[Editor's Note: This is a guest post from Joe Capone, an insurance agent and a regular guest poster on the blog. Although this isn't a paid post, he is a regular advertiser on the blog. His websites, insuringincome.com and omnimedfinancial.com, provides lots of good information and tools including instantaneous quotes for term life insurance that don't require you to disclose any personal information. In this post, he discusses some of the unique aspects of disability insurance contracts from Principal, one of the “Big 6” firms offering solid physician disability insurance policies. Note that Joe can sell you policies from any of the Big 6, not just Principal. He would like this disclosure included:
Disability Insurance has certain limitations and exclusions. For costs and complete details of coverage, please review a specimen policy and obtain customized quotes for yourself. Not all products and riders are available in every state. If there are any discrepancies in this post and the ultimate policy that is issued, the policy will govern.]
Joe Capone, ChFC, LUTCF
As a medical professional you are aware that even though there is no way to truly prevent a disability there are ways to eliminate – or at least reduce – the devastating financial consequences that can occur as a result of such an event. If you are not protected, a disabling illness or injury can create a myriad of financial issues, including increased debt, a reduction in lifestyle, and in some cases even home foreclosure and bankruptcy. Individual disability insurance products typically provide the highest quality protection to physicians, yet it is group and association coverage that generally offers the lower premium. What if you could combine the best of both worlds? Even if you already have disability coverage through a group plan or another individual policy, the opportunity to add additional protection – especially at discounted rates – should be seriously considered.
This post highlights the specifics of one of the larger discounts available to residents, fellows, attendings, and other doctors. Even more important than the discount is that this is a top tier policy for physicians. If this discount was with an inferior policy that had a “Modified Own Occupation” definition of total disability, or if it was only Guaranteed Renewable, the “discount” would be less useful.
Principal Life offers one of the better policies available to physicians. Assuming that the policy is designed properly, it can provide a “Regular Occupation” definition of total disability. The policy has a strong residual rider [covers partial disabilities-ed] , a cost of living adjustment rider, future increase option (referred to as “Benefit Update rider”), and many of the other things that are so important when looking for a policy that can help to protect income within a given medical specialty.
In past posts, blog readers have read how beneficial it is for female doctors to find “gender neutral” or “unisex” rates when purchasing coverage. Both genders have been told to look for discounts that can lower the premium. The Principal “Multi-Life” discount on their flagship HH750 policy can help both male and female physicians and dentists save money while still having a top notch policy.
An Example
With Principal Financial Group's Multi Life discount plan, a 31-year old 4th year female emergency resident [Yes, a few EM programs are 4 years long-ed] could obtain coverage that would pay out a monthly disability income benefit of $5,000 (tax-free since premiums are paid with after tax dollars). This benefit would be received in addition to any group disability insurance that is in place at the time of disability. At the standard “Female” rate, (with a 3% cost of living adjustment rider, Residual, Regular Occupation rider, Benefit Update Rider, Future Benefit Increase Rider, a 90 day elimination period, to age 67 benefit period) her premium would be $286.91 per month. With the multi-life discount and gender neutral rates, her premium drops to $156.44 per month, a 45% discount.
It is important to understand the numbers and logic behind the discount. The prior example shows a savings of 45%, but that is not a flat 45% discount. The differences in a Female policy and a Multi-Life policy are:
1) The policies are issued under a “Unisex” rate rather than “Male” or “Female”
2) A 20% “Multi-Life discount” is applied to the policy.
3) An additional 10% discount is applied to the policy in exchange for a “Mental/Nervous/Substance abuse 24 month limitation” that is applied to the policy. This discount is available under the Standard Male/Female rate or the Unisex rate.
Since a “Female” rate is higher for Disability Insurance than a “Male” rate, “Unisex” rates are really beneficial for females. The combined savings of Unisex pricing, a 20% multi-life discount, and a 10% mental/nervous discount totals 45%. The combination of the three discounts also lowers the price for men [although a unisex policy alone is generally MORE expensive for men.] For a 31 year old Male emergency medicine physician, the Male rate is $180.57. The Unisex rated policy has a monthly premium of $156.44, overall a 13% discount.
