[Editor's Note: Today's guest post author, Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, has been a regular blog contributor, advertiser, and generous sponsor of our annual WCI Medical School Scholarship (2020 scholarship announcement coming in early June). The article gets into the weeds answering questions lots of docs have about the AMA's disability insurance.]
Recently, while scrolling through my Facebook feed, a sponsored advertisement for the AMA’s DisabilityPro Own-Specialty Disability Insurance® popped up. It said,
Just to be on the safe side, Doctor, I think we should keep your disability coverage overnight for observation.
This post will do exactly that and alert you to some of the limitations associated with this plan, underwritten by New York Life (previously underwritten by The United States Life Insurance Company in the City of New York), and other similar policies available through various professional associations.
Over the last 30 years, I have reviewed a significant number of association plans but, far and away, this is the one that I receive the most phone calls and emails about. In fact, recently, after sending several individual disability insurance illustrations to a potential client, he immediately asked, “How are these plans different from other disability insurance providers such as the AMA's DisabilityPro insurance? The AMA's insurance also appears to be own occupation with a COLA Rider. It appears to be a lot cheaper for the same coverage. Perhaps I am missing something?
Unfortunately, yes. Purchasing disability insurance is in many ways like purchasing a diamond. Although the jeweler might hand you the loupe to help you see the diamond that you are considering, without being educated first, would you see its flaws? Probably not, as you don’t know what you are looking for or how to differentiate between a high-quality gem and a low-end stone.
Let’s start the process and see how this association plan compares to what is available on an individual basis:
11 Things to Know About the AMA’s DisabilityPro Own-Specialty Disability Insurance®
#1 It is NOT Non-Cancelable and Guaranteed Renewable
“As long as you are a physician actively at work, under the age of 75 (not retired), pay your premiums when due, the group policy remains in force, and the AMA continues to sponsor this plan, your coverage can be renewed”.
A policy that is Non-Cancelable and Guaranteed Renewable generally provides the greatest degree of protection to you as a consumer. Meaning, as long as required premiums are paid, the policy can’t be canceled, premiums increased, or coverage terms changed until the policy expiration date (typically age 65).
#2 The Premium Rates Are Not Guaranteed
While “You also cannot be singled out for a rate increase, regardless of how many claims you have made or the changing status of your health. However, rates may be adjusted on a class-wide basis”.
For example, a “class” may be a group of insureds of the same age group. Rates are based on your age on the effective date of coverage and your attained age on each renewal date. Depending on plan experience, premiums may change on the plan anniversary date (July 1) or your annual renewal date (whichever is later).
#3 It Does Not Have an “Own-Occupation” Definition of Total Disability
“This plan contains a preferred definition of disability, called own-specialty. This means you are eligible to receive benefits if you’re unable to perform the duties of your own medical specialty – not just some other job in the medical profession”. If you are unable to perform the duties of “your own medical specialty, benefits can be payable for up to age 65”. It then states that “you can receive a residual benefit if you return to work on a part-time basis in your own specialty or any other specialty or occupation if your monthly income is reduced by at least 20 percent, and you first receive benefits for total disability”.
At the time of this writing, there are only a handful of individual disability insurance carriers that offer this definition to physicians. Some of the major carriers include Berkshire Life (a Guardian Company), Standard, MassMutual, Principal, Ameritas and Ohio National.
#4 The Number of Days Required to Meet the Elimination Period Must be Consecutive
The waiting period is defined as the period of time from the start of total disability during which no benefits are payable. The waiting period is only satisfied if you are not working in any occupation. In order to meet the Elimination Period (also known as a “Waiting Period”), the policy requires a “period of consecutive days of Total Disability for which no benefit is payable”.
Individual policies do not require this and, for example, might specifically state that “You must be Disabled before benefits begin to accrue and starts on the first day that You are Disabled. The days within this period need not be consecutive but they must occur within the Accumulation Period. Benefits will not accrue or be payable during the Elimination Period”.
#5 You Must Be Totally Disabled Before You Can Collect Residual Disability Benefits
“This plan allows you to make a gradual transition back to full-time employment following a covered total disability. You can receive a residual benefit if you return to work on a part-time basis in your own specialty or any other specialty or occupation if your monthly income is reduced by at least 20 percent, and you first receive benefits for total disability. The residual benefit is based on a percentage of your total monthly disability benefit.”.
In his article “What to Look for in Disability Income policies”, the late Peter C. Katt, CFP®, a fee-only insurance adviser located in West Bloomfield, Michigan, stated “Do not buy a disability income policy that has a qualification period. There are too many diseases that are progressive and have no total disability at the beginning. Under such circumstances, a qualification period of, say, 30 days would prevent the insured from receiving any residual benefits”. Ideally, your disability insurance policy should not require that you be totally disabled prior to collecting Residual Disability benefits.
