The Importance of Reviewing Your Policy Application

In our last post we discussed why you should not rely solely on your agent’s representations when purchasing a new disability policy. It is similarly important that you not rely solely on your agent to complete the policy application.

While an agent may offer to help you by filling out the application, this could end up negatively impacting a future claim or even voiding your policy down the road, if the application contains any errors or omissions.  As explained in our prior posts, while it may seem like telephone interviewers, licensed representatives, agents, and medical examiners have significant control over the application process and whether you receive a policy, many applications have language that explicitly limits your ability to rely upon representations made by such individuals, and expressly places the burden of reviewing the application for accuracy upon you (regardless of who completed the application).  Below is a sample of policy language:

 

Thus, you may speak with several people during the application process, and give them the requested information, but it is ultimately up to you to make sure the information provided to the insurance company is correct.  It is therefore very important that you read through your application carefully to make sure it is complete and accurate before signing.

It is also very important that you carefully review your policy when you receive it from the insurance company, and not just file it away without a second thought.  When you receive your copy of the full policy, it will typically contain language stating that you have a certain time period (e.g. 10 or 30 days) to review the policy and return it to be voided if it does not contain the terms you expected.  This clause will normally be found on the first page of the policy, and typically looks something like this:

If you decide to keep your policy and do not send it back within this review period, you are bound by all provisions of the policy, regardless of whether you are actually aware of them or not.  For instance, if you asked your agent for a certain provision and/or requested it on your application, but the insurance company omits it for some reason, and you don’t catch it during this review period, you may end up paying years of premiums for coverage that is different than what you thought you had purchased.  Similarly, if your policy contains an unfavorable provision that you didn’t know was going to be in the policy, you will still be bound by it unless you return the policy.

How Insurance Companies Distance Themselves from Agents (And Why It Matters)

Reading through contracts, especially lengthy insurance ones, can be time consuming. Many policies contain confusing language, terms of art, and often include supplemental riders that change the terms or definitions contained in the main body of the policy.  But if you don’t read your policy until it’s time for you to file a claim, you may be caught off-guard by what your policy actually says.  This next series of posts will discuss the importance of taking the time to read through your policy, and will review some things to watch out for when you buy a disability insurance policy.

Dentists and physicians are often swamped with work, and rely heavily on insurance agents when selecting and purchasing a policy.  One scenario we commonly see is doctors requesting a policy that is “the same” policy that the other doctors in the practice have. Another common scenario is the doctor who wants more coverage and just asks his or her agent for another policy that is “like” his or her existing policy, or has the “same coverage” as his or her existing policy.  What they don’t realize is that some of the same favorable terms may no longer be available in today’s policies.  For example, while most older policies contained “true own occupation” provisions, there are now several different variations of “own occupation” provisions, so if you just ask for an “own occupation” policy, you may not actually be receiving the coverage that you think you are.

It is also important to be aware that, over the years, insurers have sought to distance themselves from agents and now often go so far as to include clauses or statements in their policies and applications that state no agent or broker has the authority to determine insurability or make, change, or discharge any contract requirement.  Here’s an example of this type of policy language:

So what does this mean?  It means that, while solely relying upon an agent’s assurance of the terms of a policy may have been a more acceptable (but not advisable) option in the past (when policies were often similar and generally favorable to policyholders), you can no longer solely rely upon your agent’s description of the policy.  No matter how well-meaning or knowledgeable your agent may seem, ultimately, you are going to be on the hook if your policy doesn’t say what you thought it said, so it is crucial that you carefully review your disability policy to ensure you are receiving sufficient coverage.

Our next post will discuss the importance of the application process and policy review period.

Policy Riders: Social Insurance Substitute Rider

In prior posts we’ve talked about riders and how they can modify the terms of a disability policy.  In this post, we will be looking at a rider we sometimes see in individual disability policies called a Social Insurance Substitute (SIS) rider.

An SIS rider is an optional rider that provides a monthly benefit that works a little differently than a standard base benefit.  Generally speaking, SIS benefits can be reduced if you are eligible for and receiving social insurance benefits (e.g. Social Security retirement or disability benefits, workers’ compensation benefits, etc.).

