Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUFCF, Founder of Physician Financial Services, A 2021 Platinum WCI Medical School Scholarship Sponsor
Finding the right disability policy is easy. Other than cost, there are only a few contractual provisions that differ much from one policy to another. So why is it that so many physicians get it wrong? After all, physicians are among the most intelligent people on the planet. The only thing I can think of is that they either lack the interest or they lack the time. However, if they have an interest and if they find the time, by reading this, other than reviewing illustrations of coverage (quotes), you are not going to need to know much more to make the best decision for yourself and your family.
You Are Better Than a Spreadsheet!
Now, there are plenty of people in my industry who believe they need to dumb things down for you and that researching insurance is complicated and can be overwhelming. As a result, you are presented with a spreadsheet that highlights certain insurance companies and specific policy provisions, which are deemed important to the agent or broker making the presentation.
However, unless there is full disclosure, do they really know what policy provisions are important to you? After all, you are the potential client; it is your plan and not the agent’s. You are better than a spreadsheet! You are more intelligent than a spreadsheet and deserve more than a “boilerplate” sales tool that provides you limited information. Unfortunately, this technique may potentially lead you down a decision-making path that you might not have taken had you received full disclosure.
Isn't this the equivalent of an Orthopedic Surgeon wheeling a patient down the hallway to the operating room and telling them that when the surgery is done, they will be able to run a sub four-minute mile and have the ability to jump hurdles they have never jumped before? However, they are not told that in the event of a complication, although rare, they might need an amputation. I would like to think that this might cause the patient to take a deep breath, pause, and think more about what they are doing. Purchasing a disability insurance policy is no different!
Who Are You Talking To?
There is no shortage of insurance agents and/or financial advisors that work with or want to work with physicians. Unlike medicine—which has a standardized path that physicians must take to gain the education, training, and experience requirements necessary to obtain board certification—the insurance and financial services industry does not.
Do you know the name of the agent you are speaking with, or are you dealing with a nebulous company? When you go to the company’s website, is its biography listed? Do you know how long it's been in the industry? What about its credentials? Other than having any insurance license, does the company have any professional designations or certifications?
Keep in mind that the insurance industry is heavily regulated, and you will not be paying anything more by purchasing your policy from an “experienced” insurance agent than by purchasing your policy from a newly licensed or “inexperienced” insurance agent or broker.
The “Big Six”
Let’s get right down to it. Any policy you are considering should have a true “Own-Occupation” definition of total disability. This definition of total disability makes it possible for you to work in another occupation or medical specialty and still receive your full disability benefits—even if you are earning the same or more income than you were prior to your total disability.
At the time of this writing, there are only six companies that offer this definition of total disability to physicians—Berkshire Life (a Guardian Company), Standard Insurance Company, Principal, Ameritas, MassMutual, and Ohio National. However, the availability of this definition may also vary based upon your state of residence and/or medical specialty.
If you purchased disability insurance in the past decade, with the exception of MetLife (which stopped selling new individual disability insurance policies as of September 1, 2016), and if your insurance company is not listed above, the odds are very good that you do not have a policy with a true “Own-Occupation” definition of total disability (even though you may think you do).
As Easy as 1, 2, 3
There are three main provisions that may differ from one policy to another. Once you understand how they differ and how you feel about each of those differences, you can determine which policy or policies you will consider or ultimately purchase.
#1 Claims Related to Mental/Nervous and/or Substance Abuse Disorders
Some insurance companies have a limitation for claims related to mental/nervous and/or substance abuse disorders, and others do not. All policies issued in the state of California have a limitation for these types of claims. Additionally, policies issued to Anesthesiologists, Emergency Medicine Physicians, and Pain Management Physicians, regardless of state, also require this limitation (with the exception of Vermont for some carriers). Additionally, as of January 1, 2021, Principal requires that all policies issued in the state of New York contain this limitation, regardless of occupation or medical specialty.
