Comparing Disability Insurance Policies
This is the hardest post to write of all the ones I have done on disability insurance because I’m not a disability insurance agent. Because every policy is different, you are eternally comparing apples to oranges. Even the policies of the same company differ from year to year. The best thing to do is to get a copy of the current policy from every company you are considering, and look at them side by side, comparing the features you feel are most important.
I get a lot of questions about group insurance policies. I saw a post recently on the Bogleheads forum from David Goldenzweig (an insurance agent who sells a lot of Guardian disability insurance policies to physicians) with a helpful chart. It’s clearly a sales plug for Guardian, but demonstrates quite clearly the difference between a solid individual disability policy (of which Guardian is one of several good companies) and the typical group policy. Sorry about the small print (use control + to blow up the webpage in your browser).
I like this chart because it demonstrates just how many different features there are in disability policies. These suckers are COMPLICATED. And you get what you pay for. If the policy you’re looking at costs less than ~ 2.5-5% of the income you’re protecting, there’s a reason. That doesn’t mean you need the most expensive policy out there, but you ought to compare the one you’re buying to the best possible one you can get and consciously decide which features you’re going to jettison to save a few bucks. If your agent can’t sell you policies from multiple companies, you’re buying it from the wrong guy and you won’t be getting the best possible advice.
This guest post discusses the pros and cons of one company over another.
When I looked at disability insurance coverage several years ago , Guardian also cover disability related to alcohol or drug addiction. They seems to have best policies but it was 80% more expensive than the policy i ended up with.
This chart actually best describes why you dont want group disability but instead want personal. The best reason is that group is subject to ERISA laws. What that means in english is that the insurance company is much more likely to fight you since if they lose, they just have to pay without much in the way of penalty and it doesnt really hurt their business repuation much. Guardian historically has the best wording such that you should get paid if disabled considering own occupation. Besides this wording, i find much of the included extras not worth the cost. I also have a very low opinion of Guardian as a company given how Guardian Retirement Services targets younger physicians for 412e plans which are totally inappropriate. I feel standard has a contract which is pretty similar to Guardian in regards to benefits but it isnt their only contract. It is cheaper than guardian by a little. Several of the other insurance companies such as principal, NYL, and NWM would likely work out fine for most of us. Whatever you do, dont let the disability agent talk to you about investing. They are very talented at trying to pretend that permanent insurance is a good way to invest.
David here, thanks for referencing my comparison. A good individual DI policy will generally cost 1-5% of income for a medical occupation depending on the specific occupation, age, gender, benefit period, and which optional riders are included. Just about any individual DI policy is better than a typical group LTD policy, which is what the chart illustrates. There are certainly other companies with good DI policies, and Standard also has a specialty true own-occupation definition for specialists on their new Protector Platinum policy, which is available in most states. Many factors determine the pricing for each person, and unless someone is in perfect health, the health history can certainly make a difference in which company makes the best overall offer. Guardian has the best DI policy on the market, but they also have some of the most conservative medical underwriting. Anyone interested in DI (or any other type of insurance) should always work with a broker that represents multiple companies. Using a broker costs the applicant $0, so choosing a good broker to work with is important.
In today’s marketplace, for physicians seeking true “Own-Occupation” coverage, they should limit their choices to Berkshire (Guardian), MetLife, Standard, Union Central (First Ameritas in New York), Principal and MassMutual. In many cases, discounts are available so one should inquire with their agent/broker about the availability of them. In some cases, female physicians can save up to 60% off of the normal female rates. Also remember that some carriers are better than others for certain medical specialties. For this reason, the doctor needs to do their homework or find a broker that will show them several companies so they can make a well-informed, educated decision regarding the coverage they ultimately purchase.
Thank you. Good advice. It’s helpful to have someone who actually works day in and day out with these policies look stuff over and offer comments.
Very happy to help. As you mentioned (and obviously know), all too often I see physicians and other healthcare professionals fall prey to insurance agents or financial planners that have their own interests in mind and not necessarily those of the doctor.
At this time, it is also important to note that most disability insurance companies will issue (on their own) individual policies with monthly benefits of $15,000-$17,000 and by combining at least two companies, a physician can purchase a total of $20,000-$30,000 month of individual coverage or up to $35,000 month with group Long-Term Disability (LTD) coverage taken into consideration.
For this reason, when dealing with high income specialties, I often use this approach (even for residents) to allow my clients to reach larger amounts of coverage, as their incomes rise, without them having to prove insurability in the future.
