Larry Keller
[Editor's Note: This is a guest post from insurance agent Lawrence B. Keller, CLU, ChFC, CFP®, a long-time contributor and reader who now also sponsors both the blog and The WCI Scholarship (have you contributed yet?) This particular post discusses a common rider that is usually offered as part of a disability insurance policy. Enjoy!]
What Is the Cost of Living Adjustment Rider?
The Cost Of Living Adjustment Rider (COLA), which is optional, is designed to help your disability insurance benefits keep pace with inflation. COLAs generally adjust your policy's monthly benefit annually, based on a fixed percent or tied to the Consumer Price Index, after you have been disabled for 12 months. These adjustments apply to both total and residual disabilities and can be based on a simple or compound basis. Although expensive, this rider can provide significant increases to your monthly benefit if you are disabled early in your career, but is it worth purchasing?
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COLA Rider vs Buying Additional Coverage
My general rule is that the younger you are and the less assets you have [and thus the longer until you become financially independent and can drop the policy-ed], the more important the COLA Rider is for you to include as part of your policy. However, if you are not opting for the maximum amount of coverage that you qualify for based upon your earned income, you should consider removing the COLA Rider and using the dollars you would have allocated to the COLA Rider to purchase a larger monthly benefit. Remember, the COLA Rider will not increase your monthly benefit until you have been disabled for 12 months. Therefore, if you are not disabled for a long term period, and have been paying the premiums for the COLA Rider, you may not realize as much of an economic benefit from the rider.
An Example
Let’s assume that you are a 35 year old male General Surgeon in the State of New York earning $400,000. You were going to purchase $12,000 month (although you qualified for $16,000 but wanted to reduce your premium outlay), payable after 90 days, to age 65 from MetLife with an Enhanced Residual Disability Rider and a 3% Compound COLA Rider, the monthly premium would be $443.84, including a 10% discount through the American Medical Association. If you removed the COLA Rider, the monthly premium would be reduced to $336.56, a savings of $107.28 or approximately 24% of the cost of the policy.
If you took that premium savings, how much additional coverage would that allow you to purchase? A policy for $16,000 month, payable after 90 days, to age 65 would have a monthly premium of $447.19, including a 10% discount through the American Medical Association – almost identical to the premium for the $12,000 monthly benefit with the COLA Rider included!
So, does it make sense to forego the COLA Rider? What’s the break even period? That is easy to calculate. If you took $12,000 month and invested it at a 3% compound rate of return, it would take 10 years for the $12,000 to grow to $16,127. Remember, the COLA does not begin until your disability has lasted for 12 months.
[Editor's Note: Thus, for any disability lasting less than 10 years, or more depending on what time value of money you assign for getting the money up front, you're better off buying additional coverage rather than a COLA. The average claim is less than 3 years and 62% are less than 5 years long. And, of course, if your policy only pays out to age 65, and you're 55 or 60, you'll definitely want the additional coverage rather than the COLA.]
By the same token, if you purchased a policy at 35 with a $12,000 monthly benefit and a 3% Compound COLA Rider, the maximum potential benefit for total disability (assuming a total disability began on the effective date of the policy and continued until the age of 65) would be $6,852,000. While, if you purchased a policy with a $16,000 monthly benefit and no COLA Rider, the maximum potential benefit for the same disability would be $5,712,000. [Note there is no time value of money calculation included in these numbers-the No Cola guy received more money early on, which is more valuable than receiving it later like the COLA guy did.-ed]
Who Should Consider Buying a COLA Rider?
I think this rider is mandatory in the first half of your career. However, since most policies only pay until age 65 or 67, I do not see much reason for someone in their 50s or 60s to be paying for it.
COLA Riders From The Big Six Disability Insurance Companies
While the COLA Rider will most likely not impact which company’s policy you ultimately purchase, let’s review the COLA Riders that the “Big Six” currently offer [your older policy may be different, so read it-ed]:
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Berkshire (Guardian) – 3 options – 3% Compound, 3% Compound payable after 4 years (this is known as the 4-Year Delayed COLA which is unique to Berkshire and typically provides a savings of approximately 25% compared to the normal 3% Fixed COLA after disability has lasted for 12 months) and a CPI-Tied Compound COLA Rider with a floor of 3% and a maximum of 6%. Additionally, should you recover, you would automatically retain increases, free of charge, until age 65 or 67 (this feature is unique to Berkshire’s policy).