Standard Insurance Company also requires this limitation for certain medical specialties in addition to those above, which include Orthopedic Surgery, Obstetrics/Gynecology, and Hand Surgery.
The intent of this rider/endorsement is to limit the benefit period if the primary cause of disability were solely a psychiatric or substance abuse disorder/diagnosis as defined in the DSM IV (or its replacement), including, but not limited to, Post Traumatic Stress Syndrome (PTSD), anxiety, depression, and/or drug and alcohol abuse/addiction.
The limitation would not apply to claims for dementia as a result of a stroke, head injury, viral infection, Alzheimer’s Disease, or similar organic disease processes, including Parkinson’s Disease and Multiple Sclerosis. These illnesses would be covered in the same way as any other accident or sickness.
Also, if the insured had a physical (medical) condition, as well as a psychiatric condition, the mental/nervous limitation would not apply if the physical condition would in and of itself be considered a disability under the terms of the policy.
Although many insured persons will opt to purchase disability coverage with the least amount of restrictions, some willingly accept a policy with this limitation to take advantage of the cost savings associated with it.
If you desire unlimited coverage for these types of claims and it is otherwise available, you will not want to consider Ameritas’ policy or MassMutual’s policy in New York or the District of Columbia (until their Radius Choice 21 policy is approved, which makes unlimited coverage for claims related to mental/nervous and/or substance abuse disorders available).
Conceptually speaking, if the cost difference between unlimited or limited coverage is minimal, you might want to opt for unlimited coverage. After all, you are purchasing this type of coverage for the unknown. Cost aside, the policy that pays the most money under the most circumstances with the fewest number of limitations is best.
Finally, if you have been diagnosed with ADD/ADHD, are seeing a therapist or psychiatrist, are taking mental/nervous (mental health) medications or recently stopped, you should expect an exclusion rider (the policy will not pay benefits) for any fully underwritten policy you plan to purchase.
#2 Receiving Benefits While Overseas
Some insurance companies will allow you to reside overseas while on claim with no limitations or requirements to live in or to return to the United States or Canada in order to receive your benefits, and others will not. Foreign nationals (visa holders) typically don’t realize this, and it will likely have a significant impact on the policy or policies they should consider.
If you are a foreign national (not a U.S. Citizen or green card holder) Berkshire (Guardian) will issue a policy with a travel exclusion*, which states the following:
“In consideration of the issuance of this policy by Berkshire Life Insurance Company of America, it is hereby understood and agreed that the policy shall not cover loss because of disability contributed to or caused by any sickness or injury incurred while outside of the 50 United States, the District of Columbia, or Canada, including treatment, surgery, or complications thereof. This does not apply to incidental travel where the policyholder is out of the 50 United States, the District of Columbia, or Canada for less than 31 days and has made plans to return.“
If you are in a Compact State (all but California, Connecticut, Delaware, Florida, Montana, New York, South Dakota, and Washington D.C.), a visa holder can potentially become disabled in the United States (or outside the U.S. during incidental travel) with plans to return to their country of citizenship and continue to receive benefits. All other companies will exclude or limit benefits while you reside overseas.
Therefore, if you are a visa holder and a resident in one of the 42 Non-Compact States and are concerned about this, you should purchase Berkshire’s policy for this reason alone. At that point, it is just a matter of how you structure the policy. The recent unbundling of the Provider Choice policy (February 22, 2021) provides more flexibility, as well as the ability to customize the policy to best meet your individual needs and goals.
* There may be exceptions based upon past/future travel in New York, Florida, and Massachusetts.
Additionally, if you were disabled and your plan is to move to Belize and spend the rest of your life on the beach or you and/or your spouse’s family are from another country, it would only make sense for you to purchase a policy that allows for this flexibility.
