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The Need for Disability Insurance

Few of us think of the fact that we may be disabled.  Unfortunately, chances aren't as slim as you may think.  If you are age 35, your chance of becoming disabled for three months or more over the next 30 years, as a result of contracting cancer, suffering a stroke, or being hit by a car, is three times greater than your chance of dying.  Think of it this way: a disability policy is the way to insure what is likely your largest asset - your earnings power! Disability insurance replaces your earnings when you are partially or totally disabled from an accident or a sickness.

 

 

How to Determine the Amount of Coverage

Generally speaking, you should have enough disability coverage to replace at least 60% of your gross income while a long illness or injury prevents you from working.  In fact that is usually the most coverage that insurers will sell you.  If they provide much more coverage, they assume that you will have little incentive to return to work.  See our income ratio guide. 

How Policies are Offered

Disability insurance can be purchased on either an individual or group basis.  Group insurance is usually provided by your employer or purchased individually from an association.  Although initially lower in cost, group policies have several limitations.  They can be canceled (by the association, the insurance company or by your employer to save cost), rates increase as you get older, benefits are taxed as ordinary income which means you will receive quite a bit less than what you may think you will get and premiums are subject to adjustments based on the claims experience of the group.  Finally, group and association policies often contain restrictive language which is not usually found in individual policies and they contain less-generous contract provisions.

Limitations of Association Insurance

If you are thinking of applying for association coverage, you should be aware of its limitations.

1.  The policy can be cancelled by either the insurance company or by the association.

2.  Rates increase as you get older (step or graded rate).

3.  The plan is subject to rate increases for the entire group.

4.  It provides limited or no coverage for partial/residual disability claims.

5.  It contains restrictive definition of your "own occupation"

 

 

6.  It is subject to benefit decreases at older ages.

7.  The plan offers limited options to protect future insurability.

8.  It may provide a limited benefit maximum.

9.  Important coverage may not be provided. (cost of living, waiver of premium, group disability replacement, etc.

10. As a member of the association, you receive a "certificate of insurance".  You do not receive a policy.

11. You need to remain in your original profession and maintain membership in the association.  Coverage is not portable like individual coverage.

 

Renewability

There are three options: 1) a non-cancelable and guaranteed renewable policy, 2) a guaranteed renewable policy, and 3) a conditionally renewable policy.

1) The non-cancelable contract, especially if price is not an issue, is by far the best of the three. That's because it locks in your rates and benefits. The insurance company can't make changes unless you request them.

2) A guaranteed renewable policy is less desirable. After you invest in a policy, your insurer doesn't have the right to drop you but  they reserve the right to raise prices for specific reasons.

3) Finally, avoid conditionally renewable policies. An insurer can put any condition on them or raise rates at any time.

Look for a broad definition of "total disability."

This section of your policy is the most important part of a disability contract.  This section defines the terms for when and how the insurance pays.  Many definitions are embedded within a policy and should be examined carefully.  One definition that is especially important is the definition of "Total Disability" This wording is very crucial and directly impacts the contract's quality.  Insurer's offer several different definitions of total disability:  The following disability definitions are from most liberal to least liberal.

  • Own Occupation Medical, Dental, Law Specialty Definition 

This is the best definition available in the marketplace today.  It pays even if the insured is working in another occupation.  It is especially important for the medical, dental, or law professional.  Specialty definition limits your occupation to your board certified medical, dental specialty or specialty of Law. So if you are unable to do the substantial and material duties of your medical, dental, or law specialty you are considered totally disabled regardless of your ability to work in another occupation or specialty of medicine, dentistry  or law.  

 

 
  • Own Occupation/Not Gainfully Employed Elsewhere

Without specialty definition, your occupation is that of a Medical Doctor, Dentist or Attorney.  This definition of total disability changes slightly with possibly profound differences during claim, if  you are unable to do the substantial and material duties of your occupation (medical doctor, dentist or law) you are then considered disabled regardless of the ability to work in another occupation.  Specialty definition of an insurer's intent to recognize and protect your medical, dental, or law specialty must come from an authorized officer of the insurer.