SIS riders can operate differently, depending on the terms of your policy.  In some instances, the benefit paid by the insurer will be reduced by the amount received from social insurance (usually up to a certain amount).  In other policies, a certain percentage is subtracted from the benefits based on how many different forms of social insurance you are receiving (e.g. if you are receiving Social Security benefits, you might only receive two-thirds of your monthly benefit amount, and your monthly benefits might be further reduced if you started receiving benefits from a second source, like worker’s compensation).

The appeal of the SIS rider is that including it in a policy will typically result in a lower premium.  The logic behind this is that the insurance company shares the risk of payment with the government.  The primary downside to an SIS rider is the fact that your benefits will be reduced in some fashion if you obtain social insurance benefits.

In addition, policies with an SIS rider can also place additional requirements on policyholders by:

  • Requiring policyholders to apply for social insurance benefits;
  • Requiring policy holders to reimburse them if a lump sum payment is received from social insurance(s); and
  • Requiring policyholders to go through the entire appeals process following any social insurance denials and/or re-apply for social insurance benefits periodically.

When choosing a policy, it is important to weigh what you can afford in premiums now with potential future benefits.  If you can afford a higher premium, it is often in your best interest to choose a policy without an SIS rider and with a higher base benefit.  As we have discussed previously, there are also certain riders that you can purchase that will automatically increase your monthly benefit (and premiums) by a certain amount each year and/or allow you to apply to increase your monthly benefit in the future, without undergoing additional medical underwriting.  Whether you are shopping for a policy, or evaluating your existing policy, you should always keep in mind that the cost of the premium is not the only consideration.  There are other factors in play that you must consider when purchasing a policy, and the type of insurance that you purchase can have a significant impact upon your financial position if you should become disabled.

Disability Insurance: What Residents Need to Know – Part 3

In our previous posts in this series, we examined why residents should not wait to acquire disability coverage and discussed some key provisions to look for when selecting an individual disability policy.  In this post, we’ll be taking a look at a few more provisions you may want to look for when selecting a policy.  More specifically, we are going to look at some policy provisions that can help you meet your monthly expenses in the event of disability, along with some policy provisions that can help you plan for your retirement.

Student Loan Coverage Rider

If you are like most residents, you have accrued a significant amount of student loan debt.  The time it takes to pay off student loan debt varies widely based on income and other expenses.  Many doctors must practice for several years before they are able to pay off all of their student loans, and student loan obligations can be a significant monthly expense to meet if you are disabled and no longer able to practice.  Although not as common as other riders, a student loan coverage rider allows policy holders to insure their student loan for an additional amount each month, on top of their benefits.

Waiver of Premium

This provision allows you to forego paying your policy premiums while you are receiving disability benefits, freeing up a substantial portion of the monthly income you would otherwise be paying back to the insurance company.

Return of Premium

This provision, while not as common, entitles the policy holder to receive a refund of all premiums if he or she does not become disabled before the expiration of the policy term.  This can be appealing to residents, whose plans will be in effect for a long time.

Maximum Benefits

This important provision in a policy controls the period of time the insured is eligible to receive benefits.  Most plans pay benefits until age 65 or 67, some pay lifetime benefits, and others pay for only a limited amount of time, even if a claim is filed decades before the policy terminates.

Retirement Income

The majority of doctors under 40 list preparing for retirement as their top financial goal.[1]  There are several different disability policy riders directed towards this goal, including the following.

Graded Lifetime Benefit Rider:  This provision, based on its terms, extends some or all of your disability benefits past the normal end date of age 65 or 67.

Lump Sum Rider:  This rider provides for a one-time payment once the policy expiration age is reached.  Typically, policy holders must have received benefits for at least one year and the lump sum payment is typically a percentage of the aggregate sum of benefits received during the policy term.

Retirement Protection Insurance Depending on the insurer, this may be offered as a rider or a stand-alone policy.  If you become disabled and your claim is approved, your insurer will establish a trust for your benefit, where benefits are deposited and invested (similar to an employer-sponsored 401(k)), with funds likely becoming accessible after the age of 65.

Our next post in this series will discuss the importance of choosing a plan where benefits increase over time.

[1] 2015 Report on U.S. Physicians’ Financial Preparedness, Young Physicians Segment, American Medical Association Insurance, https://www.amainsure.com/reports/2015-young-physician-report/index.html?page=5.