#3 Do I Purchase a Policy with a Future Increase Option/Future Insurability Option (FIO) Rider, a Guarantee of Physical Insurability (GPI) Rider, or One with a Benefit Update (BU) Rider/Benefit Purchase Rider (BPR) or Benefit Increase Rider (BIR)?
Future Increase Option (FIO)/Future Insurability Option (FIO) Rider/Guarantee of Physical Insurability (GPI) Rider
These are what I call “traditional” increase options and provide you with the ability to purchase additional coverage, regardless of your health, as your income rises. There is no medical underwriting (no exam, blood tests, urine tests, or medical questions) required.
Potential increases are only based on your income and other disability insurance inforce, if any. The amount of additional coverage available is generally a multiple of the policy’s initial monthly benefit (typically 2-3x base policy) up to the insurance company’s maximum Issue and Participation (I&P) limits.
Since you are paying a premium for the ability to purchase this additional coverage (you can think of it as insurance on your insurance), it comes up often (annually) and you can choose to use it or not based upon your specific situation. To a certain extent, the FIO or GPI Riders allow you to “be your own (wo)man”. As long as you continue to pay the premium for the rider, it has not been fully exercised, and it does not expire (typically age 55 or 60), it will remain on your policy.
There are no administrative requirements and there are no stipulations that if you qualify for additional coverage, you must purchase a certain percentage of that amount or the rider will be removed from your policy.
Generally, as the FIO/GPI Rider is exercised, the cost of the FIO/GPI Rider itself is proportionally reduced. For example, if you were paying $50 month for the right to purchase up to an additional $15,000 monthly benefit (not the cost to take advantage of the increase but the cost to allow you to do this regardless of your health) and you exercised $7,500 month of it, the cost of the FIO/GPIR Rider would be reduced to $25 month. However, your overall insurance premium would increase since you would be insured for a larger monthly benefit.
Benefit Update (BU) Rider/Benefit Purchase Rider (BPR)/Benefit Increase Rider (BIR)
These are what I call “alternative” or “non-traditional” increase options which were originally created by Principal. Unlike the FIO Rider, there is no cost associated with it, and it can be included in the policy if you meet certain criteria. Additionally, there is no pre-determined maximum like the Future Increase Option (FIO) Rider. You can exercise this rider up to the specific insurance company’s maximum Issue & Participation (I&P) Limits. In fact, if the limits increase in the future, you can potentially take advantage of those higher limits.
For example, if you purchased a policy as a Resident or Fellow with a $5,000 monthly benefit and a $15,000 Future Insurability or Future Increase Option (FIO) Rider, the maximum monthly benefit you can potentially reach is $20,000 month ($5,000 base policy plus the $15,000 FIO Rider).
However, if the same company allows for up to $30,000 per month with a Benefit Purchase Rider (BPR), you can potentially reach up to $30,000 per month, regardless of your health, as your income rises. In fact, if the same company increased its limits to $35,000 per month and you were otherwise qualified, you could potentially reach that amount.
In the event your policy included the FIO or GPI Rider and you subsequently qualified for more coverage (due to the increase in Issue & Participation Limits), you would have to purchase a new policy—either from the same insurance company or from another insurance company, which would be subject to medical underwriting.
You are probably aware that there is no such thing as a “free lunch” and since the insurance company is providing you with this option at no cost, statistically speaking, they know that the insured that has no medical issues is likely not going to use it to the same extent as an insured that has since developed medical problems. This potentially subjects the company to what is known as “adverse selection” (applicants often know more about their own chance of becoming disabled than do the insurers who offer the coverage). As such, in order to protect themselves (to a certain extent) against it, companies created a set of rules that all insureds (with this type of rider included in their policies) must follow.
You must “check-in” with the insurance company every three years and complete an application to increase your coverage. If you do not qualify for additional coverage, after the application is reviewed, you do not need to do anything else, and your increase option will be preserved for continued future use. If you do qualify for additional coverage, you must purchase at least 50% of the offered amount or the BU/BPR/BIR will be removed from your policy permanently.
