Editor's Note: I get submissions several times a week for guest posts. I turn down almost all of them. I find the best guest posts tend to be those that I solicit from others. This post is a good example. When I got to the end of my series on disability insurance, I found myself at a loss to give specific details of policies from the various companies that offer long-term disability insurance to physicians. As much as I try to keep up on this stuff, I simply don't look at enough of these policies to know the benefits of one company over another. Based on the number of emails I get from readers on this topic, I know many of you will find this post very helpful. It will be presented in two parts.
Lawrence B. Keller CFP®, CLU®, ChFC®, RHU®, LUTCF sells insurance for a living, specializing in advising physicians about insurance and investing. Many of you will recognize his name from his helpful comments sprinkled about the site, particularly on insurance related topics. He sells disability insurance from all the companies mentioned in this article, although he has a particularly close business relationship with Guardian, a major player in the physician disability insurance industry. (See comments section for more details.) He has nine times as many letters behind his name as I do, which ought to mean something. I could do an entire post on the alphabet soup of the financial advising world but the bottom line is that CFP, CFA, and ChFC are the designations that really mean something and CLU is the top designation for an insurance agent. Disclosure: Larry and I have no financial relationship. I did not pay Larry to write this post, nor has he paid for it to be published here. If you'd like to say thanks, send some business his way.
Now, without further ado- Larry Keller on Comparing Disability Insurance Policies.
When it comes to purchasing “Own-Occupation” disability insurance, physicians have several companies to choose from including:
- Berkshire Life (Guardian)
- MetLife,
- Union Central Life (First Ameritas Life Insurance Corp. of New York, when purchased in New York)
- Principal
- MassMutual
- Standard Insurance Company (not available in New York).
While many of the provisions in each policy are similar, there are some distinct differences between them that may influence which policy is ultimately purchased. This post will serve as means to help you compare one company’s policy to another when shopping for coverage.
Occupational Classification and Pricing
Proper classification of your occupation or medical specialty is of primary importance in determining the premium rate that you will be charged by the insurance company. Generally, the higher the occupational classification assigned to your profession, the lower the premium rate. It is also important to note that different insurance companies may assign a different occupational class to the same occupation and, as a result, the premium rate may vary greatly from one company to another. Insurance agents or financial planners that specialize in disability insurance should be very familiar with which company or companies assign the most favorable occupational classification to your medical specialty.
Premium Structure
Berkshire (Guardian) offers a graded premium structure and MetLife offers a “term” disability insurance premium to lower your initial premium outlay. You can then convert from a graded or “term” premium structure to one with a level premium rate when you can more easily afford to pay a higher premium, Principal does not offer a graded premium option nor does MassMutual. Union Central (First Ameritas in New York) offers a “step rate” where the premiums are lower for the first five policy years and then increases to a (higher) fixed premium rate from policy year 6 to the age of 65 or 67.
Non-Cancelable and Guaranteed Renewable
Generally, any policy purchased should be both Non-Cancelable and Guaranteed Renewable (premiums can't be raised and contract can't be changed) instead of just Guaranteed Renewable (contract can't be changed). While most companies include these provisions in their policies, others such as Union Central (First Ameritas in New York) and Standard Insurance Company also sell policies that are just Guaranteed Renewable. Standard’s base policy is guaranteed renewable and the noncancelable rider must be purchased in order to guarantee both the policy provisions and premium rates. Otherwise, the insurance company reserves the right to change the premium rates as long as the change applies to all policies with similar benefits insuring the same risk class, although changes have to be approved by the state insurance department.
“Own-Occupation” Definition of Disability
Berkshire’s (Guardian’s) ProVider Plus policy and Standard’s Protector Platinum policy series contain this definition as part of the base policy. However, in the Protector+ policy series, it must be selected (along with the purchase of the noncancelable rider or it is not available). Union Central (First Ameritas in New York) also makes this definition of disability available. You must purchase the “Your Occupation” Rider with MetLife’s policy. You must purchase the “Regular Occupation Rider” with Principal’s policy. You must purchase the “Own Occupation” Rider with MassMutual’s policy. However, generally, the “Own Occupation” Rider is not available to Neurosurgeons, Orthopedic Surgeons, Anesthesiologists, Emergency Medicine Physicians and Thoracic Surgeons. (Editor's note: Hmmm….seems like those specialties are the ones who need it the most.) Berkshire (Guardian) and Standard’s policy also have medical specialty language included in their contracts.
