If you are paying a monthly or yearly disability insurance premium to ensure you’re covered for an injury or disabling illness, you should know that you may not get the treatment coverage you initially expected. The fine print of disability insurance strictly defines under which circumstances you’ll receive timely benefits. While it may sound troubling, it’s one of the oldest practices in the insurance industry. It’s called exclusions and limitations in insurance. And it’s something you need to be aware of if you’re researching disability insurance and when you get a policy presented to you.
In this case, we are talking about exclusions in disability insurance. What is it? Are there different types? Why is it so important? Finding answers to all these questions can be challenging. This is exactly why we pulled together this ultimate guide. Scroll down to learn everything you need to know about exclusions in disability insurance.
What are exclusions in disability insurance?
Disability insurance is just one of many unique insurance products. It’s designed to support people who are not able to earn a paycheck and work due to a disability. For instance, if you are a disability insurance policyholder and you suffer a disabling injury, the insurance company will pay you monthly benefits depending on the value of the premium you’ve been paying to that moment. You can always use this money for anything. It’s designed to help you not worry about paying your bills, but instead focus on recovery. Make sure you know what does disability insurance cover.
However, in very specific scenarios, your insurance company is not under a legal obligation to pay you a monthly benefit. Even if you regularly pay the insurance premium and end up disabled and unable to work and earn, the insurance company may not pay you monthly benefits if certain things are excluded from coverage.
A disability insurance policy will typically have something called exclusion riders, which outline all scenarios where the company doesn’t have to pay you monthly benefits of insurance.
An exclusion rider – what does it usually outline?
Without an exclusion rider in a disability insurance policy, the benefits would be payable for disability regardless of the scenario in which it occurred. In order to protect their financial assets and ensure fairness across the board, insurance companies decided to add exclusion riders to disability policy.
They also do it to mitigate their risk of paying a claim due to high-risk activities or conditions. In some instances, disabilities are more likely to occur, and insurance companies need to ensure they don’t go bankrupt.
It usually outlines three scenarios. You will most commonly find a rider referring to a specified medical condition, disease or disorder of an area of the body, or injury suffered while participating in an activity. In either case, if your disability is a result of an activity or condition defined in an exclusion rider, the insurance company doesn’t have to pay you monthly benefits.
Now that you know the terminology, we are ready to go through the most common exclusions in disability insurance.
The most common disability insurance riders
There is a set of unique exclusions in disability insurance you need to understand. Each of them refers to a specific scenario, either rendering you ineligible for the claim or significantly shortening the payout time window. All exclusions can be put in two different categories.
Universal exclusions are found across insurers, and the chances are that all of them will be on your disability insurance policy. Your policy is no longer claimable if you violate any of these terms and conditions.
The universal exclusions go as follows:
- Self-inflicted acts — if you end up disabled due to your own volition, your disability policy is no longer claimable. For instance, if a person attempts suicide, survives, but ends up disabled, the disability policy is useless;
- Criminal activities — if a policyholder suffers an injury and ends up disabled while participating in or performing illegal activities, the policy is nullified. A person can still make a claim, but the chances of receiving benefits are non-existent;
- Acts of war — a risk that a person will end up disabled during a war are quite high. That’s exactly why insurers use acts of war exclusion to mitigate this risk and avoid bankruptcy;
- Civil disobedience or rebellion — this instance is pretty much similar to acts of war. During civil disobedience or rebellion, the risk of injuries is high, making this exclusion a must-have in a disability policy;
- Operating a motor vehicle while intoxicated — this exclusion is also common for car insurance policies. It simply ensures that the insurer doesn’t have to pay benefits if a policyholder becomes disabled due to a car accident while intoxicated.
The second category encompasses specific exclusions. These refer to:
- Pre-existing medical conditions — an underwriter can pinpoint a certain risky pre-existing medical condition a person may have and add exclusion to mitigate it. If that condition develops and results in a disability, the insurer is not in obligation to pay benefits;
- High-risk or hazardous activities — injuries and conditions related to high-risk activities can cause disability, and insurers use this exclusion to mitigate the risk. It’s often the case with people who enjoy extreme sports;
- Work-related conditions — some professions are more hazardous than others. If there is a high risk that policyholder might get injured at work, the insurer will add this exclusion to the policy;
Condition-specific exclusions — some insurers have condition-specific disability exclusions such as lung disease, diabetes, and cancer.
Are disability insurance exclusions added randomly?
Disability insurance exclusions are not added randomly to your policy. They are carefully selected by the insurer during the structured application and approval processes.
When you apply for disability insurance, you will typically have to go through a paramedical exam. That’s something most insurers schedule for their potential clients. They will collect your urine and blood and ask you many questions about your (family) medical history. They also record your weight, height, pulse, and blood pressure. In addition, they will also ask questions about your lifestyle.