I’m surprised to hear you can get large policies from two separate companies. I thought that all disability insurance combined couldn’t equal more than something like 60% of your income. Why wouldn’t a single company offer to cover $20K if you make $35K a month? Is there some statutory limit?
No, there is no statutory limit. Each company has their own Issue & Participation (I&P) Limits. Essentially, the insurance companies (and reinsurance companies that back the insurance companies) don’t want to make the replacement ratio of one’s income too high – especially when it comes to “Own-Occupation” coverage.
Depending upon the economy and specific industry one is in (like medicine), a steep decline in reimbursement levels, might drive someone to consider putting in a disability insurance claim – especially if they can make more money via their disability insurance and still have the ability to work in another occupation or medical specialty without their benefits being reduced or eliminated.
At the lower income levels, assuming no group LTD, the replacement ratio is approximately 60% of earned income. However, this drops quickly as one’s income increases. As a result, one may only find 30-40% of their income actually being replaced. For this reason, Physician and Surgeons High Limit disability insurance coverage is available from carriers like Lloyd’s of London that will insure up to 65% of one’s income (minus other inforce coverage).
Don’t get me wrong, physicians are now in much better place than 10-15 years ago. It was not that long ago that benefit amount was limited to $10,000-$15,000 month no matter how much a physician earned (especially for invasive practitioners like ER Physicians, Anesthesiologists and Surgeons) and from July, 2001-May, 2006 “Own-Occupation” coverage to age 65 or longer for those specialties was extremely difficult to find. In fact, in New York State, it was not available at all.
Another reason that the replacement ratio drops at higher income levels is that the insurance company believes that those with higher income levels have more “disposable” income and that does not need to be insured the same way. However, doesn’t the saying go that once a luxury is consumed it becomes a necessity.
Just met with the NWM guy. He showed me NWM, principal and standard’s contracts. Looks like NWM is the only one that defines total disability at 50%, the others require 80% of lost wages, duties, times etc. Principal and standard have “own occ” definitions but NWM calls it MOD “medical occupation definition”
I asked him how each company determines or defines your medical occupation. He said it was just based on your average billing codes and if those decrease 50%, 80% etc then you are considered disabled. Is this correct or do I need to talk with someone else.
I think you should meet with an independent agent. I’ll let the disability agents on the blog explain why a NML disability contract is generally considered inferior to the other ones, but the fact that he’s the “NML guy” should set off some alarm bells in your head. Don’t you expect him to say the NML contract is the best?
He doesn’t know what he’s talking about when he says medical occupation is “based on your average billing codes.” My contract with Standard is very clear that if I cannot perform my specialty, the contract will pay, even if I can generate my previous income working as a consultant for an insurance company or practicing another specialty.
I am looking to expand my disability coverage. I currently have NWM and wondering if I should go with them or look for a different company. Could you please comment? I am told that NWM is the only company to give bonuses back to the clients and so is better than others. Is it true?
My thoughts on NML disability policies aren’t that positive. I certainly wouldn’t consider them better than most others, probably worse. This post illustrates why:
https://www.whitecoatinvestor.com/why-not-northwestern-mutual-physician-disability-insurance-friday-qa-series/
Great series of articles! Any leads about disability insurance for military physicians?
I started a post on it months ago but never got around to finishing it. It’s still on the to-do list!
I’m university-employed and reviewing our LTD group policy offered by Standard. This sounds like a good company – are the policies fairly interchangeable among institutions?
Not necessarily. However, I just bought a group LTD policy from Standard for a rather attractive price through my group. It’s not going to be as good as an individual disability policy, but it will be a lot cheaper.
Hi there,
I have recently started looking at your blog and I am amazed how well the articles are written. I was curious if this article is still current.
I am a pulmonary/ critical care doc. I had a policy with AMA for almost 6 years now. The rates have been slowly creeping up as I am growing older.
What is frustating to me is that if I am not an AMA member my premium will go up by 20%.
Are there any good alternates? Do you have any personal recommendations?
