The High Wire Act of High-Net-Worth DI Claims

Agents who sell disability insur­ance (DI) to high-income profes­sionals often admit that the call they most dread receiving from a client is the one that begins with these five words: “My claim has been denied.”

Often a mixture of accusation and out­rage, the client’s harsh tone immediately triggers the agent’s defenses. What went wrong? Why didn’t my client tell me he was filing a claim? Am I responsible? I heard one agent confess that he’d rather have a dozen root canals without anes­thesia than deal with a client who was blaming him for a disability denial.

In this fast-paced world, physicians, dentists, attorneys, investment bankers and other high-income executives are often content to believe that they’ve pur­chased a guaranteed, sustained income stream that will automatically kick in should they ever become disabled. Fre­quently, these clients are short on time when they purchase the policy and avoid reading the fine print on spot or familiar­izing themselves with the contingencies of their coverage—despite the fact that they often have multiple policies with yearly payouts well in excess of a half-million dollars!

One agent related an incident about a stockbroker who waved off her offer to go over the terms of his various policies with him, chuckling as he walked out the door that there’d “be time for that later,” and he’d “be in touch if he ever needed to collect.” Three months later, at age 52, he suffered a major stroke that affected both his speech and his vision, leaving his grieving and baffled wife to sort out the complexities of his disability policies on her own.

Filing a DI Claim is a Complex Process

Filing a disability claim is NOT as sim­ple as collecting the payout on a lottery ticket. You don’t just send in the claim and the company pays. It’s an extremely complex and potentially lengthy process that most people are simply not equipped to handle on their own, particularly when facing the major changes that sudden dis­ability can bring. Too much is at stake, and the risk of denial or litigation is far too great.

In recent years, insurers have stepped up their efforts to identify fraudulent claims, which have in turn made the pro­cess even more complex—by filling con­tracts with countless options, confusing terminology, conflicting definitions of disability, criteria for exclusion, renew-ability, premium increases, riders, etc. If a “hurried” stockbroker couldn’t deal with the details of his policies when he was seemingly “healthy,” imagine how his wife must have felt when left to handle matters on her own.

A Case in Point: When Advice Was Seriously Needed

Over the course of his 25-year career as a highly respected gastroenterologist, Dr. Howard Richter purchased four individual, long-term disability policies. As his practice and reputation grew, so did his family and income. By the time he reached his mid-50s, he was earning well in excess of $750,000 yearly, the vast majority of which was attributable to the colonoscopy, gastroscopy and endoscopy procedures he performed on a daily basis.

Shortly after he turned 57, he began having pain in his left hand and was diagnosed with osteoarthritis, primar­ily affecting his fingers. At first, his symptoms were well-controlled and he was able to continue his practice on a full-time basis. Over the next 12 to 18 months, however, his condition gradually worsened, making it evident that he was nearing the point where he would no lon­ger be able to perform such procedures.

Reluctantly, because he had two chil­dren still in expensive universities and had just purchased a second home, Dr. Richter began to consider filing for dis­ability. After consulting with his wife, he contacted his agent who assured him that “all four policies provided lifetime bene­fits for disabilities resulting from illness.” Taking the agent at his word, Dr. Richter first did some financial calculations, fac­toring in the impact of his tax category and discovered that his benefits from all four policies would only replace about a third of his prior income.

His calculations shocked him since he had always assumed he’d be adequately covered if he ever had to give up his prac­tice. Suddenly, he was faced with the very real prospect that his family might need to modify their current lifestyle.

Belonging to a large group of physi­cians, at first he considered modifying his activities and continuing as a general practitioner. This would reduce the income from his practice substantially but would at least enable him to continue working and derive some additional income to help meet expenses.

Fortunately, Dr. Richter did not make that decision, which would have had a serious impact on his disability income as well as his career. Instead, he discussed this possibility with his colleagues, who were dismayed that he was moving so quickly and strongly recommended that he contact a disability claims consultant before he went any further in making such life-altering decisions. Considering the seriousness of his situation, Dr. Rich­ter agreed.

