Underwriting plays a critical role in properly insuring clients for their income protection needs. It can sometimes be frustrating, however, for both you and your clients, if there are delays in the process.
If you’re new to getting individual disability insurance cases underwritten or are looking for better ways to get cases through underwriting, there are steps you can take to help make the process go smoother.
The first thing to understand is that there are differences between life insurance and DI underwriting. Different factors impact a disability risk (morbidity) and a life risk (mortality). If a client has qualified for standard life insurance, it does not necessarily mean the client is a standard risk for DI. It’s best, then, not to advise clients regarding DI insurability based on a life insurance action.
As an agent, you play a big part in setting client expectations and upfront communication. To streamline the process, it’s important to provide all the necessary documentation and fully complete the application. When you do this, the underwriter has a well-rounded picture of your client and is better able make the most favorable decision.
The three risk factors that are most important in underwriting disability insurance (and impact the application) are occupation, financial/income, and medical history. Here, we’ll discuss each and suggest pre-screening questions you can ask clients. Getting answers to these questions gives you a better handle on your client’s situation, allowing you to present accurate illustrations and set expectations. Plus, you may identify additional needs that could lead to additional sales.
Risk factor #1: Occupation
Your client’s profession correlates to an occupation class, which helps determine the proper premium rate, as well as the maximum benefit amount available. Most carriers offer a range of occupation classes, and professions with less risk are often classified as preferred occupations. For example, lower occupation classes such as shipping and receiving clerks or press workers tend to require more manual duties. Preferred occupation classes, such as attorneys or executives, typically consist of little to no manual duties.
Job duties are a key component of occupation classification. If the client’s profession falls between two classes, a good rule of thumb is to make the sale based on the lower occupation class. After review, if you can return to the client and offer a higher occupation class at a lower premium, you’ll be in a better position to successfully place a policy.
Ask clients:
- What are your duties at work?
- Are you self employed? If so, for how long? How many employees do you have? What is your ownership percentage? Do you work out of your home?
Risk factor #2: Financial/income
Because disability insurance helps replace lost income, it’s necessary to review financial documentation to determine a benefit amount that allows a certain standard of living while still providing the policyholder with the incentive to return to work if possible. The best sources of income documentation are the application’s financial section and the applicant’s federal tax returns.
Ask clients:
- What is your taxable earned income this year? What was it last year?
- Do you have any other disability coverage (for example, group short-term or long-term disability or other individual disability insurance)?
Risk factor #3: Medical
One of the best ways to make the underwriting process easier is to explore the option of a streamlined medical underwriting program. A lower benefit amount is typically available with these types of programs.
Keep in mind, however, that potentially disabling medical impairments may be less of a concern for life insurance yet require a thorough evaluation for DI. When selling DI, the following types of medical conditions should present a red flag to you, and both you and the client should proceed with the mutual understanding that the policy could be rated, ridered, or declined.
- Anxiety and other mental/nervous conditions
- Back strain/sprain and other back-related conditions
- Carpal tunnel syndrome and arthritis
- Obesity
- Seizures or strokes
- Cancer
- Emphysema
- Heart attacks
- Hepatitis
- Kidney disease or pancreatitis
Ask clients:
- What is your height and weight?
- Do you take any medication?
- Do you have a history of any illnesses or conditions?
Non-medical issues may also be a factor, such as tobacco use, driving record, leisure activities that might be considered hazardous (e.g., hang gliding, scuba diving, auto racing, etc.), and residency status.
The end result
Disability applications can result in a policy being issued as applied for, issued other than as applied for (modified), or declined. In addition, the following can happen:
- An exclusion rider may be added
- The elimination period, benefit period, monthly benefit, and/or occupation class may be changed
- The benefits provided by riders may be adjusted
If you need to place a modified offer, be sure to reiterate with clients the importance of income protection and that some coverage is better than no coverage. Depending on the modification, the case could be re-evaluated at a future date.
Partnering with your underwriter can assure your case gets evaluated fairly, underwritten smoothly, and issued quickly, leading to an easier sale for you and satisfied clients. In addition, make sure to ask the client plenty of questions — even more than you think you should — fully complete the application, and set expectations up front. With those steps, you’ll know you did all you could to achieve a fair underwriting decision in your client’s DI application.
Michael Sir is disability income regional vice president for the Principal Financial Group. He can be reached at sir.michael@principal.com.