A good hypothetical example of this might be a physician that has not been feeling great and, as a result, has been working sporadic hours. They have their good days and their bad days. Due to their symptoms, they have and continue to consult with various medical specialists in hope of getting a differential diagnosis. This goes on for years and, as a result, they are working fewer days per week, fewer hours per day, seeing fewer patients and/or performing fewer procedures – causing a (potentially substantial) loss of income.
Finally, they are diagnosed with Multiple Sclerosis and told they can no longer work in their medical specialty. Only at this point, after the waiting period is satisfied and they meet the definition of total disability in the policy, can they potentially qualify for Residual benefits under the AMA’s policy.
#6 There is no Recovery Benefit
While any policy you purchase must include a Residual or Partial Disability Rider, what happens if you have physically recovered and returned to work on a full-time basis but continue to experience a loss of income?
A Recovery Benefit is designed to do more to assist with your financial recovery following a disability – especially if your practice has been built on referrals from existing patients and/or other physicians. Should you continue to suffer a loss of income of 15-20 percent or more, compared to your pre-disability income, and there’s a demonstrable relationship between your current loss of income and your prior disability, some companies will continue to pay benefits to the age of 65 or longer.
Other companies continue to pay for a limited period of time (typically 12, 24 or 36 months), which may or may not properly support your financial recovery. Therefore, if some or all of your compensation is tied to productivity, you should make certain that the policy you purchase contains a liberal recovery benefit.
#7 Limitations Exist for Claims Related to Mental and Nervous Disorders
Lawrence Keller
“If you are disabled due to mental, nervous, or emotional disorders before age 69, benefits under this plan are limited to 24 months. At age 69 and 70, benefits are limited to 18 and 12 months, respectively. (If such disability begins before age 63, benefits are payable up to age 65 if you are confined to a hospital at the end of 2 years and such confinement has been continuous for the immediately preceding 12 months.”).
While some carriers will cover claims for mental and nervous conditions in the same way as other disabilities, the majority of companies limit these claims to a maximum of 24 months (either per period of disability or over your lifetime). This limitation is invoked if the primary cause of disability was solely a psychiatric or substance abuse disorder or diagnosis including, but not limited to, post-traumatic stress syndrome, anxiety, depression, and or alcohol abuse/addiction.
Although many physicians may opt to purchase a policy with the least amount of restrictions, some may willingly accept a policy with this limitation in order to take advantage of the cost savings associated with it. Others, like Anesthesiologists, Pain Management Physicians or Emergency Medicine Physicians, may simply have no choice.
#8 There is a Limited Future Benefit Increase Option
“If you are under age 40, this option may allow you a future increase in benefits with no health questions or medical exams required if your income increases and you remain actively at work. This one-time option must be exercised within the first three years of your original effective date or before your 40th birthday, whichever comes first.
This rider allows an insured to apply for additional disability insurance coverage, regardless of their health, as their income rises. Essentially, you’re paying for the right to increase your policy’s monthly benefit without undergoing another exam, blood test, urine test, or answering any medical questions. This guarantees that any medical condition(s) that develop after the original policy’s purchase would be fully covered, and not subject to new medical underwriting. If you are purchasing a policy early in your career as a Resident or Fellow, you will likely no longer qualify to exercise the AMA’s Future Benefit Increase Option as you may still be in training within the first three years of your policy’s original effective date. As a result, your future income may not be adequately protected.
#9 The Monthly Benefit May Not be Adequate
“Physicians under age 55 may apply for up to $15,000 in monthly benefits for total disability. Physicians age 55 to 60 may apply for up to $5,000 in monthly benefits. Benefits from this plan, when added to any other disability insurance in force or applied for, cannot exceed 66 2/3% of your monthly income or $30,000, whichever is less”.
#10 You Are Not the Policyowner
“The policy can be changed: (a) at any time by written agreement between New York Life and the Policyholder; and (b) without the consent of any other person”. “New York Life can terminate the policy, only after the first anniversary date, by giving written notice to the policyholder at least 180 days in advance. New York Life may only exercise this right if the American Medical Association no longer sponsors the insurance under the policy”.
The benefits described above are provided by group policy G-30639-0, issued to the AMERICAN MEDICAL ASSOCIATION GROUP INSURANCE TRUST, the Policyholder.
#11 AMA Disability Insurance Rates – Up to a 35% Rate Reduction?
All insured physicians receive a 15% rate reduction for at least the first year of coverage. Members of the American Medical Association receive a 35% reduction. “Premium credits are reviewed and may change annually. The premium credit is locked in when coverage is issued and is guaranteed for at least the first year of coverage”.
