Your Disability Insurance Application Is More Important Than You Might Think
When trying to purchase a private disability insurance policy, you first have to submit a formal application to an insurance company and undergo underwriting. The concept is simple—prior to offering coverage, insurance companies want a fair and complete understanding of the risk that a person presents so they can determine the terms under which they’re willing to offer coverage, or possibly decline to offer coverage.
There is no hiding the fact that applying for disability insurance can be an inconvenience. The introduction of web-based applications and accelerated underwriting programs has streamlined the process, but these applications are thorough and capture a lot of critical information that the insurance companies use to determine eligibility. Therefore, the validity of one’s coverage could be contingent on the accuracy of the information provided on his/her application. Since the insurance company is basing their decision on the information provided on the application, a material misstatement, misrepresentation or omission could allow insurance companies to deny a claim or even void a policy.
The Contestability Clause
Not everyone dives deep into the weeds of a disability insurance policy, but those who do will likely find a provision known as the contestability clause. It basically states that disability insurance policies can be voided, and claims denied, during a specified period of time following a policy’s effective date if there is a material misstatement, misrepresentation, or omission on the application. This period is generally limited to 24-months, but can be longer depending on the company and state in which coverage is purchased.
While this may seem harsh, it actually protects both the insurance company and the insured. It protects the insurance company because it clearly states they can contest claims due to material misstatements, misrepresentations, or omission of material information during the first 24-months of the policy being in-force (possibly longer).
This also protects the insured however, since the timeframe for contesting non-fraudulent claims is limited to a relatively short period. It is reasonable for applicants to forget something on their application, without ill-intent, and this provision protects the insured from having their claim denied or policy rescinded several years after purchasing it, as a result of something truly accidental.
It is important to note that fraudulent statements, misstatements, and omissions are not limited by the contestability clause and can be used to void a policy or deny a claim throughout the life of the policy.
In case it’s not yet clear, the information provided on a disability insurance application can significantly impact how smoothly a claim is processed. It may be inconvenient and could even seem insignificant, but it’s important to take your time and complete your disability insurance application as accurately as possible. Once the application is approved and a policy is issued, an applicant should again review the original application submitted to verify the answers remain 100% correct at the time of signing and accepting the policy.
What do you think? Have you had an issue with the contestability clause? Comment below!
[Editor's Note: Michael is one of those good guys I try to connect you with in the industry, and hundreds of you have secured quality disability insurance with him over the years. The generous support from Michael, as well as all of our sponsors, allows us to award those big prizes in October. Many thanks to our sponsors!]
Michael Relvas is a CFP® professional that specializes in Term life and Disability insurance for physicians and physician families nationwide. He can be reached at 800-817-4522 or [email protected].
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.
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 #0G91249, FL #W010461, AR #400845).
2020-107997 Exp. 9/22]
[This updated post was originally published in 2020.]