Yes, there are good alternatives. You need to get a good independent disability insurance agent such as those who advertise on this site and compare what is available to what you have. You can get a portable policy that doesn’t require you to remain an AMA member. It will probably be a much strong policy, but may also cost more, probably will. More details:
https://www.whitecoatinvestor.com/websites-2/insurance/
https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold/
https://www.whitecoatinvestor.com/disability-insurance-introduction/
Hi,
I’m currently a fellow, starting as an attending in August. Never had DI and thanks to a friend who put recently me in contact with the WCI book, I’ve realized I need to buy a DI policy ASAP. I’ve talked to an agent offering a plan from Principal to residents and fellows with a discount through the University. After extensive research I think a $6000 monthly benefit for $2400/year with some added important riders like Regular Occupation, 3% COLA, Residual Disability and Recovery Benefit, seems competitive in today’s market. My problem is that my blood work showed hypercholesterolemia (7 years of poor resident/fellow’s lifestyle, #wake u call) and Principal will approve the policy without any surcharges but won’t include the Benefit Update rider and is proposing to repeat blood work in a year in order to change this. Is this a fair deal?, considering that I would have to demonstrate evidence of medical insurability again, or should I try to find a different company/agent? I would love to lock in the current rates for the state I’m living in and the discount offered.
Seems reasonable to me. I guess you could hit the gym and take some niacin surreptitiously and get things rechecked in a couple of months, but that would leave you uninsured in the meantime. Might not be worth the risk for a few bucks.
Your agent should shop this issue around to other carriers. Some might look at it more leniently than others.
Wonderful and extremely informative website. I am tinkering with the idea of buying insurance and began to wonder that, although young and healthy, what if someone were to experience a disability soon after buying the insurance (whether traumatic, genetic, etc.) and not having to do with a risky recreational activity such as one of the activities listed in one of the previous articles.
Is there a grace period during which the policy requires you wait before kicking in? If the disability occurs soon enough, can you be excluded or dropped? Thank you.
No. The contracts don’t usually have any kind of waiting period. If you get disabled the day after you sign, you’re covered.
Really awesome info with all these posts. I could really use some help though if you don’t mind providing some insight.
Background: I’m a 25 yo M about to graduate med school and going into peds residency (aspiring pediatric cardiologist). I have asthma and had left shoulder surgery in 2016 (fully healed and functional for some time now).
I get free basic disability insurance through my residency. It covers 62.5% of predisability income has 90-day waiting period, max of $800 monthly benefit that is reduced by deductible income. I’m gonna take that since it’s free with opting in to health insurance.
The problem comes in when trying to decide supplemental insurance. Because of circumstances with my med school, I had the opportunity to talk with two separate financial advisors who advised me two different ways. I have two options based on their separate recommendations.
1) Residency offers group supplemental long term disability. Premiums per month are $2.40 (90 day waiting period) or $1.90 (180 day waiting period). Monthly benefit is 65% of first $12307 of predisability earnings reduced by income. The previous mentioned plans are provided by the Standard. Along with this, a financial advisor said I should get an individualized policy with the Standard as well. It is a Platinum Advantage for GME plan. Monthly benefit is $1500, waiting period 90 days, benefit period till 67, payable till 67. Features of the plan include presumptive disability benefit, family care benefit, rehab benefit, survivor benefit, enhanced residual disability rider, noncancelable rider, own occ rider, and indexed cost of living w/ 15% discount for the policy since I’m a resident. The premium is $39.52 a month.
2) Second advisor advised against getting the group supplemental because it was hard to make a claim and get the money. Instead, he got a policy quote from Mass Mutual. It is a Non-cancellable (until april 2058), conditionally renewable until age 75 plan. It has total disability benefit of $4000, catastrophic disability of $2500, cost of living adjustment $4000, extended partial disability of $4000, Future insurability option of $10000, and own occ of $4000. With a 25% discount the level premiums are about $100 a month.
Being kinda new to the financial game and being that this is really the first time I’ve had a job with substantial pay, I could really use some help in trying to decide upon my options here. The first advisor looked at my policy from Mass Mutual and said that I would be overinsured. Is is possible to be over-insured? From a couple posts, it sounds like it almost impossible for a resident to be overinsured. But I would really appreciate some advice on where to go from here. Thanks a lot!
I’m not sure you NEED an individual policy at all right now as a resident. You have some coverage, which is the main thing. If I was going to buy more, I’d probably make it all individual (i.e. option # 2) so I could take it with me (and probably exercise a Future Purchase Option rider) when I graduate. This all assumes you can get a policy without too much of a problem due to the asthma.
Yes, it is possible to be overinsured. If you have a better use for your money than DI premiums and you’re using that money to pay DI premiums, you’re overinsured.
Alright. Thank you! Will probably put that money into savings or Roths instead for now.