Don't "Turn Over" Your Coverage Rights

If you want a prime example of why we hammer at you to read your policy before you accept it, take a look at Nunn, et al. v. Massachusetts Casualty Insurance Company, 2014 WL 684980 (2nd Cir. 2014). Although the plaintiffs, both NBA basketball referees, didn’t read their policies, the court gave them a shot at prevailing because they didn’t get the coverage they were clearly led to believe they were getting.

This opportunity was given them because of the peculiar circumstances under which they had bought their policies. The ordinary insurance policy sales pitch is nothing like the one in this case. Without this peculiar situation, Mr. Nunn and Mr. Vaden would have been out of luck.

The usual insurance policy sale is a confidential matter with the salesman and the prospect dealing one on one. There are typically no witnesses to the sales pitch. In Nunn, the salesman made his pitch at a union meeting of NBA many basketball referees at which he clearly stated several times that the supplemental policy he was selling changed the “own occupation” limit on benefits from “10 years” to “age 65”. This meant that so long as the policyholder was unable to perform the duties of an NBA referee (commonly called “own occupation” coverage) within the time frame, benefits would continue..

The actual policy delivered to the insureds clearly stated that after 60 months of “own occupation” benefits payments, benefits would continue only if the insured were unable to perform the material duties of any gainful occupation for which he is suited (commonly called “any occupation” coverage). Since both plaintiffs were then employed, the insurance company refused further benefits.

It took an experienced disability insurance attorney to even recognize that the almost infallible rule about the policy language being the law of the case had a chink in its armor.

Because of the irrefutable statements of the salesperson (a lot of people heard him) that benefit payments would continue until age 65, the Court held that under Pennsylvania law, Nunn and Vader had “reasonable expectations” that payments would continue and ordered further proceedings.

Would the salesperson’s pitch have been irrefutable if the pitch had been made one on one? If there was the slightest doubt raised about this issue, Nunn and Vader wouldn’t have stood a chance.  The policy language would be the law of the case and the plaintiffs would have been tossed out of court.   

Protect yourself. Read and understand your policy before you buy it. 

Don’t give your insurance company a chance to “bad-bounce” your benefits.

"Residual" Adds Protection

Many people don’t realize that you actually don’t have to be flat on your back to get financial help from a disability insurance policy.  Many policies provide for partial disability which can provide substantial disability benefits even after your medical crisis or injury have improved.

This fact was pointed out in a recent Wall Street Journal article by financial planner Michael Relvas, Rockville, Md., who noted that it is sometimes very hard to know about this benefit because many times you need a code breaker to decipher disability insurance contract language.  However, it is definitely worth the time and effort to find out if you have this benefit.

From an actuarial perspective it has been shown repeatedly that the risk of  suffering a partial disability is substantially greater than the risk of suffering total disability.  Yet, many disability policies do not provide benefits for only partial disability.

Residual benefits are the key words in determining if you have such coverage in your disability policy.  If you are fortunate enough to have it, then you may receive benefits even if you are able to return to work, provided, in most cases, that your income is at least 20% less than you were making before your disability struck. 

You may be entitled to residual benefits which will bring your post-disability income up to  80% of your pre-disability income. 

Mr. Relvan also points out that residual clauses in older policies may be more valuable.  Many older policies will pay benefits till age 65.  Newer policies typically pay residual benefits for only 2 years.

Not all disability income policies have residual benefit coverage.  Particularly if you are the owner of a small business or in a profession, such as medicine or accounting, this type of coverage can be vital in the event of a disability.

As we have said before, it is vital to read your insurance policy before a triggering event rather that after one.  Before, you can do something about a gap in your coverage.  After, you are out of luck.

When it comes to protecting income, you have to be thoughtful.  Medical disabilities often come with longer, drawn out recoveries which may permit a return to an occupation, but at a less remunerative level.

You have to decide:

Do I need insurance coverage for this eventuality?

Now Is The Time

A recent case we read which has nothing to do with disability income insurance reminded us once again that all policyholders, particularly disability income policyholders, must read and understand the terms of their policies carefully to make certain they have the protection they want.

The case we are referring to is American Automobile Insurance Company v. Murray, et als, 2011 WL 3966114 (C.A.3 Pa.))). The case basically concerned technical judicial procedural matters, but the underlying gist was that an insurance broker failed to provide a policyholder with proper coverage advice, thereby causing the policyholder loss.

The insurance broker failed to advise a beer distributor to include an alcoholic beverage clause in its comprehensive liability policy coverage. And, of course there was an alcohol-induced accident fatal to a third party.

Whether this basic error was caused by lack of knowledge, inattention, or simply a desire to close the policy sale and make a commission, the policyholder was left with no insurance to defend or pay a judgment. Cases such as this clearly support our continuing mantra – “Read and understand your insurance policy”.

What’s the point of having and paying for a policy which you were told covers you, but doesn’t? Insurance agents are human and have human frailties. Most won’t admit lack of knowledge or uncertainty; inexperience; inattention; failure to understand your needs and desires and, perhaps, an overwhelming need for money in their personal lives which affects their business judgment. Under such circumstances, mistakes are often made and policyholders may suffer.

Disability income insurance policies have a greater potential for such errors because of the wide variety of technical requirements which must be met before benefits are paid. And, because of the very lucrative commission structure attached to these policies, brokers are highly motivated to sell them.

When a person buys such a policy they do so with certain goals in mind, i.e:

* Obtaining replacement income when a disability strikes the family breadwinner.
* Coverage for the length of time the breadwinner can’t work.
* Benefits that come as close as possible to replacing the breadwinner’s usual income.
* Protection against a rising cost of living if the disability is long term.
* In high income situations, protecting the insured’s “own occupation” and securing adequate amounts of coverage in the event of disability.

Most of us who have personal policies purchased them from an agent or broker whom we assumed knew his or her stuff and did his or her homework before trying to sell us a policy. And, “sell” is the operative word. The agent or broker is interested in making a commission on the sale. That’s how they earn money to support their families. And, the commissions on disability insurance can be substantial – up to 50% of the premiums.

Do we know how scrupulous, knowledgeable or smart our particular broker or agent is about disability income insurance? Unless we are certain of the answer to this question, we have to ask a lot of questions and make sure we see the answers in our policy.

The policy is the contract which sets forth the terms of the deal between you and the insurer. If what you think is in there is not, then your coverage is incomplete and you and your family can be badly hurt in the event you become disabled.

If the policy is the contract, you must read it and satisfy yourself that it says what you think it does. The time to do this is obviously before you make a claim. After you claim, you can be certain that the insurance company will fight hammer and tongs against a claim which is not clearly covered in the policy. And, the chances are that under these circumstances the insurer will win, even in court.

When you buy a policy you are not looking to buy the right to sue the broker or agent for a mistake or oversight. You are looking for a contractual right to benefits from a solid financial entity – the insurance company.

To assure yourself, read your policy before it’s too late. If the language is not fully understandable to you, get somebody who knows insurance language to help.

Asking for help is not a sin. Depriving your family of a future because you were too proud to ask, is.