sadly, we are seeing many residents and fellows being sold policies with multiple exclusions or, unfortunately, being declined at training hospitals where a GSI program exists. Considering the rapidly increasing number of programs available nationwide, insurance agents should be taking the time to familiarize themselves with these programs so they can appropriately advise their prospective clients. This has not been our experience, though.
More information here:
The Bottom Line on Pre-Existing Conditions and Disability Insurance
- If you are considering applying for private disability insurance, be aware that your medical history could significantly impact your eligibility for coverage and the final terms and conditions the insurance company offers you. Prior to applying, it is good practice to discuss your complete medical history with the insurance agent helping you. At a minimum, your expectations will be more appropriately set. At best, you’ll make an informed decision to apply with the company that offers the best terms and conditions for your situation from the start.
- Medical trainees (interns, residents, fellows) who do not have completely unremarkable medical histories (we’re talking COMPLETELY unremarkable) should be asking their insurance agent to investigate the possibility of GSI offerings. GSI options must be considered first and prior to applying for a traditionally underwritten plan, as they may no longer be available once a traditionally underwritten application is declined or approved with modifications.
- If you are issued a policy with modifications, investigate whether those modifications may be reconsidered in the future. If so, be persistent about having the modification corrected once the reconsideration period has been satisfied. Although insurance companies do not guarantee they’ll adjust the modification, these are not being used to “bait and switch.” Often, we find that insurance companies will reconsider exclusions and modifications when appropriate.
- Completing an insurance application should not be taken lightly, particularly for those with pre-existing conditions. The misrepresentation, misstatement, or omission of material information on an insurance application could cause significant delays and complications in the event of a claim. Do not give the insurance companies an easy way out of paying a claim.
This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Some optional riders are available for an additional premium. Some policy benefits and features are not available to all occupations or available in all states.
Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
Michael L. Relvas is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 9200 Corporate Blvd Suite 390, Rockville, MD, 20850, phone: 240-683-9700. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. MR Insurance Consultants is not an affiliate or subsidiary of PAS or Guardian. The individuals associated with MR Insurance Consultants do not maintain specialized licenses or qualifications for the financial services provided to medical professionals.
Michael Relvas is insurance licensed in all 50 states (CA insurance license #0G91249, FL #W010461, AR #400845).
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[Editor's Note: Many thanks to MR Insurance Consultants, one of our Platinum Level (contributing $8,000+) Sponsors for the WCI Medical School Scholarship and its long-term relationship with WCI (Michael was the first disability insurance agency to sponsor WCI). This is the second of our three scholarship-sponsored posts for 2023. Michael Relvas is a CFP® professional who specializes in term life and disability insurance for physicians nationwide. He can be reached at 800-817-4522 or [email protected]. From the start, the focus for MR Insurance Consultants has been to prioritize their clients' best interests and to provide the necessary support to empower physicians to make their own informed and personal decisions when purchasing term life and disability insurance. Thank you for supporting those who support this site and, especially, the scholarship. All proceeds go to the scholarship winners.]