Additional Benefits
Purchasing the Principal HH750 policy with a Multi Life discount will allow you a distinct premium discount as compared to purchasing an individual disability insurance policy with comparable benefits from another carrier or through Principal at their standard rate, although the Principal policy makes for a solid option even without the multi-life discount. In addition to the attractive premium discounts, there are also a number of other advantages that are obtained by locking in a policy under the Multi Life program. These include:
- Portability of the Discount– The discount is fully portable! Purchase even a minimal base benefit under this discount and use your Benefit Update rider to add more coverage at the discounted rates, even after you graduate and leave the hospital that you were at when you made the initial purchase.
- Portability of the Policy- Since this is an individual policy, the policy can be retained when leaving an employer, as long as premiums are paid.
- “Regular Occupation” Total Disability Definition- Most policies use the “own occupation” definition of disability, meaning that you will be paid benefits on qualifying disabilities as long as you are unable to perform the duties of your own specific occupation (versus being unable to perform the duties of any occupation).
- Non-cancelable and Guaranteed Renewable– The Principal HH750 policy is non-cancelable and guaranteed renewable. As long as you pay your premiums, Principal cannot change the terms of the contract, they cannot increase the premium, and they cannot cancel the policy.
- Unique Benefit Period offering– Principal offers the standard “to age 65” and “to age 67” benefit period. They also offer a “to age 70” benefit period, which is great for younger physicians that see a need to have a longer potential benefit period.
- Uncapped Benefit Update rider– Most of the major insurance companies offer the ability to increase your base benefit as your income increases. Typically, these riders stipulate a maximum amount of benefit that you can add to your coverage in future years. Principal’s policy does not stipulate a specific number. Rather, you will be able to increase your base benefit up to the maximum issue limit that is in place at the time that you apply for the increase. Although this rider is added at no additional cost at the underwriter's discretion, there are some limitations- like you must purchase at least 75% of the available base benefit originally and you must purchase at least 50% of the additional benefit offered every 3 years or the option will go away.
- Future Benefit Increase (FBI) Rider– Automatic Increase riders allow for a fixed percentage increase to the base benefit to be added each year for a specific number of years, without additional underwriting. The rider is added at no cost, but the policy increases are priced at the attained age at the point they are added.
- Mental/Nervous Coverage– The example with the 45% discount included a 10% discount that is applied when the policy is limited to 24 months of maximum benefit for mental/nervous/substance abuse. If you purchase the “Regular Occupation” rider, the 24 month limitation is mandatory. Principal does offer unlimited mental/nervous coverage via a “Transitional Your Occupation” rider.
The Multi-Life Discount
When considering a multi-life discount disability plan, The Principal's policy provides superior benefits at a discounted rate. Although this plan might not be in existence in your particular facility, it only takes a total of three individuals in a single employer to apply under this program to set it up. Although specific tothe employer, the employer does not need to be involved in setting this up. Also, the three applications do not need to be submitted at the same time. In a situation where the discount is not set up when your policy is approved, there is still a potential answer. Principal Life is able to reissue the first one or two policies as long as the third policy goes into place within 12 months of the first policy. In this situation, the policies that were in place with the standard rate are reissued back to the original date with the discount applied. Excess premiums are refunded or applied to subsequent payments.
Minimizing Current Expense
If this seems too expensive, even with the discount, there is a way to secure this coverage now while retaining the ability to “buy up” later. Remember that 75% of the available limit needs to be purchased in order to obtain the Benefit Update rider. As long as you purchase this 75%, you can own a policy with the discount that can be extended in future years. The Benefit Update rider allows the insured to increase coverage in future years without a cap or a medical exam, up to the maximum issue limit at the time of the increase. Let's take a look at an example that demonstrates how little a policy with a minimum base benefit may cost:
- 29 year old female General Surgery resident in Massachusetts
- Income as a PGY2 – $63,500
- Existing Group Disability Insurance at hospital – 60%, benefit is taxed as income
Calculated maximum available monthly limit (based on company issue and participation table) – $1,475 without using Special Limit programs for residents. Keep in mind that our goal is to drive down the monthly benefit in this example so that the 75% number is smaller. For that reason, we elect to apply under traditional financial underwriting practices.