Principal – 2 options – Up to 3% or up to 6% CPI-tied Compound. Within 90 days after your disability ends, you may adjust the policy to increase the maximum monthly benefit if your monthly benefit was increased by this rider.
Standard – 2 options – Up to 3% or up to 6% CPI-tied Compound. Within 90 days after disability benefits and recovery ends, and while the policy is in-force, you may apply to purchase an increase in the policy’s basic monthly benefit.
Ameritas – Up to 6% Compound CPI-tied or 3% Simple. The adjustment factor is based upon the CPI-U with a maximum of 6% per year, compounded annually. This has the effect of creating a “catch-up” provision for years when the CPI-U Index is less than 6%, and greater than 6% in other years. This COLA Rider includes a provision to purchase the increase in the monthly benefit upon recovery.
MetLife – 3 options – 3% Fixed Compound, 3% Simple or 0-10% CPI Tied Compound. Under the 0-10% CPI-Tied option, MetLife may increase the monthly benefit based on the year-to-year change in the Consumer Price Index for All Urban Consumers (CPI-U). Increases would not exceed 10% of the previous year’s disability benefit amount. Upon recovery, if you are less than age 60, you may be able to increase your coverage up to the amount of the last adjusted monthly benefit for total disability. You must pay a premium for the increased coverage but there are no financial or medical underwriting requirements.
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MassMutual – 1 option – 3% Fixed Compound. Upon recovery you will have the opportunity to purchase additional monthly benefit under the policy. The maximum additional monthly benefit available will be computed from the accrued percentage increase on which the last increase and monthly benefit was based.
Ideally, should you decide to purchase the COLA Rider, I would suggest one that is compounded [as opposed to simple interest-ed] and the higher the maximum, the better, taking overall policy premium into consideration. While my edo Ixample above used MetLife’s 3% Compound COLA Rider, a similar analysis can easily be done for other companies.
What do you think? Did you get a COLA rider on your disability policy? Why or why not? Did the terms of the COLA affect which policy you bought? Comment below!
Here’s my plan… I purchased a $10k/month base policy with a 3% COLA rider through ameritas. The rider is about $35/month. For $35/month, I could get about $1000 extra per month coverage instead. My agent told me that I could drop the rider at any time without changing base coverage premium. I’m 39 and will likely retire at about 55. I plan on dropping the rider at 45 or so and investing the difference. Any thoughts?
Seems reasonable.
Where did you get the information that Standard Insurance Company is 3% or 6% compounded, tied to CPI-W?
Just curious if this information is available somewhere for all Insurance Company’s?
Thanks
This information is available via the product guide for each insurance carrier’s policy. You can also find this information online easily by searching for it.
Can you point me to Standard’s product guide?
I purchased a group LTD policy with a 6% COLA compounded, after 25 years of payment, I am disabled and they have not been paying the COLA compounded?
Wow! I am shocked! I am appealing this obviously, help to find the
I don’t have product guides for their group LTD plans. I only have product guides for their individual disability insurance products.
You should contact the Human Resource department or Standard Insurance Company directly and ask for a copy of the certificate of insurance that was issued to the group, including any amendments. This will have all of the definitions and terms associated with the policy that you purchased.
I think that is a reasonable plan. Remember, the COLA is designed to help you maintain your purchasing power in the event of long term claim.
Generally, if you are young, you would rather have it than not have it. Usually,if is left off, it was done so for cost purposes. Once you have it, you can always remove it.
I have discussed removing the COLA Rider with clients as they grow older and more financially successful. Most of them ultimately decide to keep in on their policies as the savings becomes less meaningful to them as their incomes rise. They would also rather use the insurance company’s money and not have to sell assets and potentially incur taxes in order to make their own cost of living adjustment.