Residual Disability Rider
Most companies require a loss of income of at least 20% compared to your pre-disability income in order to qualify for residual disability benefits. Two companies, Berkshire Life (Guardian) and Union Central (First Ameritas in New York) only require a 15% loss of income. Generally, for the first six months of a residual disability claim, you will not receive less than 50% of your monthly benefit. This is not the case with MassMutual’s policy as they will not pay less than 50% of the monthly benefit for the first 12 months of a residual disability claim. Also note that Standard’s Protector Platinum policy series will pay 100% of the base monthly benefit, regardless of your earnings, for the first six months of a residual disability.
Berkshire’s (Guardian’s) ProVider Plus policy series will provide dollar for dollar reimbursement to a claimant for the first 12 months of a residual disability claim. For example, if prior to your disability, your income was $20,000 month and you are now earning $10,000 month, you have lost $10,000 of income during that month. As a result, for that month, Berkshire would pay 100% of your income loss ($10,000) up to 100% your policy’s monthly benefit. After the first 12 months of a residual disability claim, benefits would then be paid proportionate to your loss of income.
MassMutual’s Residual Disability Rider is referred to as the Extended Partial Disability Benefit Rider. Standard’s Protector Platinum policy series includes the Residual Disability Rider as part of the base policy and it is referred to as the Partial Disability Benefit.
Recovery Benefits
A recovery benefit continues to pay benefits (in the same fashion as the residual disability rider) if you return to work on a full-time basis with no loss of time or duties but continue to suffer a loss of income. If there is a demonstrable relationship between your current loss of income and your prior disability, most companies will continue to pay benefits to age of 65 or longer as long as the required income loss is met. Other companies limit these types of claims – even if the loss of income continues. Companies with limited recovery benefits include MetLife (24 or 36 months if the recovery benefit is purchased as part of the residual disability rider) and policies issued in Standard’s Protector+ policy series.
Stay tuned for part 2.
I notice that Northwestern Mutual Life isn’t mentioned as one of the highlighted options. Is that because you need to be a captured agent to sell it (hence you may not have in depth knowledge about it) or is there something else about it that just knocks it out of the box? It is my understanding that it is a market leader in many other forms of insurance so just wondering.
Northwestern Mutual Life (NML) was intentionally left off of the list. They stopped offering policies with a true “Own-Occupation” defintion of total disability for the entire benefit period (to age 65 or longer) to the “medical market” in September, 1997. You are correct that prior to that time, their policy was very competitive.
Recently, they have created a new definition known as the “Medical Occupation” definition of total disability, which is marketed exclusively to physicians and dentists.
Unfortunately, this definition takes the focus of a claim away from the inability of an insured to perform his or her material and substantial duties and turns the focus to loss of income. As a result, for example, if a Neurosurgeon develops an essential tremor and can no longer perform neurosurgery but decides to work in another occupation or medical specialty and does not have a loss of income of at least 20% (compared to their pre-disability earnings), no disability benefits would be paid.
Clearly, this would not be the case under a policy with a true “Own-Occupation” definition of disability.
As an insurance agent that specializes in working with physicians, I have an in depth knowledge of their product. The policy also has several other limitations but, again, Northwestern Mutual did not make my list based solely on their definition of total disability.
Hope this helps.
Recently met with a Northwestern Mutual rep to discuss the medical occupation definition and there is a key piece that is incorrect in your statement.
