From Insurance Lounge

The important variables regarding claims are listed below. Not every variable matters to every type of disability insurance, but most of these are generally relevant.

  • Was the disability unpredictable (not resulting from previously-known chronic illness)?
  • Was the disability incurred in the course of performing job-related duties?
  • How long is the waiting period before claim payments start?
  • What other insurance policies will pay claims for this event?
  • How much money will be paid per week/month/pay period?
  • For how many weeks/months/pay periods will payments continue?
  • What if the beneficiary is not totally disabled, but only partially?

Was the disability unpredictable (not resulting from previously-known chronic illness)?
For example, a potential policyholder seeking a regular individual policy on the open market must warrant that he is in good health and to the best of his own knowledge is not currently HIV-positive. A general principle of insurance is that the policyholder sells risk that, to the best of his knowledge, is not higher than the stated circumstances imply. Withholding relevant circumstances or hiding them is selling  something that is not what it is represented to be. Analogies are insider trading using material non-public information and making fraudulent (incomplete or false) seller disclosure in a real estate transaction.

Was the disability incurred in the course of performing job related duties?
For example, workers’ compensation policies are not obligated to pay claims for disability that is not job-related. Insurance for such risks can indeed be purchased, but because the risks are more inclusive, the premiums are higher. A policyholder always needs to understand what she is or isn’t buying with her premium. And the insurer is legally obligated to specify exactly what coverage is or isn’t being sold.

How long is the waiting period before claim payments start?
Because most disability events are temporary, insurance coverage for them is cheaper when the policyholder agrees to wait longer before receiving claim payments. For example, if you break a finger, it may only be 2 months before you are able to do your job again. If you agreed to wait 60 days before receiving claim payments, then the insurer will not have to pay a claim for your event. This reduction to his risk is reflected in the lower price that you paid to purchase coverage (lower premiums).