Disability Insurance, Business Continuation Insurance; Disability Buyout Issues
By: Martin M. Shenkman, CPA, MBA, JD
Professionals and business owners are often admonished to purchase disability income insurance to replace the income lost if they become sick or disabled, business overhead insurance to keep their practice afloat, and perhaps disability buyout insurance to fund the buyout of a disabled partner. So you've paid all 3 premiums dutifully for years and unfortunately suffer a debilitating illness which derails your career, dreams, and worse. The process of collecting on these can prove daunting.
Get someone not emotionally vested to shepherd you through the process. If you’re dealing with the emotional trauma of a new diagnosis or injury you need someone methodical and objective to deal with what might be several independent insurance companies. The paperwork can be voluminous. The technical issues (medical, tax, legal) may be complex. If your hands are full dealing with treatment plans, rehab, etc. get help. Paying for your accountant and a disability attorney to handle the submissions will cost a bit up front but can avoid tremendous difficulties. As a layperson, your imprecise use of terminology could delay or derail your case. You need to make sure the facts are appropriately and clearly presented.
More Than Disability Insurance
Your planning should have involved more than just a disability income policy. You should have an exit strategy from your business or professional practice. Don’t defer selling or transitioning your practice or business for too long if you’ll have to do so. If you run it into the ground there will be little to sell. If you have buy sell and other business agreements in place, get your accountant and corporate attorney on the case as quickly as possible as there may be critical deadlines.
Business Overhead Insurance
If you have a business overhead policy it should protect you if you cannot work full time. These policies are sold to help cover your fixed costs, like rent. You may have to prove partial or total disability to collect on them. You also have to corroborate the expenses you are incurring. Often these are geared to expenses that are deductible for tax purposes. It can be good as gap insurance while slowing down. The definitions and calculations may differ from those under your disability income policy. Again, the concepts are likely to be technical and the paperwork substantial. Consider involving your accountant. If you are totally disabled and close down your practice or business, the coverage may prove ephemeral.
Try to be consistent with what you report to your business overhead insurer, disability company, the IRS, credit and mortgage applications, etc. The insurance companies will get access to all these documents. Consistency, unfortunately, is probably impossible given the different definitions and purposes of the financial and tax reporting you might be involved in. The confusion can be substantial and differences may have to be reconciled.
Nature of Your Work
Your disability income company wants to know quality and nature of your work. They need to determine how you derive your income (e.g., surgery, office hours, lecturing). The quality and quantity of work you do defines the “duties of your occupation.” This might require some fancy cost accounting analysis that no one had ever focused on before.
Residual or Partial Disability
Working while you are disabled, especially at earlier stages of a progressive illness, is common. You want to maintain normalcy as long as possible. Your business overhead coverage may be a huge help if you’re only partially cutting back. But be wary, disability income insurance companies may view your working initially as an indication that you can continue to work even though you’re sick. This could shift the dynamic to you if you cut back further in the future, or cease working, to demonstrate that even though you previously worked with the disability you can no longer do so. You may have to demonstrate a new development that has created the new change (e.g., no available job with the necessary accommodations, a worsening of your condition).
Be carefully about sending emails. It’s too easy to hit that [send]. Instead write a Word document and attach it so you can review it make certain that the facts are listed correctly. If there are tax or accounting issues, have your CPA review it. If there are policy definition issues, consult with your agent. Have a disability attorney review everything before it is sent.
Don’t provide the carrier with an open ended authorization to obtain whatever information they want. Some authorizations are unreasonably broad. Instead endeavor to reasonably limit authorizations to what is appropriate and necessary. The business overhead carrier will need different information than the disability income carrier. Revoke existing authorizations if they are too broad or are being abused. Ask for copies of all documents obtained on your matter from the insurance company. If they won’t confirm what documents they requested inquire in writing why. Remind them that financial and other confidential information about you should not re-disclosed to the extent feasible (certain data may have to be).
Your physician will get a “peer to peer” call. They might be really busy and not focused if the call comes during the middle of their office hours. This is the same issue as with emails above. Quick answers may just be wrong. If your physician states something incorrectly it could be used to undermine your entire case. Then the insurance company can deny your claim. Consider restricting your physician to only releasing selected data and not speaking on the phone. This should be noted prominently on your patient file.
Prepare a symptoms worksheet, fill it out, and provide it to your physician at each visit. Your physician may not have adequate time during a routine office exam to record this level of detail and the insurance carriers may need detail to make determinations. A quick comment in your chart like “stable” might be so general and vague that it is simply inaccurate. But it could be a basis to deny your claim.
Remember Home Mortgage Securitization
So you bought a policy from an insurance company with a household name. You pay premiums for years relying on the reputation of the company in case you need ‘em. Years later when you file a claim you learn that the well known company sold your policy (they’ll call it “reinsured”) to a Chinese company who hired a private US company to administer it. When the name brand insurer has no interest in your policy, will it really be administered in the manner you anticipated when you purchased it? Even your agent may have no clue what has transpired. Hasn’t the fundamental nature of the agreement made when you purchased the policy been violated? Some type of disclosure standard, at minimum, should be considered to address this.
Monitoring or Pressuring
If you have a progressive chronic illness what purpose is served by a disability company continually requesting reports from your neurologist? Chronic progressive illnesses don’t improve. While one can understand the desire for periodic updates at a reasonable interval, does a substantial increase in requests for data occurring at the same time you have a dispute with the insurer, or are negotiating a buy out, suggest something inappropriate? Reasonable regulation of this process should do nothing to harm insurers protecting their legitimate interests, but it might well give the struggling disabled some protection. How about a recent add directed to the disability insurance industry: “Do you know what your claimants are doing around the upcoming holidays? Find out now at a discounted price. Capture that active claimant on video! An all-inclusive day of surveillance for a low flat rate of: $499.”
How to Buy Disability Coverage
If you’re in the market for buying disability coverage, do it right. Most folks focus on premium costs. You’re not buying hamburger! The real shopping you should do is to pick the right agent. Get an agent that really knows the product, and who will stick with you and help you if you have issues later. That’s the smart way to shop.
What does it mean when a nationally known insurance consultant doesn't want to bother filing a claim for obviously incorrect actions by a disability insurance carrier with the state insurance commission because he knows nothing will be done? When industry leaders are so jaded, another approach is called for.
Join the ABA Task Force
The Insurance and Financial Planning Committee of the RPTE Section of the American Bar Association is organizing a task force to explore disability insurance issues, with an emphasis on developing goals and framework for possible state legislation and regulations. One perceived problem is the lack of transparency in the operations of this industry, and the need for consumer oriented regulation. An end product might be a white paper that will be presented to NCCUSL to initiate the process of drafting a uniform law. For info contact David S. Neufeld, Esq. 609-919-0919, David@DavidNeufeldLaw.com
Reporters seeking more information on these issues should contact: Jennifer Jaff, Esq., Advocacy for Patients with Chronic Illness, Inc., (860) 674-1370, and email@example.com ■ Bonny G. Rafel, Esq. Livingston, New Jersey (973) 716-0888 firstname.lastname@example.org .
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