If A DI Prospect Has A Health History, Consider Impaired Risk DI
The individual disability insurance underwriting process may be more rigorous than any financial product sold within the individual market.
As a result, industrywide, the percentage of applicants for DI coverage who fall into the “impaired risk” category is higher than many other products. This does not mean, however, that applicants who have impairments will be ineligible for DI coverage.
In fact, many impaired risk applicants are offered coverage on standard policy forms.
Still, other applicants can get coverage, but under special “impaired risk” DI policy forms, or IRDI for short.
When you have a client who wants DI insurance but who has an impairment, it helps to know which way the underwriting is likely to go. The following will give you the basics.
As a DI industry practice, many impaired risk applicants are issued a policy with a change to the coverage requested in the application. In these situations, applicants may be offered coverage with a change to the elimination period or the benefit period, an endorsement rider that excludes coverage for certain pre-existing conditions, and/or a change to the premium rate.
Such policy and/or rate modifications are intended to adjust the contract to cover the risk appropriately. However, when coverage is issued with one of the adjustments described above, the policies are often issued on a standard policy form.
The most significantly impaired risks, which may represent 10% to 20% of all DI applicants industry-wide, may not be eligible for coverage on a standard policy form, though. Some of these individuals may qualify for the “impaired risk” DI coverage, mentioned above. Available from a very limited number of companies, these IRDI policies differ from typical DI policy forms in several ways:
IRDI coverage may be based on a group-type policy, known as a “group trust,” with each insured receiving a “certificate” of group coverage rather than an individual policy.
The premiums for IRDI may be “conditionally renewable,” which means the coverage will end for all insureds if the group policy is cancelled.