Summary
Although initially low in cost, association plans, such as the AMA’s DisabilityPro Own-Specialty Disability Insurance®, may not provide the customized benefits that could be achieved by purchasing a high-quality individual disability insurance policy. In my opinion, this offering is best summed up by the old adage “you get what you pay for”.
Keep in mind that many insurance companies make discounts available on individual disability insurance policies through hospital affiliation or professional associations. Agents that specialize in working with physicians should know of and have access to them. Otherwise, establishing one requires that 3-5 employees working for the same employer purchase policies from the same insurance company.
It can be helpful to purchase your policy from an agent that represents several insurance carriers, so that they can provide you with illustrations of coverage from each and review the differences between them with you in detail. You can then make a decision based upon the policy or policies that best meet your individual needs, goals, and budget.
Most docs don't have the ideal disability policy for their gender, specialty, state, or health status. Contact one of our Recommended Agents to find the best fitting policy at the right price!
Could the author comment on the limitation in coverage options for government employees?
Are you a Federal Employee, County Employee or State Employee?
I actually got this disability insurance way back when, either during residency or as soon as I got out as an attending.
I just assumed because it was under the AMA name that it must be good and had doctors best interests. I actually kept it in effect till about 2 years ago after I figured I would not need it anymore. Luckily I never needed it to find out about the flaws pointed up above.
The premium slowly kept rising. I believe it was $80 /mo when first started and by the time I had terminated it it was around $140/mo.
Your first problem was thinking the AMA has the doctors’ best interests in mind.
But yeah, it’s a good thing you didn’t need insurance. I’m in the process of buying my own individual policy as a soon to be intern, and I hope to never use it like you.
I bought a disability policy when I was 30. It has a guaranteed level premium it provides around $9000 in tax free monthly benefit, and it cost $2500 a year. It also has an own occupation rider.
I have never missed more than two days of work in a row (about twice in 30 years) or in any given year.
My older brother was just diagnosed with a rare type of cancer with a median 5 year survival rate of 50%. It has no clearly known risk factors and affects only 4000 people a year.
If I were in his shoes I would certainly be disabled instantly as I would not be able to practice psychiatry under those circumstances, getting chemotherapy followed by bone marrow transplants and such. I’d be spending all my time trying to plan out my five year exit to minimize the impact on my family.
My only mistake on the disability front was not increasing the benefit when they asked.
I also have a 10 year level term life insurance policy that probably should have double the current face value.
So, my advice is similar to WCI. Get an excellent “own occupation, locked premium” disability and a level term life policy, with adequate amounts and hope you are lucky, like I have been so far.
“At the time of this writing, there are only a handful of individual disability insurance carriers that offer this definition to physicians. Some of the major carriers include Berkshire Life (a Guardian Company), Standard, MassMutual, Principal, Ameritas and Ohio National.”
I obtained a MetLife policy before they stopped offering individual disability policies that is specialty-specific, own occupation.
If you have an “Own Occupation” rider on your policy then you should be in good shape, if you don’t see that then you probably don’t have it.
Nice job Larry. It is always interesting how the ‘marketing’ department writes the brochure with the disclaimer that anything in this brochure does not modify the terms of the policy, please refer to the master policy for actual terms of the policy. That basically means they can write whatever we want in the brochure because they are telling it is not binding.
One other point I would make is that because it is an association based plan when an insured also then has a group plan from their employer they should read the benefit income offset provisions because a good number of those plans state they will reduce their payout dollar for dollar for any other group or association plans. What that means is if you have an employer plan that, as an example is $15k then you have a group plan like AMA, ACS or any number of medical association plans for $10k, if you become disabled the group plan has the right to only pay you $5k because they get to offset the $10k from your association plan.
Group plans are tricky and they create a ripple affect that most insureds don’t realize until claim time and that is when we hear “the insurance company found a loop hole to not pay me”.
Excellent post. Just wanted to mention the subject of taxes and disability insurance, because the deductibility of disability insurance premiums and the taxability of the benefits (as set up by the IRS) is complicated as follows. In order for the benefits to be tax free, the premium needs to be paid by the individual being insured (versus the practice or an employer) AND the premiums cannot have been deducted on your individual tax return. If the premiums were deducted, the IRS would consider any policy benefits to be taxable. The way to ensure tax free policy benefits is to pay the disability insurance premiums yourself, with after tax dollars (i.e. do not deduct them).
https://www.investopedia.com/articles/tax/09/personal-business-tax-tips.asp
That is correct. Here is a another guest post that I did. It was for Passive Income MD on deducting the premium payments for your personal disability insurance premiums https://passiveincomemd.com/can-you-deduct-the-premium-payments-for-your-personal-disability-insurance-policy/