In some cases, you may qualify for an “off anniversary” exercise. These may include a significant increase in income (20%, 30%, or 50%) since you originally purchased the policy or last exercised the rider, are no longer eligible to participate in your employer’s group Long-Term Disability (LTD) plan, or a group LTD plan under which you were covered ends and has not been converted or replaced.
Regardless of the type of increase option included in the policy, some companies will issue new policies while others will amend your existing coverage to reflect the new monthly benefit (this guarantees that all policy provisions that were purchased originally will be the same for all benefit increases).
Either type of increase option allows you to purchase additional coverage, regardless of your health, as your income rises. I can certainly make arguments for each.
A Future Increase Option/Future Insurability Option (FIO) or Guaranteed of Physical Insurability Rider (GPI) may provide more flexibility as it is available annually and, as a result, you can control when you increase your coverage, to what extent, and if at all. Additionally, Berkshire guarantees the occupation class and Student/Resident or Association discount if they were included in the base policy (if issued on or after March 16, 2019). MassMutual also guarantees the occupation class with its Future Insurability Option (FIO) Rider. While this is more expensive initially, remember, as the FIO or GPI Riders are exercised, the cost associated with the rider itself is proportionally reduced and eliminated entirely when fully exercised.
On the other hand, if you do not mind having to “check in” every three years and that you must purchase a specified amount of additional coverage if you qualify, then the BPR/BU/BIR Riders can be great options since the cost savings associated with the FIO or GPI Riders can make the policy more affordable or can be used to purchase additional coverage. At the very least, you must be reactive and must complete an application for additional coverage or the increase option will be removed from your policy. You can also potentially become a “victim of your own success” since if you do not purchase at least 50% of the offered amount, again, the increase option will be removed from your policy.
What Happens When an Increase Option Is Exercised?
Berkshire (Guardian) and Ameritas issue new policies. Standard will either make an increase to an existing policy, or a new policy will be issued. Principal, MassMutual, and Ohio National do not issue new policies. They will amend the policy’s schedule pages to reflect the increase in the monthly benefit and premium.
“The increase policy will be issued on a separate form then being used by us for new applicants on a regular basis in the place where you live. For purposes of this rider, new applicants are individuals who do not have any disability insurance inforce with us at the time of application. The increase policy may not include the same provisions, benefits, and rider as the policy to which this rider is attached. The premium for each increase policy will be our premium rates in effect on the date of issue of the increase policy, which may vary by state. The premium may be based on, but not limited to, the following:
The increase policy amount and any rider that is attached to the increase policy and;
Your age on the date of issue of the increase policy; and
Your gender; and
The state and policy form of the increase policy; and
The class of risk, occupation class, and any special class rating under the policy.”
The above can potentially be an issue if your occupation class is not as favorable as it was when the original policy was purchased (you potentially changed medical specialties or your occupation class was downgraded) or if you move to a state that has a “load” (higher premium rate) associated with it—for Berkshire, specifically Arizona, California, Florida, or Nevada. Essentially, the only thing that is guaranteed under Berkshire’s Benefit Purchase Rider (BPR) is the ability to purchase additional coverage, regardless of your health, as your income rises.
Other considerations should be that all Berkshire policies issued on or after March 16, 2019, with a Future Increase Option (FIO) Rider that include a Student/Resident Discount (available at specific institutions for Medical Students, Residents, and Fellows) or an Association Discount, will automatically receive that discount on all future policies issued as a result of successful FIO exercises.
Your class of risk (occupation class) under the increase policy will not be less favorable than under the base policy. Unfortunately, neither of the above apply to successful BPR exercises and, as a result, should be taken into consideration when determining if you should purchase a Berkshire (Guardian) policy with a Future Increase Option (FIO) Rider or a Benefit Purchase Rider (BPR).
Increases in coverage are subject to the provisions of the original policy. Premium is based upon your age at the time of the increase and the same rate basis as the original policy.
