Read It So You Won't Weep

In the business of blogging, we learn to be packrats, hiding away bits of information upon which to base future writings. Many times we forget what we have and are pleasantly surprised when we happen on a tidbit which strikes our fancy.

Contemplating the difficulty of explaining the intricacies of disability insurance law, even to specially educated people such as insurance agents and financial planners, we happened upon “The Illusion of Coverage:”, a comprehensive review of the difficulties of insurance law published by The Access Project www.accessproject.org in 2007.

What we were looking to do was to point out that in today’s world, even when you are in the insurance business, you do not necessarily have your finger on each of the myriad nuances of the various types of insurance coverage because there are so many risks covered in so many ways at so many levels of cost, it seems one would need an encyclopedia just to keep up.

What got us on this topic was a discussion with a financial planner about a particular client and the need for “own occupation” disability coverage because of the nature of the client’s profession and income level. The planner was quick to say that the client had
“own occupation” coverage in his disability income policy.

But, when we asked him, “What kind?” he was at a loss for words.

We then proceeded to list for him the possible limitations and conditions which insurance companies try to place on these policies, such as:

* Limiting the “own occupation” payments to 2 years.
* Precluding the insured from working in any other field as a condition for benefits.
* Capping the amount of benefits to a specific sum over the life of the policy.
* Defining the occupation so as to cover a broad spectrum of employment.

The problem here may be that “own occupation” is frequently used by insurance agents and brokers to describe coverage which is really “modified own occupation”, without understanding or explaining the difference to the policyholder.

The planner and his client may believe that when the insurance agent says the policy has “own occupation” coverage, that such coverage is truly “own occupation” in the classic sense, i.e., if the client can no longer perform the occupation of brain surgery, the insurer will pay the benefit even though the client may be able to do some other type of medical work. Only when the claim is made does the reality of the distinction become clear. By then it is too late.

What the public (and many times their advisers) are not aware of is that insurance, particularly disability income (and long term care) is not nearly one size fits all. Subtle language differences can be critical at the time of claim, but are frequently overlooked or ignored at the time of the policy sale.

So, if one is negotiating such a policy for him or herself, or for a client, to accept a statement that a policy has “own occupation” coverage without plowing through the language of the policy so as to know exactly what one is actually getting, is doing a disservice to yourself and your client.

As with everything else, you get what you pay for. If you want a gold-plated policy which gives exactly the benefit you want for as long as you want, then the premium is going to be high, and if you are willing and able to pay for it – good for you.
If you are not willing or able to pay the required premium, then you have to settle for less protection.

But the important part of this transaction is that both the client and the financial planner know and discuss the details of the policy and make knowing choices based upon a full understanding of the options.

Accepting a generic label for an insurance clause without fully analyzing the actual language leads to a rude awakening if policy payoff time ever comes.

You may miss the true import of a policy clause when you are buying it. But, you can bet your bottom dollar the insurance company won’t miss it when it comes time to pay your claim.