Disability Insurance and The Pitfalls to Avoid During The Application Process
Several years ago, Jim, aged 45, was the owner of a very successful and lucrative business. He had a wife, two wonderful children and very large home in an exclusive part of the city. Jim was the rainmaker for his company. He was responsible for bringing in the majority of business. He had beautiful offices and fourteen employees who depended upon him for their jobs. The business was expanding every year due to Jim's efforts.
Jim, like every business owner, constantly worried over the future of his business. Jim's primary concern, though, was his family should something happen to him since he was at the business. He contacted his local insurance salesman, Steve, and set up a meeting to discuss what options existed in the event he was suddenly unable to work. Jim met at Steve's office and the two discussed what types of insurance were available to protect Jim and his family.
After reviewing several insurance options, Jim decided on purchasing a disability insurance policy from The Big Insurance Company. He bought the disability policy to provide him and his family with piece of mind and security in the unlikely event that Jim would be unable to work. Steve filled out an insurance application with Jim. In order to qualify for insurance with the Big Insurance Company, Jim had to submit three years of income information since the amount of monthly benefits Jim would qualify for depended upon the amount of income he earned. During the application process, Jim did not know how much his income would be for that then-current year since it was several months before he would even think about filing income tax returns. Not knowing what his income would be, Jim provided Steve with an estimate. Steve filled out the application, using Jim's estimated income for that current year. Steve completed the application and submitted it to Big.
Eventually, Steve was contacted by the underwriting department of Big Insurance Company. He was asked to substantiate the income figures provided on the application. He submitted two years of income tax returns, but was unable to submit income tax returns for the then-current year since none had been prepared. Unbeknownst to Jim, Big's underwriter issued his policy without bothering to obtain income tax information to support the income figures for the then-current year. Unfortunately, Jim's business did not perform close to the number's listed on Jim's application. Jim did not think that his insurance policy would be jeopardized since he was interviewed by Big's underwriting department and provided two years of income tax returns to support his past numbers, not to mention the fact that the policy was issued. After all Jim thought, why would Big issue the policy if it was unsure of his income?
According to Jim's income, he qualified for monthly benefits in the amount of $10,000.00 per month should he become totally disabled from performing his job. Jim's yearly premium for the policy was over $10,000.00, however, he happily paid it knowing that his family's well-being meant the world to him. Seven years later (and $70,000.00 in premiums), Jim was involved in a horrible automobile accident suffering severe brain damage. Unable to function in any capacity, Jim submitted a disability claim with the help of his wife.
Big began making disability payments following the elimination period, however, those payments were made under a reservation of rights. In fact, Big reserved its right to later deny coverage and seek reimbursement of all benefits it paid to Jim. Thereafter, Big launched an investigation into Jim's disability claim. Sib was the claims adjustor assigned to Jim's claim. Sib obtained Jim's medical records to substantiate his disability claim. Sib
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