Two differences between own occupation and medical occupation definition is
1.) When you are totally disabled and choose to work in a different occupation
2.) When you are partially disabled
1.)Both instances if you are totally disabled (defined as unable to perform principle duties) the benefit would pay, but it you decided to work under the Northwestern plan you can receive up to 20% of your pre disabilty earnings and still receive full benefit, if you make above 20% of predisability earnings you’d receive a proportionate benefit. There is no instance where you wouldn’t receive any benefit as discussed above
2.) In the event of a parital disability with an own occupation definition you must be gainfully employed to receive a benefit… Under the medical occupation definition you have the choice to continue gainful employment or cease gainful employment and still receive the full benefit.
Between those two key differences and the dividend history and its effect on the overall cost I went with Northwestern for what it is worth
Toby-
Let’s say that you are earning $250,000 are disabled out of your medical specialty and choose to work in another occupation and earn more than $50,000. Under the NML policy, your monthly benefit will start to be reduced. If you work to the point that you earn 81% or more compared to your pre-disability income, your monthly benefit would be eliminated. I’m not sure what you mean by “there is no instance where you wouldn’t receive any benefit as discussed above”.
Toby,
I believe there are a few things that you may be unclear on. This stuff can be quite complex, so I would understand why.
1.) With the NML policy, your monthly benefit would terminate once you are earning more than 80% of your pre-disability income.
2.) I think your description is slightly misleading because there are specific guidelines under which your claim must fit. I believe that at least 50% of your income must be attributed to the performance of certain duties the disability prevents you from performing. It just isn’t quite as simple as what you stated, which I felt was important for future readers.
Hi! Can you check my math taking your example of a Base Salary of $250K per yr, and a
Benefit if Totally Disabled of, say, $5K per mo?
Insured is injured, but goes back to work, earning $50K per yr. NWM pays a Partial Benefit of $5K * ($250-$50) /$250 = $4000 per month.
Is that right? Thanks!
Joe-
Since the loss of income is 80% or more, the Proportionate Benefit amount would be 100% of the full benefit, in this case $5,000 month.
Otherwise, your math is correct except the insurance company would do the calculations each month and not yearly.
Additionally, for the first six months of a Proportionate claim, the insured would not receive less than 50% of their total disability benefit.
The dividend history? What does that have to do with disability insurance? Do you have some kind of odd cash value disability policy?
He is on point there. Two carriers can potentially pay dividends (to reduce the premium) on their disability insurance policies – NML and MassMutual. However, keep in mind the dividends are not guaranteed and, therefore, can be reduced or eliminated depending upon claims experience, as well as, other factors.
Have they been regularly paid?
NM has paid dividends on long term disability polices every year since 1971. The dividends lower my premium on my disability and appear to have gotten bigger every year, so the actual amount of premium has gone down after the first couple of years significantly. NM’s total dividend payout on disability policies is close to a third of the premiums they are collecting annually.
So…they’re charging more than they need to. I mean, where do you think that dividend comes from? It’s just an overpayment of premium. Kind of wish they’d just charge a lower premium and make it easier to compare apples to apples, no?
I see what you’re saying… so I asked my rep about it. Dividends are from the company keeping operating expenses low, from policyholders keeping & not lapsing policies, & low rates of claims which really means the company is good at predicting risks. Also, the investment performance of the company’s overall portfolio. They can invest in things we don’t have the ability to on our own and have a strong amount of assets to make long term investments. Also said since NM is not a stock company, they don’t have to pay dividends to shareholders or please the shareholders. It’s a mutual so dividends can go to the clients/policies and decisions are to benefit the policyholders which is why they work hard to keep expenses down & predict risks well, etc.
When I got my first policy, my rep with NM also offered the ability to get Berkshire, Mass, & a others I don’t remember now. He didn’t pressure me either way. We talked about the different features, & I liked the flexibility of the NM policy for me. I did appreciate that he could offer all of these and NM. It makes me a little leery when someone who can’t even offer NM disparages them or makes negative statements, and I wonder if they’re clear on it to begin with.
I did get a 2nd NM policy more recently, and they did make a shift to lower premiums on front end and still pay dividends but it looks like they will take longer than my old one to kick in, but still strong over time. For me, it came down to contract- yes, but also company strength, from being able to pick from the major players the market offered with my rep, from trust & relationship with my rep, & the biggest is from knowing people who went on claim and their experience. I’m confident and secure in what I have in place with NM and with my rep.
