Larry Keller

Larry Keller

[Editor's Note:  This is a guest post from Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, who is no stranger to long-time readers of the blog, having submitted a number of guest posts in the past, especially on disability insurance.  This topic is a frequent one for him, and one I get questions on all the time.  We have no financial relationship.]

Throughout the year, I am asked for my opinion regarding insurance policies sponsored by various medical associations.  After all, they are touted as having “affordable rates”, being “exclusively available”, contain an “Own-Occupation” definition of disability and are “versatile”.  As has been stated on this blog before, you must use extreme caution when dealing with your professional society and your finances. This is especially true when dealing with disability insurance.

While this post will focus on the plan offered by the American Academy of Family Physicians (AAFP), (also see the rate calculator) underwritten by New York Life Insurance Company, the majority of association plans have similar limitations associated with them.

It Is Not Non-Cancelable and Guaranteed Renewable

While New York Life cannot cancel the master policy as long as the Academy continues to endorse the plan and doesn't offer another similar disability product, the premium rates for the plan are not guaranteed.   Once approved, you can continue your coverage to age 70, as long as you pay all premium contributions when due, you remain at Full-Time Work, the group policy remains in force, and you do not enter active duty in the Armed Forces.  Additionally, benefit amounts are not guaranteed and are subject to change by agreement between New York Life Insurance Company and the AAFP.

The Premium Rates Are Not Guaranteed

The cost is based upon your gender and your initial age when insurance becomes effective.  The cost increases as you grow older and enter a higher age bracket (every 5 years when your age ends in a “0” or a “5”).  Premium contributions may be changed by New York Life Insurance Company on any premium due date and any date on which benefits are changed.  However, your rates may change only if changed for all others in the same class of insureds under this association-group insurance policy.  For example, a class of insureds is a group of people with all the same issue age, gender, waiting period, tobacco/nicotine use and/or state of residence.

Ideally, you want to purchase a policy that is Non-Cancelable and Guaranteed Renewable to avoid the potential problems described above – especially if you are a young physician with a long career ahead of you.

It Does Not Include an “Own-Occupation” Definition of Disability

“Totally Disabled” means you are completely and continuously unable to perform the material and substantial duties of your profession or occupation for pay or profit due to accidental bodily injury or sickness, provided you are not otherwise working for pay or profit.

Ideally, your policy should state that totally disabled means that, solely due to injury or sickness, you are not able to perform the “material and substantial duties” of Your Occupation (note, it does not include any language related to not working in another occupation).  This means, if you become totally disabled from your regular occupation and choose to work in another occupation, you'll receive full benefits, regardless of the income you earn from the other occupation.

Remember, at the time of this writing, only six companies offer this definition of total disability to physicians: Berkshire (Guardian), MetLife, MassMutual, Standard Insurance Company, Ameritas (formerly known as Union Central) and Principal.

You Must Be Totally Disabled First Before You Can Collect Residual Disability Benefits

This policy has been designed to encourage you to return to work as soon as you are able. Therefore, if you return to work after having been Totally Disabled for at least 30 consecutive days, and your income-earning capacity has been diminished by as little as 25%, you can receive what are known as residual benefits.  Residual benefits end when your earnings rise to the point that they exceed 75% of your pre-disability income.  Full benefits are payable if your earnings loss is 75% or greater.

In his article “What to Look for in Disability Income policies, Peter C. Katt, CFP®, a fee-only insurance adviser located in West Bloomfield, Michigan, states “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.

There Is No Recovery Benefit

To be considered disabled, the disability must occur while you are insured under the policy and you must be under the regular care of a licensed physician (other than yourself or immediate family/household member) during the period of disability.

Consider the example of a private practice Family Physician whose income is based solely on the number of patients that he sees.  What if he had been totally disabled and returned to his practice on a full-time basis after one year, performing all of his job duties as before but his patients went elsewhere?  After all, they depended on him for medical advice and disease management but he was not there.  Additionally, referral sources with whom he had built relationships had no choice but to refer patients elsewhere.  Obviously, it would be very difficult to take the business away from the practitioner that had been providing these services during his absence.

As a result, rebuilding his practice and income level might take years.  Without a recovery benefit, he would no longer qualify to collect any benefits at all as he is no longer under the regular care of a physician.  The Recovery Benefit is designed to assist with financial recovery following a disability – even if an insured has recovered and returned to work on a full-time basis.  For a self-employed physician, a Recovery Benefit is extremely important and the AAFP plan does not include one.

