Income Protection Ensemble: Mental/Nervous Coverage

Screen-208-In-the-past-year-four-old-friends-have-called-me-and-thanked-me-for-selling-them-disability-insurance-because-they-have-been-on-disability.jpgFor most people, purchasing insurance is a painful thing and they’ll skate by without ever giving thought as to what a policy can potentially do for them. To them, it’s a commodity and price is king as long as it does “just enough” so they’ll be okay. But once a claim occurs, the appreciation for the nuances in a policy can suddenly turn into frustration when they wished they had paid more attention to the details because when healthy it was never conceivable that “this could happen to me”. So how do we get YOU to think like a disabled person? This is the beginning of my monthly series explaining how the world of disability insurance works and my thought process around what might or might not matter to you. Your questions and scenarios are welcome so I can provide it to everyone, so if there is something you’d like me to address in this column please submit your requests to chase.brakke@northstarfinancial.com. For this month, I’m going to start with the Mental/Nervous limitation that we often see inside of contracts.

Mental/Nervous claims are those related to the mental health of an individual as it would be spelled out in the current American Psychiatric Association (APA) Journal. A quick look at these types of conditions can be found in ICD-10-CSM Codes F1-F99, but generally they’re considered to be anxiety, depression, personality and eating disorders, as well as substance abuse. These conditions are considered to be the number 2 claim in terms of incidence rate across the entire insurance industry ranging from 14-20% of claims1. The issue with these types of claims is that they are “self-reported” meaning there is no sort of diagnostic test to determine a negative or positive result. This lends itself to possible abuse, so you will typically see a limitation on mental nervous claims either for 24 months aggregate lifetime or 24 months per occurrence. Keep in mind that the limitation only impacts out-patient claims. As long as you are an in-patient the limitation does not apply. This also does not apply to things such as Alzheimer’s disease or dementia because those are conditions related to the deterioration of the brain and can be tested for.

Oftentimes people wonder why a mental/nervous history would impact the possible outcome of a disability policy so much even though those conditions would be excluded from coverage. The simple answer is that mental disorders can have a drastic impact on other disabilities and the recovery process. When someone is sick or hurt, it often worsens the depression and anxiety which can make their condition worse or prolong their recovery and return to work (making it a much larger claim than it otherwise should be). These are the unknown consequences of mental disorders from a claims perspective that results in such a poor offer. However, the longer the history of consistent medication and treatment the more likely they are to overlook minor and acute cases of depression and anxiety. Another concern is that when a condition is injury or illness related, a mental disorder or substance abuse can develop. Oftentimes when someone is dealing with ongoing pain we will see an injury claim end but then turn into a mental/nervous claim because of an addiction to pain medication, or having to deal with focus and sleep issues because of the pain. This covers such a wide array of possibilities that it becomes a major concern for claims experience, especially when it cannot be tested positive for. This also would not include fibromyalgia in most cases but some carriers will exclude fibromyalgia as part of their mental/nervous disorder exclusion because it is difficult to determine the limitation of work for this condition.

When explaining how important mental/nervous coverage is, I try remain unbiased because coverage in this area means something different to everyone. If asked how claims typically work for this, it’s easy to go down the rabbit hole of possible claims scenarios, so here are a few claims scenario examples that I’ve seen which favor both the limitation and unlimited coverage. 1) A client lost a newborn child (their first one) after just two and a half weeks to SIDS. It was very traumatic and devastated the family and almost caused their divorce. After about 12 months of counseling, medication, sleep deprivation, and family support, they were finally able to get on with their lives and return to work. In this scenario, the 24-month limitation would not have impacted them. 2) An anesthesiologist was performing a routine intubation of a patient for a routine surgery. This was something he had done thousands of times, but this time he ruptured the trachea and caused the patient’s death. He’s had patients die before during difficult intubations where there wasn’t much he could do but this was a routine procedure with no difficulty involved. The event caused him to second guess his skills and the result was a post-traumatic stress disorder that wouldn’t allow him to practice again. This scenario is where the unlimited mental/nervous coverage would have been important and valuable. 

The value of a mental/nervous limitation in the industry has been deemed to be roughly 10% of premium (seeing as that’s the discount you receive by most carriers for having the limitation). So, if you are comparing two carriers apples to apples but one has a limitation and the other doesn’t, if the carrier without the limitation is less than 10% more expensive then you have instant value and should be considered when making a buying decision. Of course, some people may be willing to pay more than 10% extra to have unlimited coverage if they find it important or have seen someone suffer from a long-term mental disorder incident. What matters is you should have an idea as to how it works, determine if there is value in having unlimited coverage or not, and finally decide if it’s worth paying for. Some professions are more prone to mental/nervous claims while others are highly cerebral professions and high attention to detail and focus is your most valuable asset, both making mental/nervous coverage all that more valuable. Next month I’ll touch on True Own Occupation coverage and when it is most appropriate.

Written by Chase Brakke, National Disability Insurance Consultant
North Star Resource Group

1These figures are an average of those reported by various insurance companies as of December 2017 and the percentage changes from year to year based on their own experience.

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