In applying for Disability or Overhead insurance, why are prior tax returns requested?
A. When you apply for disability insurance it is purchased to protect the earned income you would lose in the event of disability. The insurance company will ask for prior tax return when you apply for coverage over a certain amount. The reason they request the tax return is that they want to verify that the amount of coverage requested would be in proportion to the net income you would have after expenses, taxes, etc. In other words the insurance company needs to make sure you would not be better off financially when you are disabled. With Overhead Insurance applications over a certain amount, the insurance company will request your prior business tax returns (personal tax returns if you are a sole proprietor). The reason they need these tax returns is to verify that the amount of overhead insurance you are purchasing would not exceed what you need based on past Overhead expenses. In both cases, these actions are taken to keep experience sound and premium costs reasonable.