 

  • Own Occupation for a period of time, thereafter unable to work in and not working elsewhere.  Modified Own Occupation.

This is a split definition of true own-occupation for a period of time, such as five years, for example.  The definition then changes to "unable" to work and not working elsewhere because of education, training, and experience, and prior economic status in some instances. "Not working elsewhere give the claimant a chance while "unable to work elsewhere" gives the carrier more control.

 

 

 

  • Loss of Income

 

This definition does not recognized you as a Medical Doctor, board certified medical specialty, dentistry or law.  This policy will pay if you suffer a loss of earned income and will stop paying benefits when your earned income returns to 80% of your pre-disability monthly earnings.  All sources of earned income are used to determine your loss of income.

 

How Disability Policies Are Priced

The cost of your coverage is influenced by 1) Type of contract, 2) your age, 3) your gender, 4) the amount of your monthly benefit, 5) how long you must wait before benefits begin, 6) how long you want your benefits to be paid, 7) any riders you want to include in your policy, 8) your medical history, 9) and occupation. The younger you are when you purchase your policy, the lower the cost of insurance.  Therefore, consider purchasing your policy as early in your career as possible to lock in lower premium rates.

To check insurance company ratings, click Moodys , Standard and Poors or A.M. Best.

Summary

Purchasing a high-quality disability insurance policy is an important decision. Unfortunately, due to adverse claims experience, the individual disability insurance marketplace has become even more complicated, especially for health care professionals.  Policies vary greatly in terms of the definition of disability made available, the contract provisions offered and the premiums charged.  For this reason, it is important to discuss your needs with an insurance professional who understands the subject and who represents more than one insurance company.  Since Medical Management has been advising health care professionals for over 40 years that we would like to think that we fit this description.  If you would like to discuss your needs, call (800) 501-8078 and ask to speak to one of our representatives or E-Mail us at  kaplanmanagement.net

 

For Physician's and Dentists in Training

Protect Your Future Income Now

Training for a career in medicine or dentistry takes a big commitment. Long hours, personal sacrifices and right now planning for your financial future may seem overwhelming.  If you are just starting its not to early to start thinking about protecting your future income.  In fact, there is no a better time for you to purchase a disability policy then now.  Since disability policies are based on your situation at the time of your application, you have the opportunity to put yourself in the best position and lock in a policy based on your current age, health and you obtain many other benefits.  The insurance companies understand that you are on a limited budget so they have allowed us to write a minimum of $ 1,000 per month and to include an Future Purchase Option of $ 5,000.  This enables you to lock in at least $ 6,000 of future earnings.  This will also protect you if you have a change in your health in the future.

 

 

 

Specimen Policies and Related Information

2013 Disability Insurance Comparison Chart

2013 California Disability Insurance Comparison Chart

Berkshire Life Provider Plus 1400 Non-California

Guardian Life Provider Plus 1400 California

Guardian Life Provider Plus Limited Brochure - The Intelligent Choice 2011

Mass Mutual Radius

MetLife Omni Advantage - Non California

MetLife Salary Saver - California

Northwestern Mutual - RRDI Series

Ohio National ContinuOn DI

Ohio National ContinuOn BOE

Pan American Life Income Protector

Principal Insurance HH641 California

Principal Insurance HH750 Non-California

Principal - Questions You Should Ask About Your Group LTD Program 

Principal - Reasons To Supplement Your Group Coverage

RiverSource Non-NY Product Brochure

Standard Platinum Advantage * NEW 2016

Standard Protector California 

Standard Protector+ Non-California

Standard Protector Platinum  

Ameritas/Union Central DInamic 2000

UNUMProvident 650 - California

UNUMProvident  Income Series - Non-California

Kaiser Permanente LTD Policy LK-030054

 

Please click Articles for periodicals on disability insurance.

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Copyright 2001 Kaplan Management & Insurance Services
Last modified: August 25, 2017