For those that don’t have it and want to add it, the rider cost is based on their age at that time and subject to medical underwriting. Essentially, the carrier feels that the insured must know something that they don’t and that is why they are looking to add it.
Good and informational post on something many of us didn’t understand when we bought our disability, and hopefully helps people looking to buy the correct disability. Thanks!
Great topic, and well written Larry. The COLA rider can be fairly pricey, which sometimes encourages individuals to leave it off their policy. Your example helps illustrate its potential significance, primarily for younger physicians, while also addressing the trade off of simply buying a larger benefit instead (if available).
Just one addition to this list: Berkshire also offers an Up to 3%, CPI-tied compounded COLA for their ProVider Limited policy. The three COLA’s mentioned are only offered with Berkshire’s ProVider Plus policy.
Really basic question…
Does COLA really not kick in until you’ve been disabled for 12 months?
I.e., if you buy the $12,000 policy today, and you become disabled at year 10, is your benefit only $12,000? Or would it be $16,127?
Thanks!
Correct. It does not kick in until your disability has lasted 12 months. If you purchase $12,000 month today and are disabled for 10 years, the benefit would start at the $12,000.
Exactly its not COLA in the way normal people think of it. It only kicks in after you become disabled. Personally I think its somewhat deceptive. I can’t tell you how many people I’ve talked to who think their potential benefit increases every year. While one can potentially purchase more coverage or have the option to do so if income increases, its not COLA in the way most people think of it. It isn’t even COLA compared to other insurance products. For instance LTCi has COLA and that does typically have benefits that increase every year. They really should rename it.
Oh come on Rex. Yes, the benefit isn’t going up as the years go by (until you’re disabled), but the premium isn’t either. It’s like term life- the real benefit is going down every year with inflation, but so is the premium. I hardly think that’s unfair. If people don’t get that, they need to read their policy more carefully. If they don’t think it’s a good deal, don’t buy the rider and use the money to buy a larger benefit (or a boat.)
Wait a second, term doesn’t have cola so that’s a bad analogy. Pretty much every other insurance product with COLA has the benefit go up before the event such as LTCi. No other product has planned increases in premiums with COLA. They are all planned to be level premiums. Of course LTCi is a disaster with the pricing but that’s another topic. Clearly Craig didn’t know.
Sure, and there are lots of docs that don’t know how whole life works or what a load is or whatever. But if you actually read the disability policy, it shouldn’t be that hard to see how it works. If your benefit did go up each year even if you weren’t disabled, you’d have to pay more for that, whether the price was level or went up each year.
After sitting down with an insurance salesman on a number of occasions I was under the impression that the rider adjusted the benefit each year with inflation. Perhaps I didn’t ask the right questions, but that is how I logically thought it would work. Otherwise 20 years from now I’m stuck with a 20 year old benefit. Frankly, how the COLA rider works as Larry describes sounds terrible, and I’m glad I now have a clearer picture of what it actually is.
This was for a Northwestern policy so this might be a different policy with different terms (I see that NM is not one of the “big six” listed above).
The COLA Rider for Northwestern Mutual does not work differently.
The Indexed Income Benefit (IIB) provides an incremental benefit that is intended to keep the owner’s disability benefits up to date with the changes in the CPI. This benefit is similar to the Cost of Living Adjustments (COLA) products offered by other companies.
After the first 12 months of disability, the Company will provide an indexed benefit each month, in addition to the benefit under the base policy. The indexed benefit for each month is determined from the following three items:
1. The benefit regularly payable under the policy;
2. The maximum index percentage limit of 3% or 6% chosen by the owner; and
3. The Indexing Factor, which measures increases in the CPI during disability.
NML’s policy was not listed under the “Big Six” as they no longer offer the Extended Initial Period (“Own-Occupation” definition of total disability) to physicians. This has been the case since September, 1997.
Wow! I guess I’m surprised so many people didn’t get how this works. That must be disappointing to realize you bought something different from what you thought it was. Still worth it for a young doc? Probably.