After realizing that Dr. Richter was still hazy about many aspects of his coverage, one of his colleagues gave him the name of a local long-term disability claims consul­tant specializing in high-income disabil­ity, and Dr. Richter contacted her imme­diately. She asked him to send her his four contracts for review before arrang­ing a meeting to go over the findings with him. Her goal was to give him a clearer understanding of how each policy defined disability relative to his individual situ­ation and alert him to any red flags she discovered that might negatively affect his prospective claim and payout.

The consultant’s first concern was that Dr. Richter’s agent had assured him that all four policies provided lifetime bene­fits—that is rarely the case without con­tingencies. And, secondly, that he was seriously considering changing the focus of his practice—never a smart move with­out also considering the impact of that decision on the disability claim.

After reviewing ail four policies care­fully, she realized that the situation wasn’t quite as clear-cut as his agent would have had him believe. Riders had been included in all policies that tied the pay­ment of lifetime benefits to the claimant’s age at disability. Two policies, however, provided lifetime benefits only if the dis­abilities commenced before age 60, and the remaining two only if the disabilities commenced before age 55.

When he had purchased these policies, his agent hadn’t pointed out these distinc­tions, and Dr. Richter himself had failed to do his own due diligence. He had never read his policies through carefully before or after purchasing them. Although only 57 when his symptoms began, he was now nearing 59 and his consultant had to break the news to him that he was only eligible for lifetime benefits on two of the policies instead of all four.

Had he waited a couple of years to file in order to avoid jeopardizing his income stream until both his children had grad­uated from college, however, the out­come might have been far worse. Once he turned 60, he wouldn’t have been eli­gible for lifetime benefits on any of his four policies.

First the Bad News… Then the Good

Even though Dr. Richter now realized his income stream was likely to be far less than he’d originally calculated, the con­sultant reassured him that, although the other two policies would not provide a life­time benefit, he was still eligible for ben­efits through age 65 with those policies.

She also pointed out that he was for­tunate that all four policies defined “total disability” as the inability to perform the “material and substantial” duties of one’s occupation (in Dr. Richter’s case, the duties of a gastroenterologist). Since those duties involved performing com­plex procedures, she advised him that insurers might deny his claim for “total disability” on the grounds that he could still continue to see patients without doing procedures.

To prepare for that possibility, she asked that he thoroughly review his records before filing his claim to confirm and document the fact that colonoscopy, endoscopy and gastroscopy procedures accounted for more than 70 percent of his income, as he had estimated.

Despite the additional paperwork involved, Dr. Richter took great care to provide comprehensive medical and sup­portive documentation, making it clear that performing those procedures consti­tuted the vast majority of his duties and income, and as such represented the “sub­stantial and material duties” of his occu­pation as a gastroenterologist.

The time he took to contact a disabil­ity claims consultant before filing his claim paid off. Not only did it give him a better understanding of the terms of his coverage, it alerted him to possible pit­falls in filing that might have resulted in his claim being denied. He also had the opportunity to discuss his options for continuing to practice medicine while collecting “total disability” under the terms of his contracts. And finally, he had a source to turn to should his insurers respond with questions about his claim.

Both his wife and his colleagues were reassured to learn that he had aban­doned his previous plan to become a general practitioner and chose instead to continue working within his group practice.

With the consultant’s help, he filed under all four policies and was delighted to learn that all four of his claims for “total disability” benefits were approved.

Assured of lifetime benefits under two policies and benefits through age 65 from the other two, Dr. Richter then felt confident about modifying his activities within the group practice. Although his earnings were reduced, he was simultane­ously receiving tax-free “total disability” benefits as a disabled gastroenterologist, which allowed him to make only minimal changes in his lifestyle while still main­taining sufficient income to sustain his previous standard of living.

Had Dr. Richter transitioned to a dif­ferent area of medicine as he had ini­tially considered doing, he could never have received total disability benefits as a “disabled gastroenterologist.” Of equal importance, had he later become dis­abled as a “general practitioner,” “total disability” would then have been based on his current occupational duties. This would not have involved the performance of the highly-specialized procedures he performed as a gastroenterologist, thus making it far more difficult for him to qualify for benefits.

by Steven A Morrelli for the March 2012 issue of InsuranceNewsNet Magazine.  Steven A Morelli is the editor-in-chief of InsuranceNewsNet.

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