Individual Disability Income Policies (Non-ERISA)

Disability Income Protection for Professionals

Disability Income policies (DI) which are not part of an employee benefit plan are commonly underwritten for professionals (business executives, doctors, lawyers, etc…), athletes & entertainers, and white collar workers who are concerned that a disability may drastically reduce or eliminate current income.

An application is completed providing medical history for at least the past five years, employment background and income for the past three years, and other documentation to assess the risk to the insurance company. The premiums paid for individual policies are typically very high and well in excess of those paid for group coverage. Most DI policies, as differentiated from group policies, do not offset for Workers’ Compensation or Social Security benefits. Underwriting guidelines during the 80s until mid-90s, allowed insurance companies to cover significant high percentage of gross income. There is very aggressive risk management now so applicants are lucky to get 50%. Policies written in most states must abide by certain minimum standards delineated by state insurance laws. They typically have a two-year incontestability clause. That means that if the claimant made a material misrepresentation or omissions of fact on the initial application, the company would still be liable for payment, so long as the claim is made at least two years from the date of issuance. However, companies seek to get around the incontestability clause by claiming that the misrepresentations are fraudulent which gives a longer statute of limitations.

DI policy language varies from one company to the next. Of interest is that the major insurers have been consolidating so that there will be fewer DI policies in the future. For example, Equitable’s DI division was bought by Paul Revere, whose DI division was then purchased by Provident Life, who has since merged with UNUM Life to become UNUMProvident which is now called UNUM Group.