If a new policy is issued, it will be on the same form, having the same terms, as we are regularly offering to new applicants at the time of the benefit increase. The provisions, benefits, and riders of the new policy may be different from the base policy. The premium for each benefit increase will be based upon the rate for your attained age on the option date. Your risk class for each benefit increase will be the same as it was on the effective date of the rider.
The client maintains one policy and all definitions, provisions, current rates (at the attained age), and discounts of the original policy apply.
Premiums for additional coverage purchased under the Future Insurability Option (FIO) Rider will be based upon the insured’s attained age on the option date, the risk class of the insured, and the table of premium rates being used for new insurance. If evidence is received that the insured’s risk class is more favorable at the time of the application for additional coverage than it was when the rider became effective, they will use the more favorable risk class for the additional coverage, which is not the case for a successful Benefit Increase Rider (BIR) exercise.
The provisions under the increase policy will be the same as your original policy. Premiums for the increase will be based upon the rates of the policy and your age and gender as of the increase date.
Purchasing disability insurance is easy. If you can do medicine, you can do disability insurance. If I told you that you could only prescribe six medications, your job would likely be much simpler. As the American Academy of Family Physicians' American Family Physician Journal once wrote,
“This six-step approach to prescribing suggests that the physician should (1) evaluate and clearly define the patient’s problem; (2) specify the therapeutic objective; (3) select the appropriate drug therapy; (4) initiate therapy with appropriate details and consider nonpharmacologic therapies; (5) give information, instructions, and warnings; and (6) evaluate therapy regularly (e.g., monitor treatment results, consider discontinuation of the drug). The authors add two additional steps: (7) consider drug cost when prescribing; and (8) use computers and other tools to reduce prescribing errors. These eight steps, along with ongoing self-directed learning, compose a systematic approach to prescribing that is efficient and practical for the family physician.”
Doesn’t this sound a lot like an insurance agent interacting with their potential client? If you look in the mirror, you will know yourself better than I (or any agent for that matter) ever will. If you are not good with administrative duties, I would strongly recommend you do not purchase a policy with this type of increase option (this is the only increase option available with Standard and Principal). Berkshire (Guardian) and MassMutual make both the FIO and BPR/BIR Riders available. Ameritas and Ohio National only offer an FIO or GPI Rider.
Remember, Purchasing Disability Insurance Is as Easy as 1, 2, 3…
- How do you feel about claims related to mental/nervous and/or substance abuse disorders?
- How do you feel about the ability to receive benefits overseas while on claim?
- Do you prefer an FIO/GPI or BU, BPR, or BIR rider?
Disability insurance planning is very much like a Rubik’s Cube. The first time you see it, you almost can’t imagine making the colors line up ever again. However, once you do it, your goal is to solve the puzzle faster using a more efficient method and fewer moves—at least that’s my goal as an agent. This is where experience comes into play and, like medicine, it is the one thing that cannot be replicated.
[Editor's Note: We're less than a month away from announcing the winners of the 2021 WCI Medical School Scholarship Contest! Many thanks to Larry Keller, one of our Platinum Level (contributing $7,500+) Sponsors, and his long-time relationship with WCI supporting the scholarship and helping physicians secure the best DI policies for their unique needs. Thank you for supporting those who support this site and especially the scholarship. 100% of proceeds go to the scholarship winners.]
Disclosure: Lawrence B. Keller, CLU, ChFC, CFP® is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at (516) 677-6211 or by email to [email protected] with comments or questions. These are the personal views of the author and may not represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof. Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. Optional riders are available for an additional premium. Some policy benefits and features are not available to all occupations. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 355 Lexington Avenue, 9th Floor, New York, NY 10017, 212-541-8800. Securities products and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian. AR Insurance License #1057229, CA Insurance License #0C37340. PAS is a member FINRA, SIPC 2021-125203 Exp. 08/2023