Selling individual disability insurance can take time. From first broaching the subject with your client and submitting an offer, to underwriting and application approval, the process can often take a few weeks, if not months, to complete.
There also can be a back and forth between the carrier and client to clarify documentation, especially during the underwriting process. What’s more, this process can often end in an unexpected result for your client: a modified offer.
What is a modified offer?
A modified offer doesn’t mean your client isn’t eligible for coverage; it means that a policy is approved, but, due to the client’s medical history, the policy may have an exclusion for a certain medical condition, may have a higher premium than expected, or may have benefit limitations placed on it. The client will still have coverage, but, for example, the policy may not cover a client’s back if the client was in a car accident years ago and has continually sought care for a musculoskeletal condition.
A client’s medical history is one of the main factors that contribute to an individual disability insurance policy coming back with a modified offer. As an advisor, it’s often difficult to know your client’s full medical history. An advisor may not be aware of a client’s full medical history at the beginning of the process, making it hard to predict what conditions an underwriter may exclude from a policy.
When you’re presented with a modified offer, you may not know how to bring this subject up with your client. The client may be surprised by the fact they weren’t approved for a full policy. Or, if not adequately prepared, the client may not think the modified offer presented by a carrier is worth it, and will either try to back out of the sale completely or encourage you to pursue coverage through other carriers.
Equate the process to something familiar
To help counter these reactions and keep the sale, I encourage brokers to set expectations early with clients. An approach I often take when first broaching the subject of individual disability insurance with clients is to equate the process to another scenario they may be more familiar with: applying for a mortgage.
For a strategy you can use to position this for your clients, read on.
How do you tell your client about possible turbulence? (Image: Thinkstock)
What to say
Individual disability insurance underwriting is an intricate process. Consider it like a mortgage application. The bank or mortgage sponsor needs some of the same information that an individual disability insurance carrier would need — namely financial statements and occupation history. When the bank receives that information, it needs to make a decision about whether or not you will be worth the risk, and if you’ll be able to meet the financial obligations that are associated with homeownership.
The same is true for an individual disability insurance application. The insurance carrier will need information on your income, occupation and medical history. Medical history is very important because it helps the carrier assess your risk of having disabling conditions in the future.
If your medical history would point out a medical condition, there may be a little back and forth from the carrier — like there would be with a bank or mortgage sponsor— to get more information and better understand your medical condition. This back and forth isn’t something to be concerned about. And, if you were to have a condition that would concern the insurance carrier, we still have options.
You could receive a modified offer, which would put parameters around filing claims for your medical condition. Or, we could get a reconsideration from the carrier, which is when the carrier’s underwriters would say, for example, that if, in two years, you hadn’t received treatment for this condition, they would consider removing that exclusion.
Preparation can help make the sale
Outlining these options and letting your clients in on the process can help alleviate concerns down the road. The more aware the client is about the options they have, the better prepared the client will be to realize the importance of having some coverage, rather than nothing at all. While the coverage purchased may exclude a condition, the income protection it does offer will be important as the client advances in years.
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