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Maria is a 43-year-old, married lawyer with two small children to support and a mortgage loan to pay off. Her financial advisor tells her she should have disability insurance. “Yes,” she says. “But theres one problem. My doctor recently told me I have diabetes.”

Twenty years ago, Maria might have had a hard time getting disability income protection at any price. Today, if she has her diabetes under control, many traditional carriers might decline her or severely rate her, but “the impaired risk carrier would make an offer,” says John Nichols, president of Disability Resource Group Inc., Chicago.

Nichols says the increased competition in the impaired risk disability insurance market has come just in time for the aging of the baby boomers.

Doctors “know how to make us live longer and maybe more comfortably,” Nichols says. “But the morbidity risk probably has increased.”

The number of applicants between the ages of 39 and 58 who need impaired risk disability insurance is increasing partly because the aging of the boomers means there are more consumers in that age range.

For instance, the percentage of U.S. adults between the ages of 45 and 64 who have diabetes increased to 8.57% in 2000, from 5.54% in 1980, says the Centers for Disease Control and Prevention.

Meanwhile, Nichols notes, many boomers are taking longer to have children. By the time they need disability insurance to protect their children, their bodies may show signs of wear and tear.

Disability insurers are taking note and finding ways to price and underwrite products aimed at boomers who are in less than perfect condition.

Two established players in the market are Fidelity Security Life Insurance Company, Kansas City, Mo., and Boston Mutual Life Insurance Company, Canton, Mass. At least two other companies, Illinois Mutual Life Insurance Company, Peoria, Ill., and Assurity Life Insurance Company, a unit of Lincoln Insurance Group, Lincoln, Neb., have entered the market in the past few years.

Insurers typically charge 50% to 100% more for impaired risk coverage than for standard coverage. They also protect themselves by phasing benefits in over two years.

Maria might get only 35% of the standard benefit if she suffers a disability during the first year the policy is in effect, or 65% of the standard benefit if she suffers a disability during the second year. After two years, the policy would pay her the full benefit.

Insurers consider the age of the insured, the amount of coverage wanted and other factors when setting prices but usually do not charge different prices for insureds with different types of disabilities, Nichols says.

Impaired risk programs deal with particularly severe, progressive causes of disability, such as cystic fibrosis and Parkinsons disease, by denying applications for coverage altogether.

Illinois Mutual has been selling standard disability insurance since 1955, but it set up its “special risk” DI program three years ago. The company uses the term “special risk” for the policies rather than “impaired risk” because it does not want customers to feel they are impaired, says Katie McCord Jenkins, assistant vice president of sales.

“We kept seeing all these people being turned away,” Jenkins says. “These are people who are working. We said, Gee, weve got to come up with something that can fill that need.”

Illinois Mutual came up with a policy that is guaranteed renewable to age 65.

“We see mostly diabetics, anxiety with depression, and overweight,” Jenkins says. So far, she adds, “weve had very good [claims] experience.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.