Limitations Exist for Claims Related to Mental or Nervous Disorders and “Self-Reported Symptoms”

Under the AAFP plan, benefits will be paid for up to three years for disabilities related to mental or nervous disorders, alcoholism or drug addiction, or Self-Reported Symptoms.  “Self-Reported Symptoms” are defined as the manifestations of a condition which are reported to a physician, but which are not verifiable using tests, procedures, or clinical examinations. Self-Reported Symptoms include but are not limited to: headaches, pain, fatigue, stiffness, soreness, ringing in ears, dizziness, numbness and loss of energy.

In his book, Robbery Without a Gun: Why Your Employer’s Long Term Disability Policy May Be a Sham, attorney Benjamin W. Glass, submits that after a claim with this policy provision included is denied, the carrier will state that “there is no objective evidence that you are in pain” or there is no objective evidence that you are really fatigued.  Therefore, the diagnosis is being made upon your own report of pain or fatigue and, thus, we are going to either not cover this benefit or limit it severely.

Mr. Glass goes on to declare that “there are many well-recognized and documented diagnosable conditions related to pain and/or fatigue.  There are physicians that are experts in their field(s) who make these diagnoses after exhaustive testing.  The fact that there is sometimes not any one test or lab study that can be done to “make the diagnosis” should not be a reason for an insurance company to limit or eliminate benefits”.

Ideally, your policy should not have a limitation for Self-Reported Symptoms.  In fact, no individual disability insurance policy that I have ever seen has this limitation.  As for mental and nervous conditions, some individual policies will cover these types of claims in the same fashion as other disabilities.  Others, however, will limit these claims to a lifetime maximum of 24 months 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 will opt to purchase a policy with the fewest number of restrictions, some may willingly accept this limitation with its attendant cost savings.

There is a “Cap” on the Inflation Protection Option (COLA Rider)

The Inflation Protection Option is designed to increase your benefits while you are disabled to help prevent your dollar’s “buying power” from being eroded by inflation.  If you become disabled prior to age 63, your benefits can increase annually starting on the first anniversary of your Total Disability. Increases are based on the Consumer Price Index for Urban Consumers (CPI-U). The maximum increase is 7.5% a year, with an overall maximum increase of 100% of your original monthly benefit.

In addition, a “catch-up” feature allows disabled members to receive benefit increases in excess of the 7.5% annual maximum if a prior year’s inflation adjustment was less than 7.5%.  Ideally, there should be no “Cap” on the increases to the monthly benefit as a result of the Cost of Living Adjustment (COLA) Rider.

[Editor's Note:  This inflation protection is actually far better than the one in the policy offered by ACEP.]

The Guaranteed Future Purchase Option is Extremely Limited

Under the policy’s Guaranteed Future Purchase Option, you will be offered $100 or $200 (depending on your current monthly benefit amount) of additional monthly benefits at six separate intervals.  You can accept this additional coverage regardless of your health, provided you are at Full-Time Work, your total monthly benefits do not exceed the plan maximum of $10,000 a month, and you make timely premium contributions.  Guaranteed purchase dates are ages 31, 34, 37, 40, 43 and 46.  Most individual policies make increase options available more frequently, in larger amounts (typically a multiple of the initial monthly benefit, not to exceed the specific company’s issue limit), for a longer period of time.

Recurrent Disabilities

If you suffer a recurrence of the same or related disability within three months of returning to Full-Time Work (within 12 months if the disability is due to a mental disorder, drug addiction or alcoholism), your benefits will resume without the need to satisfy a new waiting period.  Depending upon the individual disability insurance carrier, most consider a recurrent disability to be within 6 or 12 months of returning to full-time work, regardless of the cause of disability.


AAFP says, “Your Academy reviews, analyzes and selects coverage for members and their families based on each policy’s scope of protection and cost compared to other policies available.  We believe them to be the best available and we are pleased to endorse them to our members”.  Really?  As evidenced above, association contracts often contain restrictive definitions of disability, as well as, less-generous contract provisions.  Although initially low in cost, association plans, such as the AAFP disability insurance plan, do not provide the customized benefits that can be achieved by purchasing a high-qualify individual disability insurance policy.

What do you think?  Do you own this policy?  Do you own another “academy-sponsored” policy?  Are you happy with it?  Comment below!