My wife and I still haven’t bought disability, in part because I still don’t feel like I understand it, but mostly because we’re both cheapskates 😀
I still think it’s a valuable tool though that can mitigate a substantial risk, and will definitely be pursuing my options. Thanks again Doc and Larry for helping me wrap my head around this stuff!
You are very welcome.
As an attorney, you should strongly consider Berkshire (Guardian) – especially if an association discount is available on top of the best occupation class.
For your wife, if possible, a policy with unisex rate and discount.
I know your comment about not buying DI b/c of being a cheapskate is a little tongue-in-cheek, I certainly hate making that annual payment annually for my premiums.
Today’s Jonathan Clements article in the WSJ seems appropriate to the bigger-picture discussion here
http://blogs.wsj.com/totalreturn/2015/04/02/are-you-overlooking-big-threats-to-your-finances/
[Google “Are you overlooking big threats to your finances” because unless you’re a subscriber, that link won’t work.]
Rex,
When I was sold my Guardian policy (not by Larry) with the Cola rider I had the same misunderstanding. I’m sure my agent explained it to me erroneously. I’m a little more savvy now and read documents more closely, and choose my agents more wisely (Larry is my guy now!).
I’m more concerned with deflation than inflation. My wife and I in our early 40’s both dropped COLA riders from our policies for significant savings. Personally I don’t think the COLA riders are worth the premium.
10 yr break even period? That is if you use the disability policy. If your chance of using a disability policy is 20%, does that make the 10 yr break even into a 50 yr break even?
10/.2 =50
You arent the only one. Its common in my view. I think WCI is forgetting what it was like when we didnt know so much about these products. Sure if you read every line then you can figure it out but you have so much on your plate why would you possibly research a term you think you understand? Keep in mind you are also likely trying to figure out WL or some other permanent insurance at the same time and thus the reading of a word you think you already understand becomes less important. I find less experienced agents are actually in the same boat since i think they too assume COLA means COLA and arent actually malicious about the situation. Now if the industry named it post disability COLA or something else that made it clear when COLA started then i wouldnt have an issue with it. I think more expensive COLA riders arent worth the money. Obviously if you are disabled early on, the more COLA the better but i personally wouldnt be willing to pay more money for a 5% per say over a 3%. I too am okay with no COLA and assuming the risk given how COLA is defined.
Thanks Rex. Well said.
I agree, Dr. Dahle seems to assume all of us here are disability insurance policy experts, when we are clearly not. However, I have Larry’s post here on the Dr. Dahle’s blog to thank for educating me on the subject.
“Sure if you read every line then you can figure it out but you have so much on your plate why would you possibly research a term you think you understand?”
Exactly. Why should we investigate something that seems to make perfect sense? I have a law degree, took a semester long class on insurance, and believe I am adept at reading contracts. However, in my experience, you don’t typically get the actual policy in your hands until you’re pretty far along in the process (usually after you have purchased the policy unless you go out of your way to request it sooner). Most of the time there are very few surprises (e.g., your term life insurance policy pays out when you are dead, and there aren’t too many other moving parts). However, this is a very pertinent, very substantial, and very misleading factor that many agents leave out or simply don’t understand themselves.
Unfortunately with disability policies it seems like the consumer is forced to become an expert on policies and their terms (beyond that of the agent) before he or she can make an informed decision. Unless you literally become disabled immediately after the policy takes effect, it seems like the COLA rider’s additional value is inherently diminished given the price of the premium.
That’s exactly the point of this website. Until you become an expert at investing, or personal finance, or insurance or whatever, you can’t make an informed decision!
I bet if all of you experts read my policy regarding my cost of living benefits, I would get different interpretations. The insurance companies write them so ambiguously there is no way an employee could have a chance at figuring out, much less agents who sell them. Here’s what my Guardian/Berkshire policy states.
While this benefit is in effect we make a cost of living adjustment each year. This allows the monthly benefit to change with inflation.
This benefit begins on the July 1 that follows or coincides with the date you are entitled to receive 24 monthly payments in a row from this plan.