# 1 You WANT the other policy holders to lapse. That increases your dividends.
# 2 Insurance companies really DON’T invest in stuff you and I can’t. They buy bonds. Treasuries. Corporates. Etc. The vast majority of their portfolios you can reproduce with low cost ETFs.
# 3 Glad to hear a NML agent wasn’t push a NML policy. If you want to know why people don’t like NML, these forum threads may help:
https://www.whitecoatinvestor.com/forums/topic/northwestern-mutual/
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
Glad you like your policy and your rep. I wish that were the case with the vast majority of docs who have purchased NML policies that I’ve run into.
While guardian typically becomes the standard to compare to for DI, never trust guardian with your investments. Their retirement services will push whole life within a qualified plan. While one should likely never purchase whole life as an investment, the absolute worst way to purchase it is within a qualified plan. Never allow them to put your financial info into either their living balance or leap software. Im going to bet based on the tone so far, that part 2 will push guardian.
I don’t know what tone you refer to, but part 1, as well as, part 2 of this blog do not endorse any specific company. These posts are designed to be educational in nature to help a physician evaluate the coverage they currently own or help them evaluate policies they might be considering in today’s marketplace. As such, all of the information presented has been done so in an objective manner.
I have helped my clients purchase policies from all of the companies that I have listed above. However, each of their individual situations dictated what carrier was ultimately selected.
Didn’t notice a tone Rex, nor any particular bias toward Guardian (not that that would be unusual in a discussion of physician disability insurance.) But let me know on Tuesday when Part 2 comes out if you think it’s slanted.
Never heard much about Guardian’s investments (and you won’t hear about them in Part 2). Perhaps Guardian could do the insurance side and Berkshire could do the investment side. As I recall they’ve got someone smart doing their investments. 🙂
Whole life in a qualified plan…..ugh. Tell me it ain’t so.
I have met with Mutual of Omaha as well as Met Life representative recently prior to purchasing a policy. Can you compare their Disability policy’s?
Jerry
There’s a lot of discussion in Met Life in these two articles. Mutual of Omaha isn’t frequently used by docs due to the lack of acceptable own-occ definition. I suggest you go to an independent agent, who can sell you policies from any company rather than going to one agent from each company.
In the medical marketplace, Mutual of Omaha is not considered to be a player.
Their policy is Guaranteed Renewable only, the base policy contains a Modified “Own-Occupation” definition of disability for 24 months and then you must be unable to perform the material and substantial duties of any occupation for which you are reasonably suited because of your education, training or experience (however, with the Extended Own Occupation Disability Definition Amendment Rider, it will remain a Modified “Own-Occupation” policy to age 67 but that rider is not available to healthcare professionals).
There is no recovery benefit, there is a limitation of 24 months for claims related to mental and nervous disabilities, including substance abuse, and the monthly benefit amount and future increase option amounts are very limited.
In short, look elsewhere for you coverage. Depending upon your medical specialty and state of residence, you have as many as six companies to choose from that offer high qualify coverage to physicians.
Thanks
I think this is an fair comparison and Larry did a good job in Part 2 summing it up. It would be fair to say that Larry and his company have a close relationship with Guardian (see the disclosures on the bottom of http://bit.ly/xJXaEu), but that’s not always a bad thing – it should just be outlined up front.
Larry, I have heard that changes are being made to the Guardian product (or a new product has been added?) for the medical market which depreciates the definition of total disability? Is this true or what would my colleague have been referring to?
Also, I noticed you didn’t address cost — where does that fit into the equation for disability insurance?
thats a pretty big conflict of interest not to mention but this doesnt surprise me with guardian. peachtree planning is the same thing where they pretend to be an independent group but really they are a guardian store front.
Yes, I do have a relationship with Guardian but I represent all of the carriers that I listed and do a substantial amount of business with the majority of them. So, there is no conflict in terms of the advice that I give to my clients. .
