Disability Insurance Application Stacy Mitchell also contributed to this article.

Financial documentation is arguably the most important part of a disability insurance application, yet it’s often the hardest to understand.  Agents inquire daily about why forms need to be sent in and which forms are needed.  And, oftentimes, even when we receive all the financial documentation, agents want to know why underwriters have changed the client’s benefit amount to reflect a lower income than what was written on the application.  The answers all lie within the tax documents.

Why are tax documents needed for disability insurance?

In a perfect world, clients would never lie or exaggerate when giving us their earned income amount.  But unfortunately, incorrect information is often what’s provided and most of the time clients aren’t even aware of the fact that they’re giving inaccurate numbers. 

Your client might tell you she’s making $100k a year based off what she sees on one line of her taxes, but that might include money that isn’t covered under a personal disability insurance policy.  For example, passive income from rentals, royalties or pensions would continue to come in even if the client was sick or injured, so it’s not included when configuring a benefit amount. 

If a client is married and submits a joint tax return, clients often report the total income shown on the tax forms, forgetting to omit their spouse’s income, which wouldn’t be covered either.

Disability insurance underwriters request certain forms so they can analyze all aspects of a client’s financial portfolio: wages, tips, bonuses, passive income, interest income, spousal information, and more.  The first page of a tax form, which is what most clients think to provide their agents, isn’t enough to tell underwriters what they need to know.

Which forms need to be included with the disability insurance application?

This is the most asked question of our case management team. While some carriers might vary slightly, it’s pretty standard across all carriers as to what’s required.  Here is a guide that you can reference. Please note that the information below was taken from an insert inside The Standard Insurance’s application, but it can be used as a guideline for most carriers.  

  • Non-owner employee – Submit the insured’s complete Form 1040 for the most recent year, including all schedules and W-2s.  OR If the income is from salary only, provide a copy of your client’s paystub showing a minimum of six months of year-to-date income.  OR If your client received 1099 income, provide a complete Form 1040 with Schedule C and submit the 1099 form as well. 
  • Owner of Sole Proprietorship – Submit complete Form 1040 and Schedule C. 
  • C Corporation Owner – Submit complete W-2s.  For non-medical occupations, if the insured is 50% or more owner, submit Business Tax Form 1120. 
  • S Corporation – Submit complete 1040, W-2s and Schedule C OR submit Corporate Tax Return Form 1120s and Schedule K-1.

It’s important to note that disability insurance underwriters reserve the right to request additional income information and/or financial documentation throughout the course of underwriting.  However, providing the information above will help your client’s case move more quickly toward an underwriting decision.

Should you have other specific questions regarding financial documentations or requirements, please feel free to contact our underwriting department or ask your question in the comments below.  We’ll be sure to follow up immediately.

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