When we make a cost of living adjustment, we add a cost of living benefit to your monthly benefit after it is reduced by income earned during disability. We compute your monthly benefit after adjustment for the cost of living benefit as shown below:
(a) Take your monthly benefit for the month before you are entitled to a cost of living adjustment; and reduce it by income earned during disability.
(b) multiply the amount in (a) by the current cost of living factor.
(c) Add the result in (b) to the monthly benefit, after it is reduced for income earned during disability, that is currently payable.
The cost of living factor is 3%.
There is no example for this adjustment computation.
So, would you think this is compounded, for simple, fixed.
I am very interested in how you would interpret this. Thanks.
I think these are designed to be compounded as a general rule, but I’ll leave this one for one of the agents.
The wording you provided is not consistent with language used in individual Guardian policies issued today. Is your policy just older, or are you reading this from a Guardian group disability insurance policy? There has to be more information than that which you provided. Can you attach a copy of the policy pages specific to COLA?
It’s definitely a fixed factor because it says “the Cost of Living factor is 3%”.
Yes, it is a group policy from my employer. I received it in 2001. That really is the only language pertaining to the cost of living benefit, it doesn’t mention it anywhere else in the policy. I know it is fixed at 3%, but the difference between compounded and simple is quite significant and I can’t seem to get the answer to that from anyone. I’m hoping it is compounded it’s really vague to me, I thought it would be somewhat standard text for someone familiar with Guardian, but maybe all policies are written differently so they can interpret it however they want for their maximum gain, my maximum loss.
assuming one is maximizing the benefit based on income, what would you consider a reasonable age to drop the COLA rider
It really all depends upon your earnings, assets accumulated and your financial situation at the time but I would think late 40’s to early 50’s would be a good rule of thumb.
At what age do you get rid of disability insurance? Guess when you reach critical mass
Yes. Probably around 50 for me, maybe a little earlier the way things are going.
Nice article, appreciate the information. Similarly, when/should someone consider switching premium payments from graded payments to fixed payments?
When I first obtained DI during residency, I chose graded payments and calculated the cross-over point (i.e. when the amount paid with graded payments is more than the level payments) to be sometime in my late 40s. Now with an attending salary, level payments are affordable but am planning on dropping DI sometime in my early to mid 50s. How do you typically advise your clients on approaching this decision?
If it were me (and I’m another doc) and I felt very comfortable that my health was good and that I was pretty positive that I was either retiring or dropping the coverage in the mid 50s, then id just stick with graded especially if you are multiple years out of residency. If I had any doubt about this or if I were just out of residency then id go level.
You should look at the graded to level premium comparison page of the illustration (or ask your agent to provide you with one). It will show you both your annual premium difference compared to the level premium, as well as, the cumulative premium difference compared to the level premium. You can then apply your own time value of money to determine if it makes sense to convert based upon your individual situation or to continue with the graded premium structure.
I’d stick with graded. I wish I’d gotten graded, but no sense in getting a new policy just for that feature.
Don’t beat yourself up too much. Keep in mind that Standard did not (and still does not) offer a graded premium structure.
Additionally, when you purchased your original policy, odds are very good, there were less than a handful of carriers offering true “Own-Occupation” coverage for the entire benefit period to Emergency Medicine Physicians.
In fact, from 7/01-5/06 there was only one, which was the carrier that you purchased.
Interesting, didn’t know that. Maybe I shouldn’t be so hard on the guy who sold it to me.
Didn’t realize that to go from level to graded, you need to get a new policy but for graded to level, I can easily make that switch near the anniversary date.
If that’s the case, it makes sense to always buy graded, especially as a resident (if available) and then you can decide later whether to change to level.
If you consider having purchased level DI a financial mistake early in your career, it is pretty small compared to some of the other one’s I’ve made! (Buying cisco stock around March 2000 for starters…first time home buyer in 2007… etc, etc).
The later you decide to switch to level, the higher the cost of that level. It’s not necessarily a no-brainer if you’re planning on holding the policy until your 60s.