Every insurance company has a team of underwriters. These professionals will go through your medical data and the paramedical exam results to assess your risk of filing a claim for disability coverage. If need be, they will add text to your policy that indicates they will not cover disabilities resulting from defined activities.
Disability insurance exclusions are permanent or reviewable
Since your health and lifestyle are subject to change, it’s normal to wonder whether exclusions in your disability insurance policy are permanent or reviewable. Some of the exclusions will stay in your policy, and they are not subject to change. It applies to the exclusions we referred to as the general — self-inflicted acts, criminal activities, and others.
Generally speaking, the reviewable exclusions are almost always related to your health. For instance, if you have a pre-existing condition and you manage to get it under control, the exclusion referring to it can be reviewed and erased from your policy. However, you will be required to submit all the required medical documentation to do so. Some insurers might even ask you to get an exam at the specified clinic or by a specified doctor.
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Disability insurance exclusions vs. limitations
Limitations are also commonly found in disability insurance policies. Many people use exclusions and limitations interchangeably. It’s important to note that these two are not the same. They are both found in the fine print in insurance policies, and they are similar, but one important thing sets them apart.
If you get disabled under the circumstances outlined by the exclusion, the insurer doesn’t have to pay your benefits. However, if you get disabled under the circumstances outlined by a limitation, you still have a claimable policy. The limitation is there to outline to what extent the company may limit your benefits.
Another thing that makes people see exclusions and limitations as the same thing is that limitations can also be universal and specific. It all depends on your underwriting. When it comes to universal limitations, you should know at least a couple of them, so you don’t mix them up with exclusions.
One of the most common limitations refers to disabilities caused by anxiety or mental illnesses. These limitations don’t apply to the size of the monthly benefit but to the period during which it will be paid out.
An insurer may decide to limit coverage if it finds your underwriting conditions too risky. It often happens due to pre-existing health conditions. The insurer can also introduce a limitation that prevents you from purchasing additional coverage in later years. The limitation, in this case, may state that you need to go through the underwriting process before you can purchase additional coverage. Be aware of the difference of short vs long term disability insurance.
Claims and exclusions – how do they affect each other?
Exclusion riders have always been there and will continue to be there. The best thing you can do is find a disability insurance policy that suits your personal needs and lifestyle in the best possible way. If you are well versed in legal matters, exclusion riders should not be that much of a concern, especially when it comes to submitting a claim.
See, even if you think that exclusion rider applies to your case and that the chances of getting those monthly benefits are slim, you should still submit a claim. Whether you become disabled due to an illness or injury, your claim should be on its way to the insurance company.
It’s simply because an exclusion rider may not affect your disability claim even though you think it might. To get your claim approved and get appropriately compensated, you need to meet all the terms and conditions found in your policy.
Here is one example that showcases how an exclusion rider may seem to apply, but in fact, it does not.
Imagine a person is a holder of a policy with an exclusion rider that says they will not be compensated if cervical spine occurs due to their history of a herniated disc. Unfortunately, the cervical spine condition occurs and renders that person unable to work and earn. To make sure that the exclusion rider applies, one needs to dig deeper into the case.
We are trying to say that the claim can still be valid. For instance, even with a history of herniated discs, a person who suffers a disability caused by an unrelated traumatic experience still might be able to receive benefits.
There is also one common misconception about whether the claim is compensable or not. If a person suffers from two disabling conditions and one is outlined in the exclusion rider, the claim could still be comprehensible. The company will ensure that a person meets all terms and conditions and that the traumatic experience outside of exclusion, in fact, caused the disability.
What role exclusions play in disability insurance shopping
When you are looking to invest in disability insurance, don’t make the mistake most people make. Don’t just compare policy features and prices. Disability insurance is much more than features and prices. Everything revolves around exclusions and limitations. How do you discover those without applying and going through the underwriting process?
You are allowed to ask insurers to send you disability insurance quotes. This is important because not all companies have the same policy and underwriting system. Some may be more willing to give you full coverage despite having a pre-existing condition. Companies don’t add limitations to disability policy on benefits for disabilities due to mental disorders and anxiety.
If you want to step up your shopping, you can work with an experienced disability insurance broker like Policy Solver. We have experts who can help you find the best possible policy for you.
Exclusions in disability insurance are not that hard to wrap your head around, right? Hopefully, you found our ultimate guide informative and helpful. As you can see, exclusions are there to help insurers mitigate their risk of paying certain claims. These claims often result from high-risk conditions and activities, and as such, they are more likely to happen than claims that follow accidents and other unforeseen circumstances.
Now that you know what exclusions are and how to differentiate them from limitations, you will be able to make smarter decisions when shopping for disability insurance.
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U.S. Centers for Medicare & Medicaid Services. (n.d.). Rider (Exclusionary Rider). Retrieved from HealthCare.gov website:
Araujo, M. (2022). What Is Insurance Underwriting?. Retrieved from the Balance website: