Although some insurance companies have a few company-specific guidelines for underwriting Disability insurance policies, all insurers will use the same key factors in determining your eligibility, rate, and amount and type of coverage. Understanding what an insurer looks at during the underwriting process can help you get the disability coverage you need.
1. Gender and Age. Male applicants usually pay less for their policy than females because males tend to file fewer claims than females. Older applicants typically pay more for their policy than their younger counterparts.
2. Occupation. Since certain occupations present a greater risk of injury or death than others, insurers will examine both your job duties and title as they decide the type and cost of the coverage they offer. Insurers group different occupations into rating classes that are represented by a number or letter. The rating is based on the level of risk the occupations typically hold, the amount and types of claims common to the occupations, and the income level of those employed in the occupations.
3. Lifestyle. Your lifestyle, in particular any activity that you participate in that could increase your probability of suffering a disabling accident, will be questioned. The insurer will directly ask you about your activities, but be careful to be honest since they may also collect information about your lifestyle from credit bureaus, internet databases, and even your family or friends.
4. Income. Your income will be instrumental in determining what type of coverage you’re eligible to receive, the rate, and the monthly benefit amount. The insurer will ask you to provide proof of income, such as a W2 or income tax form. The insurer will put your salary information into a table and decide the amount of monthly benefit you’ll be eligible to receive. The amount is usually between 50% and 70% of your pretax income, with higher percentages accompanying lower incomes and lower percentages accompanying higher incomes. Additionally, your income amount will affect what type of coverage the insurer offers you. Those with higher income levels are usually offered a policy with more comprehensive coverage and a much broader definition of disability.
5. Medical. Insurers not only look at your current state of health, but also at your past health history. The insurer may even look at your familial medical history to see if you have a predisposition for developing costly medical conditions like cancer, diabetes, or heart disease as they determine your eligibility. Again, it’s important to be honest on the questionnaire since you will be asked to undergo either a full physical examination or a paramedical examination by a medical professional.
Once the insurer has collected all the above information, a home office underwriter will review it and either issue you immediate coverage or ask you to submit some additional information to assess if you’re an acceptable risk for them. The insurer will assign you to one of the following risk categories:
- Substandard/special risk – if you’re assigned into this category, then the insurer has determined that there’s a high probability of you making a future claim. If the insurer extends you coverage, then you’ll be charged higher rates and your policy will have a shorter benefit period, a longer elimination period, and contain an amendment to either exclude certain medical conditions for a set period of time or fully exclude them indefinitely.
- Standard risk – most disability coverage applicants fall into the standard risk category, meaning they are no less or more likely to file a claim than any other insured individual.
- Preferred risk – the insurer has determined that you’re less likely to file a claim than other insured individuals. You will pay the least amount for preferred risk coverage.