I agree, for someone in private practice with no group coverage somebody could buy the “max” and risk not buying COLA. I work with many residents who go on to work as an employee with group DI or the VA etc. The lower paying positions (peds, family, internists) with group coverage make it near impossible to use a future option or purchase the “max”. COLA is important in these situations, after all the only reason to buy these contracts is because there is a real chance of needing this coverage. I am sure all of us on this board, agents and doctors alike, have anecdotal stories of doctors who either are on claim or would have been (at least on a residual basis) if they were smart enough to buy a policy.
I just rewrote my wife’s contract with COLA, she is a 40 yo OBGYN. I plan to cancel the COLA at 50 (max out the contract at that point) and probably never cancel the contract. Our bodies start to breakdown later in life and cancelling this contract when we are most likely to need it doesn’t seem prudent to me.
As a side note, I was featured on this blog in December on how to value these contracts, COLA is an important feature in my valuation. Since then I have changed the “max” value of contracts for the COLA (indexed) to increase at 2.56% vs the Guardian and Metlife which are 3% guaranteed nor matter the index. I thought this was the fairest way to show a “realistic” expectation on maximum value.
Why would you never cancel the contract? At 35, you’re paying for 30 years of benefits. At 60, you’re paying the same price for 5 years of benefits. Even if you’re more likely to use it, the benefit isn’t as valuable. I’m cancelling mine as soon as I don’t need it. I’ve got other stuff that will make me happier to purchase, even if it is just investments or charitable contributions.
I did say, probably never, I left myself a little lee-way there.
Our financial plan has my wife going GYN only at 55 and at that point we can reconsider, I am only 36 now so who knows how we will feel at that point. If she feels/is healthy maybe we will consider cancelling at that age. I guess before cancelling you should get a real thorough physical exam and blood work just to make sure nothing is on the apparent horizon, i.e. risk of diabetes, heart problems, cancer. Healthy or not so healthy, we will probably drop the COLA and max out the contract by age 50.
Unfortunately, there are some graded premiums that make that decision for you. They get so expensive in your 50’s that you have to cancel, maybe before you would like to. The sad part is that many of the graded premiums are more than some competitor’s level premiums. I’ve seen one graded premium for a $4,000 per month benefit cost over $16,000 per year when the client was 55 or 56. Oh, but that company pays a dividend so its not all that bad. I had a level premium option that was the same payment as the graded.
Larry,
For the example in this post let’s assume the following:
35 y/o surgeon making $400,000
This time he has a group coverage of 60% up to $180,000 per year, no COLA and the contract can be cancelled with no notice.
He can now only qualify for a max of say $9,000 per month on an individual contract. Should this doctor buy COLA?
I think the COLA should be purchased and am interested in hearing other points of view.
Josh-
According to MetLife’s Issue & Participation (I&P) limits (the highest in the industry with group LTD), using an earned income of $400,000 and $15,000 month of employer provided (taxable) group LTD coverage, this surgeon would qualify to purchase up to $10,400 month of individual coverage. This would give him a 76% income replacement ratio.
I would show him the $10,400 month of coverage with and without the COLA Rider and let him make the final decision based upon his individual needs, goals and budget. Of course, he could also purchase the Catastrophic Disability Benefit Rider as a way to potentially increase the replacement ratio.
However, as he is probably in the first few years of practice with minimal assets, I would suggest he purchase the COLA Rider if his budget allows.
35? Buy the COLA. I don’t think it’s more complicated than that. You’re insuring against the risk of becoming disabled at 36 and then having moderate inflation for 30 years.
One consideration that I have not seen enter into this discussion is how repayment of student loans are likely to “decrease” one’s cost of living within a predictable period of time. I am not sure if this reasoning is sound, but let me present a scenario for your critique.
My soon-to-be spouse is a 36yr old OB/GYN 2 years out of residency. About $4000 of our monthly expenses currently go to student debt, which we expect to pay down in 9 years. Therefore, we essentially have a built-in lower cost of living on the horizon.
With that in mind, we’re tempted to forgo the COLA rider, and use those premium savings to slightly increase her benefit amount (eg. $1K more). If she becomes fully disabled at, say, age 38, we will appreciate having the extra $1K benefit each month, enabling us to pay down student debt quicker. In the short-term, the “time-benefit” of paying down 4.1% student debt should outweigh the fact that benefits are not growing with inflation.
