Editor's Note: This is part 2 of a two part guest post aimed at helping you to compare the various disability insurance companies and their policies. If you haven't yet read it, start with part 1.
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. Disclosure: 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, part 2 of Comparing Disability Insurance Policies.
Cost Of Living Adjustment (COLA) Rider
The COLA rider typically adjusts benefits by a fixed percentage or is tied to the Consumer Price Index for Urban Workers (CPI-U) . Berkshire (Guardian) allows an insured to keep the increased benefit due to the COLA Rider upon recovery while continuing to pay their “old” (pre-disability) premium. The other carriers allow an insured to purchase the benefit increase provided by the rider during disability upon recovery.
Berkshire offers two fixed 3% compound COLA Riders. One that begins after collecting benefits for 12 months (which is standard in the industry) and one that begins after collecting benefits for four years (which provides a 25% savings compared to the first COLA Rider mentioned), and an up-to-6% compound COLA Rider. Union Central offers a 3% simple interest COLA or an up-to-6% compound COLA Rider, MetLife offers a 3% simple interest COLA or a 0-10% compound COLA Rider (the highest in the industry), Standard and Principal offer an up-to-3% or an up-to-6% compound COLA Rider, MassMutual offers a 3% compound COLA Rider.
Future Purchase Option Riders
Generally, the Future Purchase Option Rider amount is a function of the starting benefit level (typically 2-4x the base policy). Some companies will always issue new policies (Union Central, First Ameritas) when the increase option is exercised, others simply amend the original policy’s schedule pages to reflect the increased benefit amount (MetLife, Principal, MassMutual), while for others, it depends upon the original policy series that was purchased and what is available at the time of the increase (Standard, Berkshire). It is also important to know when the increase option will be available to you and in what amounts you can increase your coverage. Generally, you are also paying a premium for the right to purchase a pre-determined amount of coverage in the future regardless of your health. This is not the case with Principal where the Benefit Update (BU) Rider is included in the policy, at no cost, as long as you purchase a total of 75% of the amount of benefit in which you qualify for (in total). However, there is a strict set of rules that must be followed in order to maintain the Benefit Update (BU) Rider on the policy.
Berkshire Life (Guardian) and MetLife make lifetime benefits available. This means that if you are disabled, on or before the age of 45, benefits for total disability would be paid for the rest of your life. While one can argue that paying a finite premium for a potentially infinite benefit is the best type of coverage tat you can own, there are arguments that can be made against the purchase of lifetime benefits. For physicians, if you own all of your coverage with Berkshire (Guardian), all of your coverage with MetLife, or a combination of the two, you cannot purchase more than $10,000 month of coverage that includes lifetime benefits. MetLife increased the premium rates for coverage with lifetime benefits substantially and, at the time of this writing, Berkshire has done the same in the majority of states. The other states will follow. However, before the 2011 ProVider Plus policy series can be sold in a particular state, that state’s insurance department must approve both the language and premium rates.
Mental and Nervous Conditions
While some carriers cover claims for mental and nervous conditions the same as any other accident or illness, the majority of companies limit these claims to a maximum of 24 months over your lifetime (with the exception of MassMutual, which limits these types of claims to a maximum of 24 months per period of disability and not an aggregate lifetime limit). However, this is only the case 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. Companies that do not impose a limitation on these types of claims are MetLife, Berkshire/Guardian (with the exception of policies issued to Anesthesiologists, Emergency Medicine Physicians, Pain Management Physicians and CRNAs, and all policies issued in the states of California and Florida), and those issued in Standard’s Protector Platinum policy series. Keep in mind that policies issued in Standard’s Protector+ policy series do still have a limitation for these types of claims.
Foreign Residence and Travel
While some carriers allow an insured to reside in countries outside the United States of America, the District of Columbia, or Canada, while collecting benefits, the majority will limit payments for these claims. Therefore, if you might consider working outside of the United States in the future or would choose to leave the United States in the event you were disabled. For this reason, you should make sure to purchase your policy from MetLife, MassMutual or Standard Insurance Company – provided their Protector+ policy series is still available in your state. At the time of this writing, those states are CA, FL, MA, VA and VT. Standard’s new Protector Platinum policy series does contain a limitation for these types of claims.
Most of the above companies make “multi-life” discounts available through your employer or professional associations in which you are a member. These discounts typically range from 10-20%. However, if unisex (gender neutral) rates are available in addition to these discounts, female physicians can save 40-60% off of the normal female rate structure. Again, an insurance agent or financial planner that specializes in working with medical professionals should be familiar with discounts that may be available.
While this is by no means an exhaustive list of the differences of the policy provisions between companies and certain policy provisions vary or may not be available in specific states, it certainly serves as a very good starting point. There are many factors to consider when purchasing a policy including your gender, medical specialty, age, occupational classification and geographic location. Also remember that disability insurance coverage cannot be purchased directly from an insurance carrier so it will not cost you anything to employ the services of an independent insurance agent that specializes in disability insurance planning for physicians. (Editor's note: It should be obvious for those who read the entirety of these two posts that there is a real benefit to using a good agent to select a policy. There is no single policy or company that is necessarily best for all doctors. Disability insurance policies are important, but complex and constantly changing.)