Guardian did recently introduce a new policy series (the ProVider Plus Limited) in most states. Generally speaking, I don’t think it is a good fit for physicians. It has a builit in limitation for mental and nervous conditions, a 20% loss of income coupled with a loss of time and duties requirement to trigger residual benefits, there is no dollar for dollar reimbursement for the first 12 months of a residual disability claim (compared to the ProVider Plus). The COLA Rider is CPI tied to a maximum of 3%, the increase option is also essentially the same as Principal’s (which this policy series was modeled after), and does have a strict set of requirements attached to it in order to maintain it on the policy.
So, this policy series does not offer many of the “bells and whistles” that Guardian is known for and the reason that physicians would look to purchase their coverage from Guardian. That being said, it might be a great fit for other occupations, including Nurse Practitioners and Physician Assistants in the “medical market” or business owners that want to purchase a Guardian but don’t feel they want to pay the premium associated with the ProVider plus or feel the need to have coverage that is as comprehensive.
My goal is to provide unbiased advice and providing any potential clients with illustrations for all of the companies that might meet their individual needs and goals. Then, using me as a resource, they can make a well-informed, educated decision regarding the policy or policies that they will be purchasing. I also try to include any discounts that may be available via teaching hospitals, medical associations or otherwise.
This way, if clients are getting good advice and the pricing that I provide them is the same (or in many cases less) than what they have seen elsewhere, why would they want to do business with someone other than me?
I can give you some guidelines in terms of pricing but, remember, they will vary. Generally, without a discount Standard and MassMutual will be the most expensive. Followed by MetLife, Guardian and Union Central. In most cases, especially with a discount, Principal will typically always be the least expensive.
Just remember that occupational classification, gender, state of residence and age of the insured will also play a large role. As a rule of thumb, figure 2-4% of one’s gross income will be the premium to purchase the maximum amount of coverage available.
Hope this helps.
I don’t quite understand where you are coming from Rex. It seems like you have had a bad experience with the agency or agent(s) that you dealt with and I am sorry for that. However, I don’t have a conflict of interested and present clients with several options, help educate them in a manner with no pressure and allow them to make their own decisions regarding what coverage may or may not meet their needs.
If you would like to reach out to me to discuss my practice, I would welcome the opportunity to educate you!
You dont seem to understand the statement conflict of interest. If this had been a medicine talk, you would have needed to disclose your relationship as noted on your website prior to the presentation. While you may still act in the best interest of the client, a conflict does exist when you are so closely associated.
I disagree. I am compensated by all of the insurance companies that are described in the article. I think the editor accurately described how I earn my income when he stated I “sell insurance for a living, specializing in advising physicians about insurance and investing”.
My guest blogs have been nothing more than objective, fair and balanced. I am sorry if you believe otherwise.
You both have a point. Simmer down. Larry’s disclosure on his website reads:
Lawrence B. Keller is a Registered Representative and Financial Advisor of Park Avenue Securities, LLC (PAS). Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Field Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian.
He also apparently sells disability insurance for the other major companies in the field, which I think enables him to provide a comparison between the various companies that is useful to many readers on this site. I take him at his word when he says he offers multiple policies/companies to his clients and allows them to choose which one he sells to them.
Although I admit I am curious as to why he, or any other apparently independent insurance agent, would have what seems to me an odd relationship with a single disability insurance company (where the company owns the advisory service). What’s the benefit to him? Is it required to sell Guardian policies? And what is the relationship between Park Avenue Securities LLC and Physician Financial Services? And why, if Guardian owns your advisory company, do they not insist you sell only Guardian policies? What’s the benefit to them? I’m not trying to be critical, just curious.
And it should be pointed out that ALL of us have financial conflicts of interest (including this site, see the disclosure.) I notice it more and more all the time now that I’m in private practice and actually make more by doing more. This site remains committed to full disclosure of conflicts of interest.
In order to satisfy your curiousity, I will be happy to answer your question(s). Generally, most insurance agents have a relationship with an insurance company. In my case, as you know, it is Guardian and their Broker Dealer, Park Avenue Securities, LLC.