Seven years later, when her student loan debt is gone, we essentially enjoy a $4k monthly increase in cash flow. Admittedly, as time goes on inflation will start to chip away at the fixed benefits. However, by that time she’d be 45yrs old, when the inflation clock really starts ticking.
What do you all think?
I think a doc in her thirties should probably buy a COLA rider.
I have the option for 3% or 6% COLA. Looks like I was sold the 6% when I was a resident. I am upping my coverage since I am now an attending and it was recommended that I decrease it to 3%, which would save about $700/year. As far as I can tell this seems reasonable. Just want to make sure I am not missing anything.
In this sort of situation you get what you pay for. If you get disabled, and inflation is high, you’ll wish you had the COLA. If you don’t get disabled, or if you do but inflation isn’t high, the 3% will be fine. Is that worth $700 a year? Hard to say.
If your original policy was written through Ameritas, you should be aware that switching from the 6% COLA to 3% would also mean switching from a compounded interest COLA to a simple interest COLA. I agree with Lawrence that this change could be a perfectly fine one but only if the 3% is still compounded, which it would be with most insurers.
I am with Principal. I am not finding anything about compounded interest COLA in my policy but per the article above it appears that it is compounded with Principal. I will look into it. Thanks.
I think that is very reasonable. In order to get above 3% (assuming the COLA Rider on the policy that you have is CPI-Tied), the CPI would need to be above 3%. I don’t think you are missing anything and decreasing it from 6% to 3% would serve you well.
Principal is up to 3% or up to 6% CPI tied and compounded. I suspected you had Principal or Standard based upon what you mentioned.
I would make the change and use the difference to offset some of the additional premium when you increase your coverage.
I was wondering where the information regarding Standard Insurance Company’s COLA being either 3% or 6% compounded, tied to CPI-W, can be found?
I have a LTD policy with Standard with a 6% COLA, they are trying to imply it is a simple COLA?
Although before I purchased the plan Standard did a demo showing the power of the 6% COLA compounded. As you can guess I am furious I know it is compounded. I did not think Standard had a Policy that was not compounded according to what they said at the demonstration?
Thanks,
Do you want me to look at your policy? What series do you have? Is it the “old” Protector+?
If you email me, I will do what I can to provide you with the information you are looking for.
[email protected].
What are your thoughts about COLA or no COLA if one is starting residency? MM allows residents to max up to $6000. Is it preferred to max out at $6K monthly benefit instead of going with $4K or $5K with COLA? I can be flexible with the budget but of course want to maximize the long term savings(like everyone else here).
Get the COLA, at least early in your career. If you’re buying a policy at 55, maybe different story.
I’d get the $6K with COLA, but if you had to choose…not sure what I’d pick.
Thanks!
What are your thoughts on maxing out the FIO amount? Same policy offers up to $10,000 to bring it to $16K as an attending (not to mention that qualifying for this requires an annual income of >$360K). I believe that is much more than I would need to live comfortably, especially since my spouse will also be a physician in the future. So my thoughts were to purchase a policy for $4K with a FIO of $7500. However, with your proposal of purchasing $6K now, I suppose to reach the same number I would need an FIO of $5500. I think the annual difference between that is maybe $16 so not sure if it’s worth it.
Also, I am leaning towards graded because you along with many others recommend that to be a superior option. Considering I will have a high income professional spouse, albeit primary care, should be able to reach financial independence at age 45(crossover point for graded vs level).
An FIO rider is probably worth it too. Sorry this stuff is so expensive, but I think it’s worthwhile with a policy bought as a resident. I think the $4K+ $7500 is reasonable, but if your disability plan is to live off your spouse you might not need a policy at all.
If you are going to be FI and cancel the policy by 50 or so, then graded makes a lot of sense.
Sounds good. Thank you!
I still think it would be worthwhile until student loans are paid off. Plan on doing PSLF but with that being in flux…