Q

What is disability insurance underwriting?

A

Underwriting is how a disability insurance company measures the risk that you’ll become disabled and it will need to pay benefits.

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During disability insurance underwriting your insurance provider reviews your job duties, income, and health records to decide if you’re eligible for disability coverage. The information affects how comprehensive your coverage is and your rates. 

Underwriting takes approximately four to six weeks and has three main parts: occupational, financial, and medical underwriting. Your occupation is the most important factor, with more hazardous occupations resulting in higher rates or limitations on your coverage.

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Occupational underwriting

Occupational underwriting has a large impact on whether a provider considers you risky to insure. Some careers naturally come with higher chances of injury than others. An accountant, for example, is less likely to get hurt on the job than a construction worker.

During a phone interview, providers will ask questions about your work history and job responsibilities, then assign you an occupational classification (basically a risk rating) based on:

  • Claims history for your occupation: Industries with a high volume of disability claims are considered riskier.

  • Job duties: Your day-to-day tasks matter — the manager of a construction site has a less risky job than the employees doing the construction work.

  • Your employment history: Your seniority at a company and your salary might impact your classification. Variation in this category most often applies to office workers.

Occupational classifications usually have a number and letter designation (e.g., 1A or 5A, with 1A being more hazardous than 5A). How your occupation is classified can also differ between insurance providers.

Financial underwriting

Financial underwriting helps your insurer decide how much your benefit payments will be (they equal a percentage of your income) and confirm that you can afford your premiums. A higher income often translates into higher rates, since your benefit payments will be higher if you become disabled. 

You need to share tax documents with your insurer as proof of your income. The documents you need depend on the type of company you work at and the type of employee you are (e.g., a contractor, a W-2 employee, the owner). It may also differ slightly between providers:

Employment statusDocumentation needed
Non-owner W-2 employeeMost recent Form 1040 including schedules and W-2s
Non-owner 1099 employeeForm 1040, including Schedule C
Owner of sole proprietorshipForm 1040, including Schedule C
C corporation ownerForm 1120, U.S. Corporation Income Tax Return; 1099s; andW-2s
S corporation ownerForm 1040, with W-2s and relevant schedules; or Form 1120-S, U.S. Income Tax Return for an S Corporation, with Schedule K-1 and W-2s
PartnershipForm 1040 with relevant schedules; or Form 1065, U.S. Return of Partnership Income, with Schedule K-1
Limited Liability Corporation (LLC), single member, individualForm 1040, including Schedule C, E, F.
Limited Liability Corporation (LLC), single member, CorporationForm 1120 or 1120-S
Students, residents, new professionalsUnderwriter's decision

Financial underwriting also helps the insurer confirm that you’re not overinsuring or underinsuring yourself — i.e., buying too much or not enough coverage to protect your income.

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Medical underwriting

Insurance companies look at your health history for signs that you might become seriously ill or injured and need to file a disability claim as a result. This takes into account information like:

  • Age

  • Gender

  • Health and lifestyle habits

  • Medical history (both your own and your family’s)

In addition to reviewing your records, medical underwriting includes a medical exam and drug test. Your insurer may also request an attending physician’s statement (APS), a statement from one of your doctors that provides more context about your health, such as how well you’re responding to treatment for an illness. 

Medical underwriting is one of the longer steps of the disability underwriting process because doctors can take some time to release your records. 

Simplified issue underwriting

Some disability insurance companies offer simplified issue underwriting, which speeds up the approval process by skipping the review of your financial and health records as well as the medical exam.

However, your eligibility for simplified issue disability insurance depends on your age and coverage needs. The benefit amount may be smaller than that you’d get from a regularly underwritten policy and may only be available to certain age groups.

What happens after underwriting?

After underwriting, you’ll get an application decision from the insurance company. If you have a riskier occupation, you may be approved with some changes to your policy:

  • Extra premium (a flat fee to account for a risk factor in your history)

  • Exclusion for specific illness or injury (injuries from skydiving, for example)

  • Higher premium than initially quoted

  • Lower benefit amount, shorter benefit payout period, or longer waiting period before payments start

Your policy premiums will also be affected by the amount and length of coverage you buy.

Disability insurance underwriting might seem complicated, but there’s little required of you once you provide some initial information and have your medical exam. Your insurance agent or broker can keep you on track and informed throughout the entire process.

Frequently asked questions

Is there underwriting for disability insurance?

Yes, disability insurers use underwriting to measure the likelihood that you’ll become disabled and the company will need to pay benefits.

How long does disability insurance underwriting take?

The entire underwriting process typically takes four to six weeks, though it can take longer if there are delays in collecting necessary information.

What factors affect disability insurance underwriting?

Your occupation is the most important factor in disability underwriting. Your age, gender, finances, and health also impact your rates.