If I am acting in an independent manner, why would I do this?
When one has an agent’s contract, they are provided benefits that include subsidized office rent, subsidized health insurance, half the of social security tax paid for by the insurance company, a pension plan or plans (often with insurance company matching), certain licensing fees paid for by the company, reimbursment for fees paid when taking courses to acquire professional designations and several other incidental services.
The trade off is that one has to do a certain amount of business each year with that company in order to maintain their agent’s contract. Now, since I have been doing this for a long time, and the production requirement is minimal, I know that meeting it will never be an issue. It is similar to having admitting priveliges at several hospitals. If you are practicing medicine and are seeing enough patients, you know that the hospitals you can admit to all have areas of specialty. If one hospital is known to be great for orhopedics and another is known for neurosurgery, you would most likely admit that patient to the hospital that is known for expertise in the area in which their problem lies. Therefore, again if you are doing your job and seeing enough patients, by virtue of being in the business, you are going to admit patients to each of those hospitals by natural progression in the course of performing your duties. This is the case with my relationship with Guardian. In some cases, their product(s) will be right for a client based on their needs and goals. In others, they will not fit at all. In fact, in many conversations that I have with potential clients, a Guardian product is never shown or discussed.
Therefore, although you can make an argument that a conflict of interest exists, if you let those conflicts influence the way you practice, and your patients find out that you decided the way you would care for them was on that basis, you will not retain or have long term relationships with those patients – it is that simple.
In today’s age where information is readily available, it is very easy to verify that what you have been told is true or not – especially in the insurance business, which has almost become a commodity where advice and services provided are almost forgotten entirely.
Certain insurance companeis have contracually “captive agents” that must sell their products (or those of other companies in which they have a network affiliation) or services. Others, however, like Guardian, do not have this requirement. Understand that some agents are “mentally captive” and will not sell another company’s product or will try to sell their primary company’s product unless the client demands otherwise (Rex, maybe this is where you had any issue with the agent(s) or agency you dealt with) but this is certainly not the case with me or my practice.
As mentioned earlier, Park Avenue Securites, LLC is Guardian’s Broker Dealer and, as such, I must do my securities business through them. However, since I do not concentrate on investments or charge financial planning fees (for many of the reasons you mention on this website) it is not an issue for me. However, if my practice was largely investment based, and not insurance based, I would not want to be affiliated with an insurance company.
So, there you have it, Guardian does not own my company. I act independently but am able to take advantage of the benefits provided by my relationship with Guardian. Since they are a major player in the disability and life insurance arena, I am going to do business with them anyway, can easily meet their production requirements, and don’t let that relationship have any bearing on the products and services I recommend to clients.
Remeber, I don’t want to be a potential client’s first call, I want to be their last call. So, they can speak with everybody else, in many cases, get biased advice and then come to me so I can help them make a well-informed, educated decision about their coverages that they will feel very good about.
As you have stated before, you have to buy disability insurance from an agent, the same is true in most cases for life insurance (although if you are buying it via the internet, you might not know that you are actually dealing with an agent), so,that is why I focus my practice in these areas. All of the other advice that I provide is simply value added in order to have clients want to business with me and/or provide me with referrals to their friends and/or colleagues.
A note should be placed at the top of the article that says something to the effect that the presenter has a very close relationship with Guardian and please see the comments field for a discussion of it.
For some reason he doesnt seem to get the total concept of conflict of interest. Every physician knows if this had been a medical talk, we wouldnt be allowed to get away with saying we have no conflict of interest and not stating our relationship with a company up front. Our intentions are not the whole picture, one can accidentally favor a company and not even know it. As an example, If a NWM agent had given this presentation, for sure they wouldnt have just dismissed their product (not that i think many physicians should go with NWM for disability) and a primarily principal agent would have initially focused more on costs then at the back end. He may be doing his best to handle his conflict but it still exists.
I agree, a conflict of interest exists and should be disclosed. I’ll beef up the disclosure statement up top.
