Disability Insurance Tips You Need to Know | White Coat Investor

[Editor’s Note: Today’s WCI Medical School Scholarship Sponsored Post is from Platinum Level Sponsor, Michael Relvas, CFP® of MR Insurance Consultants. Michael is one of those good guys I try to connect you with in the industry, and hundreds of you have secured quality disability insurance with him over the years. The generous support from Michael, as well as all of our sponsors, allows us to award those big prizes in October.  Many thanks to our sponsors!]

 

Last Chance for Unisex Pricing For Medical Residents and Fellows in NY

As many of you know, changes have taken place over the last 12 months that reduced the number of unisex-priced policies available for medical residents nationwide. There is one insurance carrier that still offers unisex rates in NY, but that will be changing effective September 19^th. If you’re affiliated with a NY-based hospital or GME program, or recently graduated from a NY-based residency/fellowship program, and believe you might benefit from securing a unisex-priced policy, it could be worth getting quotes by September 18^th.

*There continue to be exclusive unisex-based discounts available at select programs around the country, and those will not be affected by this change. However, the number of overall options will be significantly reduced in NY after 9/18.

 

Your Disability Insurance Application Is More Important Than You Might Think

When trying to purchase a private disability insurance policy, you first have to submit a formal application to an insurance company and undergo underwriting. The concept is simple – prior to offering coverage, insurance companies want a fair and complete understanding of the risk that a person presents so they can determine the terms under which they’re willing to offer coverage, or possibly decline to offer coverage.

There is no hiding the fact that applying for disability insurance can be an inconvenience. The introduction of web-based applications and accelerated underwriting programs has streamlined the process, but these applications are thorough and capture a lot of critical information that the insurance companies use to determine eligibility. Therefore, the validity of one’s coverage could be contingent on the accuracy of the information provided on his/her application. Since the insurance company is basing their decision on the information provided on the application, a material misstatement, misrepresentation or omission could allow insurance companies to deny a claim or even void a policy.

 

The Contestability Clause

Not everyone dives deep into the weeds of a disability insurance policy, but those who do will likely find a provision known as the contestability clause. It basically states that disability insurance policies can be voided, and claims denied, during a specified period of time following a policy’s effective date if there is a material misstatement, misrepresentation, or omission on the application. This period is generally limited to 24-months, but can be longer depending on the company and state in which coverage is purchased.

While this may seem harsh, it actually protects both the insurance company and the insured. It protects the insurance company because it clearly states they can contest claims due to material misstatements, misrepresentations, or omission of material information during the first 24-months of the policy being in-force (possibly longer).

This also protects the insured however, since the timeframe for contesting non-fraudulent claims is limited to a relatively short period. It is reasonable for applicants to forget something on their application, without ill-intent, and this provision protects the insured from having their claim denied or policy rescinded several years after purchasing it, as a result of something truly accidental.

It is important to note that fraudulent statements, misstatements, and omissions are not limited by the contestability clause and can be used to void a policy or deny a claim throughout the life of the policy.

In case it’s not yet clear, the information provided on a disability insurance application can significantly impact how smoothly a claim is processed. It may be inconvenient and could even seem insignificant, but it’s important to take your time and complete your disability insurance application as accurately as possible. Once the application is approved and a policy is issued, an applicant should again review the original application submitted to verify the answers remain 100% correct at the time of signing and accepting the policy.

 

Disability Insurance for Foreign Nationals

Disability insurance is important because our ability to work and earn an income is important. Without the proper income protection, a disabling injury or illness could devastate a person’s financial future. For foreign nationals on J1, H1-B, and other similar academic and work visas, a person’s ability to work could also determine whether they are required to leave the U.S.

Reviewing the options for disability insurance can be somewhat complex on a normal basis, but the bar gets raised even higher for foreign nationals. It’s not just about finding a policy that includes the appropriate definitions, features, and riders, but also finding a policy that offers the least restrictive guidelines for claiming benefits while living outside of the U.S.

Regardless of citizenship or visa status, most insurance companies include a provision in their policies that limit the benefit period while an insured is outside of the U.S. There are three primary ways that insurance companies handle this risk:

1. Some simply limit the benefit period to a specified period of time. For example, benefits may be payable for up to 12 months, but no longer than 12 months, over the life of the policy.
2. Some limit the benefit period to 12 months, unless the insured lives in the US for at least six consecutive months in each calendar year.
3. Some don’t include any limitation at all.

This might seem simple, but the insurance companies that don’t include limitations in their base policy will add exclusion riders to policies issued to visa holders in order to help limit their exposure. This is even further complicated by the fact that insurance companies have different policy language for different states. The same insurance company might issue a policy in one state that doesn’t include a limitation, while issuing policies that do include a limitation in neighboring states.

How Should Foreign Nationals Address Their Disability Coverage?

This greatly depends on a person’s country of citizenship, state of residence, and how close they are to securing a green card. It cannot be stressed enough that each individual should really evaluate the options available for their specific situation. That said, there are some general thoughts that can be considered:

If You Anticipate Securing a Green Card in the Near Future

As already noted, some companies add exclusion riders on policies issued to visa holders which outright exclude or limit benefits being paid while the insured is outside of the US. Once that same applicant secures a green card however, the insurance companies are generally willing to reconsider and likely remove the exclusion. This could provide a great opportunity for someone who anticipates securing a green card in the near future. Although an exclusion would still initially apply, securing a policy that doesn’t include a benefit limit in the base policy language could eventually allow the policy owner to end up with a policy that does not limit their time spent outside of the US.

If You Do Not Anticipate Securing a Green Card Soon

On the other hand, someone who does not anticipate securing a green card in the near future, could be better served with a policy that includes a benefit limitation but will not include an exclusion rider that outright excludes benefits. This would at least be the case in the short term.

An insurance broker with experience in working with foreign nationals should be able to help you objectively evaluate your options and make an informed decision. There isn’t always an obvious or great choice, but in some cases there are, and high-quality coverage could be available with fewer limitations than one would expect.

I intentionally avoided naming specific insurance companies because the list of disclosures would be endless. Policies, provisions and exclusions vary by company and by state, which makes it nearly impossible to create a simple cheat sheet for foreign nationals to follow. Individual professional advice can be quite beneficial with these cases.

What do you think? Have you had an issue with the contestability clause? Had trouble getting DI as a foreign national? Comment below!

Disclosures:

Michael Relvas is a CFP® professional that specializes in Term life and Disability insurance for physicians and physician families nationwide. He can be reached at 800-817-4522 or [email protected].

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

Guardian, its subsidiaries, agents and employees do not provide tax, legal or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Michael L. Relvas is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 9200 Corporate Blvd Suite 390, Rockville, MD, 20850, phone: 240-683-9700. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. MR Insurance Consultants is not an affiliate or subsidiary of PAS or Guardian. The individuals associated with MR Insurance Consultants do not maintain specialized licenses, or qualifications for the financial services provided to medical professionals.

Michael Relvas is insurance licensed in all 50 states (CA #0G91249, FL #W010461, AR #400845).

2020-107997 Exp. 9/22