United States: The Shadow Asset Of Insurance

Last Updated: November 4 2016
Article by Robert K. Scott

Many of us have purchased disability, dismemberment and life insurance policies. Senior executives, managers, doctors and lawyers often purchase these products early in their careers and then forget about them. They are reminded of the purchases only when premiums are auto withdrawn from their accounts.

The consequences of time – both sickness and injury – have a way of making these insurance products relevant again. Depending upon individual circumstances, these nearly forgotten "assets" -- insurance policies -- may provide significant benefits in the event of a career-changing event. Like many things in life, however, timing is everything and an insured's failure to make a timely claim before circumstances have changed and individual job duties are altered, can nullify a potentially valuable claim.

Below is a checklist of possible insurance products and their benefits an insured should not overlook when faced with unexpected career decisions due to medical problems.

A. Disability Insurance Policies: These products come in individual or group policy form. Group coverage is usually provided by an employer at little to no cost to the insured employee. At the executive level, group coverage is often blended with individual coverage. The application process generally includes nothing more than medical underwriting and a paramedic taking the executive's vitals and maybe an EKG test. This type of coverage promises monthly payments if the insured cannot perform the material duties of his/her "occupation." Coverage may be denied, however, when an insured elects to continue working in the same "occupation," with a significantly altered and limited set of duties. This happens because many older disability policies evaluate job duties performed immediately before the "disability onset" in determining eligibility for benefits. If the insured has assumed new job duties prior to his/her claim, the new duties become the baseline for determining whether the person is disabled within the meaning of the policy.

The following two examples illustrate this significant limitation of disability coverage:

Example 1.

Facts. A senior executive with sudden onset of cardiac problems is faced with ending his career or accepting a significant modification of job duties for his current employer. The executive elects to continue working, without first analyzing coverage offered by a disability policy, and finds out much later that he overlooked a significant financial benefit.

Analysis. As predicate to making a "career move" any and all disability policies must be thoroughly reviewed by a lawyer well-versed in this specialized field. Most disability policies pay approximately sixty percent of pre-disability earnings. If properly set up, these monies are tax free. The resulting benefit is about equal to the executive's prior income net of tax withholding. Moreover, coverage under a disability policy can be a significant financial asset, as some policies pay lifetime benefits.

Additionally, depending on policy language, the disabled executive may still work in a different occupation and receive full benefits from the disability policy. However, if the executive fails to consider the disability policy before he/she makes the career change, and selects a new occupation compatible with his/her medical restrictions, it may be too late to claim benefits under the policy.

Example 2.

Facts. An orthopedic surgeon can no longer stand long enough to complete an operation due to a back injury. The surgeon choses to continue working, but limits his practice to office orthopedics and medical legal examinations. The physician later finds out that his decision to continue working in a lesser roll nullified potential coverage under a disability policy that would have provided equivalent income and lifetime benefits.

Analysis. Too often, doctors do not consider their individual disability policies to be assets whose time has come to utilize. In this example, if the orthopedic surgeon ceased to perform operations (a career change) and performed only office orthopedics before filing a claim for disability benefits, the physician's new job duties will be reviewed by the carrier to determine eligibility, even if most of the physician's income was derived from orthopedic surgery prior to his/her back injury. Again, "disability" under most policies is measured based upon the insured's last occupation prior to the claim. In this example, the physician's disability benefit based upon his lucrative surgical practice would be lost due to the insured's changed circumstances and delay in making a claim. If properly handled, the surgeon could have received a disability benefit, began another occupation (e.g., performing office orthopedics), and received income from both sources.

The important takeaway from each of the above examples is that all potentially applicable disability policies should be carefully reviewed and analyzed before any important career change is made due to the onset of a medical disability. The same is true for life insurance policies, which often contain a "waiver of premium" provision that relieves the insured of future premium payments if the insured becomes disabled from performing the duties of his/her last job.

B. Dismemberment Policies: This product, which is usually sold as a rider to life insurance or coupled with an accidental death policy, provides a defined amount of money covering the loss of (or loss of the use of) an eye, hand, etc. Such coverage may be offered through an employer's group policy, or purchased by an individual as a cheap form of life insurance, i.e., accidental death is covered, but not death due to illness. Although dismemberment policies only provide coverage when the loss of an eye, hand, etc. has occurred due to an accident, such injuries happen all too often in auto collisions, boating mishaps and other traumatic events. After any such event, an insured's dismemberment policies should be revisited as soon as practical to determine whether coverage is triggered. As with any insurance claim, a timely application for benefits supported by relevant medical information is essential.

C. Life Insurance Policies: Newer life insurance products often include a "waiver of premium" feature and/or a dismemberment provision. If a significant life shortening event (medical or accidental) occurs, an early pay out of some of the life benefit may be available. The insured should locate all potentially applicable policies, or ask his/her insurance agent to request copies, and have them reviewed by competent insurance counsel.

In summary, whenever an accident or sickness that may trigger a career change occurs, an insured should review all potentially applicable policies before agreeing to a change of job duties. The review should include all group and individual disability policies, dismemberment policies and life insurance policies. Other financial investments, such as credit cards, car loans and mortgages, may also have similar disability provisions that may be triggered.

Remember, you have been paying for these products for years. Don't forego insurance benefits you have already paid for when recovering from a major medical event that may ultimately require a career change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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