Individual Disability Claims – Mistakes And Misconceptions

Although in the past Individual Disability “own occupation” policies were often sold as  “better than sliced bread”, today they barely put food on the table.

In the 70’s and 80’s insurers risked their companies believing that professionals, such as doctors, dentists and highly paid executives would not file claims for secondary gain. This risk turned out to be a disaster.

At the time it was not anticipated that HMOs, PPOs etc. would enter the scene and making it very unprofitable for physicians, and other health professionals, to maintain their practices, or even want to. The nature of health care changed restricting billing, and setting up fixed fees for certain procedures.

Due to the billing innovations of the new health care system, professionals began filing disability claims on own occupation polices. As a result many insurance companies were forced out of business, but the remainder developed deliberate strategies to prevent excessive payouts for “own occupation” to save its own skin and reputations.

“Own occupation” disability IDI was purported by unknowledgeable agents to be the holy grail of disability products –  “If you can’t work in your own occupation you can go do something else and still get paid.”

Although this is technically true, it isn’t the whole truth; and, it remains increasingly frustrating for insureds today who never did understand their policies when they purchased them and who now believe they work and still get paid 100% of their scheduled benefit for total disability.

Although most IDI insureds actually paid additional premium for “Residual Disability Riders”, they obviously missed the significance of what they really meant. Residual disability provisions and riders pay a proportionate loss benefit {under certain conditions} to those who are working in their own, or in some contracts in “their regular occupation, or in another occupation.”

This means if an IDI insured is working in their own or another occupation they are paid residually. Hence, the “own occupation” definition is relevant if the insured is not working at all; the “residual” Rider comes into play when working part-time or full-time performing the same, or another occupation.

In reality, an “own occupation” definition is “qualified” by Residual Disability Riders when they exist. If an IDI insured is working, they are said to be “Residually” paid and qualify for benefits under the “residual contract provisions.” Suddenly, own occupation becomes applicable if insureds aren’t working at all.

Hence, when IDI insureds want to insure payment after returning to work in some capacity they purchase “Residual Riders”, without realizing there are now two definitions of disability in the contract – “own occupation” for total disability, and “residual” for returning to work.

Also, IDI insureds tend to wait long periods of time before filing claims – sometimes years. Although as a rule IDI policies cannot be denied for late filing, they can be denied for “prejudice”, meaning the insured waited so long to apply that he/she actually “prejudiced” the insurer’s investigation of the claim. Insurers are infamous for saying, ” An IME today is not the same as an IME in 2011.”

When I ask IDI insureds, “Why did you wait so long to apply for benefits?” I am told, “I thought I would be able to return to my job or business”, or “I didn’t know I had this policy.” Contract provisions typically require IDI insureds to file claims within 90 days after any claimed period of disability, or up to 1 year for mental incapacity. Most states now require insurers to “prove” prejudice before denying claims.

IDI insureds also have the mistaken impression that once insurers receive their application paperwork they will approve and pay claims immediately. IDI insures are not subject to ERISA and therefore insurers may take as long as can to investigate and pay claims, often demanding more and more paperwork.

It is essential for IDI insureds to file timely claims with complete and accurate information from the beginning. Physicians are required to send in MONTHLY P&Ls AND CPT codes. Very few physicians can actually come up with MONTHLY information because it’s not kept or generated from their software on a regular basis.

There are many other errors involved in filing IDI beyond the scope of this article. If you have any questions concerning the process, please feel free to give me a call to discuss.

It may be that you need assistance in order to file and maintain a successful IDI claim, particularly if you don’t understand it, or have been told inaccurate information about “own occupation” and “residual riders”.


Filed under: IDI Issues