Disability Insurance Articles

How Disability Insurance Providers Assess Policy Holder Risk

2011-08-30

When disability insurance providers review an application for coverage, they try to accurately determine policy holder risk. The higher the chances of a disability insurance claim, the higher the chances that the disability insurance provider won't make a profit on the policy. As insurers often deal with hundreds or thousands of policy holders, accurately assessing risk is incredibly important. The procedures that an insurance company uses to find risk can have an enormous impact on its bottom line--and on the premiums of disability insurance policy holders.

Policy holder risk is established by a complex calculation which takes into account almost everything that an insurance company can legally use to determine the possibility of a claim. Underwriters collect and analyze information about policy holders and compare this information to actuarial data. The age and the overall health of the disability insurance policy holder are two of the most important factors at play. Older buyers will generally have a tough time finding inexpensive disability insurance policies unless they purchase through an employer. Likewise, employees with preexisting health conditions may pay more for disability insurance or may be denied coverage entirely depending on the relative risk that the preexisting condition poses. A disability insurance company might request a physical examination or medical records to determine the level of risk that a preexisting condition poses. Some preexisting conditions may not be used to determine policy holder risk if doing so would violate state insurance laws.

Another important factor that underwriters use when setting disability insurance rates is occupation. High-risk occupations mean high-risk disability insurance policies and higher-than-average insurance premiums. Miners, chemical workers and construction workers may have high-risk occupations, and as different occupations carry very different risks, insurance providers may ask for additional information about a worker's occupation before issuing a policy. Many high-risk workers decide to buy disability insurance through their providers in order to ensure reliable coverage and to keep their rates at an affordable level.

To get the lowest possible disability insurance rates, workers should try to lower their risks. While some of the factors that disability insurance providers consider can't be controlled, others can--for instance, the safety precautions taken at a job site or the overall health of the applicant. Buyers should also look for disability insurance quotes for some time before buying. While many disability insurance companies use fair methods to establish their rates, the market is extremely competitive and premiums can vary greatly from one insurer to the next. Comparing quotes is a great way to gain perspective on the benefits and drawbacks of various disability insurance policies and to ensure low rates regardless of risk level.