However, I’m still grateful for Larry’s time and discussion of the issues (which was exactly what I was looking for and a post I was not able to do on my own) and honestly am not able to detect any particular bias toward Guardian in either of his posts. Thanks also to Larry for explaining a little more about how the industry works. The more we, as docs, know about the financial services industry the better. That way the good guys get lots of business, and the bad guys go out of business.
I’d be curious to hear your thoughts on Principal’s Transitional Own Occupation rider. That is, if one takes a job while deemed fully disabled, one’s benefits are limited up to the point it would make one whole. For instance, if I buy a policy with 10k of protection, become disabled, and take up a side job as a flyfishing instructor making 1,500 per month, my benefit is only paid at 8,500 per month. But if I quit the flyfishing gig, my payout returns to 10k.
That seems like a pretty reasonable option to me as a means of saving some money on a policy. If you’re able to work, great, you’re still living with the full income from your benfit. It just limits you on being able to earn more than your benfit. I assume if you buy enough insurance and have a good COLA that you should be fine.
Runaway inflation would seem like the only reason to steer clear of this option.
I think you’re overlooking something very important. Consider my policy. I have $7500 a month in coverage. My income is far higher than that. If all I had was that rider as you describe it, it would keep me from doing something else that I could do even if I couldn’t practice emergency medicine (say, blogging.) That’s why people on welfare don’t take hamburger flipping jobs. They get paid the same whether they work or they don’t. It kind of defeats the purpose of buying specialty-specific coverage in my opinion. My true specialty-specific policy allows me to go practice urgent care, make $20K a month doing that, and still collect my $7500 benefit. That’s worth a lot to me.
I actually described the transitional rider incorrectly. It pays the full benefit for lost income up to the point it restores your previous income.
I’m a C&A psychiatrist. Let’s say I make the average 18k per month and become disabled. I have a 10k benefit. I decide I can’t deal with the emotional burden of kids but start seeing suboxone patients a few days per week. My income decreases to 10k per month.
With own occupation, I’d be making 10K benefit + 10k per month income, which is 20K (and 2K per month more than what I was earning previously as a C&A psychiatrist).
With transitional own occupation, I’d be making the exact same amount as I was making before as a C&A psychiatrist, i.e. 18k per month, which is 10k income + my benefit up to the point it made me whole, i.e. $8K per month (my previous income (18K) minus lost income (8k) up to the full 10k of benefit). I don’t get my full benefit here, but I make exactly what I was making before.
With the example I gave of the flyfishing instructor, I’d be receiving the full 10k per month benefit because my previous income (18k per month) minus new income (1.5K per month) is greater than my benefit, so my new income would be 10k benefit + 1.5k flyfishing.
Essentially what the transitional income does with Principal is that it assures I will make as much as my previous income (but not more) up to the point of receiving my full benefit (here, 10k per month).
The advantage to this in my eyes? It costs less in premiums and it unlocks Principal’s mental health exclusion of 24-months benfits with Own Occupation and extends it all the way up to the age of 65.
I don’t anticipate PTSD, but as a psychiatrist, I appreciate the significance it can have on one’s life. 😉
That sounds more reasonable. How much lower were the premiums?
Transitional wasn’t actually that much less expensive than pure own occupation–about $150 lower per year for 5k in coverage– a little less than 10% off my whole package. But the advantage as I see it is in not having the mental nervous exclusion of 24-months.
On the whole, with a multi-life discount, Principal would be hundreds upon hundreds of dollars less than Guardian for a similar policy. The biggest difference was transitional v. pure own occupation and the 20% v. 15% residual loss, with Guardian having a better policy in both of those aspects.
In a value assessment, I could live with those weaknesses relative to Guardian’s policy. There were other minor strenghts in Guardian’s contract relative to Principal. I’m still weighting my options but am leaning to the latter.
I knew an agent who was quite positive about Principal, and said he put a lot of his physician clients into it. He acknowledged it generally wasn’t quite as good as a Guardian policy, but it was so much cheaper he thought it was a much better value.