What to do if your policy contains an exclusion, rating, or modification.

I bet I see it at least once a month. A disability insurance application gets approved, however that approval comes with an exclusion, rating, or modification due to medical history.

• Exclusion – The disability policy will protect you from any injury or illness that prevents you from performing the material and substantial duties of your occupation with the exception of a specific exclusion (lumbar spine, left shoulder, right ankle, etc). The intention of a specific exclusion is to avoid paying claims for a known pre-existing medical condition. However, your policy should protect you from an injury that the underlying issue did not contribute to. A car accident, for example.
• Rating – If your medical history cannot be specifically tied to a single area of your body, it may require an increase in premium. For example, if your height/weight falls outside of the normal limits (having an effect on many aspects of your body), it may require an extra rating instead of an exclusion. This will raise your premium by 25%, 50%, 75%, or 100%.
• Modification – Instead of the full policy you applied for, the insurance company may find it necessary to offer you a modified option. They may limit your benefit period to 5 years, and remove some of the other riders applied for.

What should you do if your disability insurance offer contains one of these limitations?

First thing you should find out is if the limitation is permanent, or if it can be reconsidered after a period of time. Depending on the severity or chronic nature of your specific issue, the underwriter may require the exclusion be permanent.

However in many cases they can also say something like “we can reconsider in 2 years given favorable medical records and using current underwriting guidelines”. This usually means that if your issue is not chronic in nature, we should be able to remove the limitation once you are 2+ years treatment/symptom free.

Consider your options under the following scenarios:

• Your health improves
  • If you accept the disability insurance policy, you will lock in your age, and as your health improves you can likely remove the exclusion or extra rating. Eventually ending up with a clean policy that covers everything. In the meantime you will still be protected from hundreds of other things that could prevent you from doing your job.
  • If you decline the offer, you may be able to re-apply as your health improves and get a clean offer without exclusions or modifications. However at that point the premium will be higher based on your new age.
• Your health remains the same
  • Accepting the offer, even if it contains limitations, will still protect you from countless other illnesses or injuries that can prevent you from doing your job.
  • Rejecting the offer puts you at financial risk of becoming disabled and not receiving any supplemental income.
• Your health worsens
  • If you accept the original offer, you’re at least covered for a number of things that can happen.
  • If you reject the offer and your health worsens, you may not be eligible for any offer in the future.

Getting a modified offer from an insurance company simply means you are a higher risk. If you are a higher risk, there is a higher likelihood that you will file a claim. With that being said, having some protection is always better than having no protection.

Your ability to earn an income is the most valuable asset you own. Protect that asset the best way you can.