75% of $1,475 = $1106.25
If only $1000 of base benefit is purchased (< 75%), the Benefit Update rider is unavailable because $1000 is less than the minimum level of $1106.25. So, $1,125 is purchased (benefits are issued in increments of $25) so that the 75% threshold is met. Thus the Benefit Update rider is issued as part of the policy!!!
Total Monthly Premium – $33.28 per month
With this policy, the Surgeon can use the discount when increasing base benefit after graduating from fellowship and heading into practice. The premium dollars that are saved could add up to be a large amount of money. At the same time, the Surgeon has a high quality “Own Occupation”, Non-Cancelable, Guaranteed Renewable policy in place if a sickness or injury prevents from working in her occupation.
[Editor's Note: As you can see, several unique aspects of a Principal policy can be very beneficial for select physicians, allowing them to get a great policy at a great price. Did you consider a Principal policy when shopping for disability insurance? Why or why not? Comment below!]
Nice post! It definitely points out the value of the multi-life discount for both males, as well as, females. Keep in mind with Ameritas no longer offering unisex rates, this becomes even more of an issue – especially for female physicians.
Keep in mind that if you are considering Principal’s policy and have not been shown an illustration with unisex rates, that does not mean that the multi-life discount plan does not already exist. Each discount plan is created by a specific agent and, as a result, what one agent may have already established may not be available to another. Principal does not provide a list of these discount plans to their agents and brokers to protect the agent(s) that established the discount plan(s) at specific institutions. So, it always pays to “shop” to see if you can get what you want without having to find others to establish the discount plan.
In certain institutions, Standard Insurance Company, also makes unisex rates available to graduating residents and fellows. This is also available with no exam, blood tests or urine tests. This is more limited, as well as, more of a challenge as the offering is limited to certain “endorsed agents” at each institution. For this reason, again, it pays to do your homework.
Another item of importance is that to establish the discount, you actually have 12 months.
For example, if you and one friend want coverage but can’t find a third person immediately, you can apply and have your policies issued based on a gender distinct (non-discounted rate). If you find a third person within 12 months, your policies will be reissued with the unisex rate and discount. You will both also receive a refund retroactively for the overpayment of premiums.
I have established several discount plans with Principal using this strategy.
However, It should be easier now as the academic year comes to a close as more of your colleagues are probably interested in doing something prior to the completion of their training.
Obviously, it is also less of a hassle if 3 or more people initially apply simultaneously.
I think it is important to note that Principal is not the only carrier offering this type of arrangement. Some of the carriers offering higher quality coverage also offer unisex rates with discounts, just much more selectively. For attending physicians, the options for these type of arrangements broadens even more.
Just googled the commissions on these products. 50% first year, 10% a year after. Assuming that insurance companies don’t lose money on these products, your expected chance of getting disabled is crazy low. Buying insurance for peace of mind I understand, but it works against you if you are loading up too much on insurance. A better way to look at this would be if we could find most common disabilities claimed by medical specialty. Then you could make value judgements to assess your risk properly and possibly even avoid activities that could lead to specific disabilities.
Source: http://www.cpssac.com/docs/dicomp06renew20.pdf
Thanks for posting that link to the agent compensation information. I have a policy through Principal that I bought 5 years ago during my last year of residency. I guess the continued bonuses and commissions that the agent receives explains why he has continued to check in with me annually to review the policy and make sure I’m still happy with it. While I wish there wasn’t so much money coming out of my premiums and into his pocket, I guess I can’t really begrudge him his commission. He helped me shop around for numerous options and this was the best plan for me at a very competitive price. I suppose nearly all policies are sold with similar commission schedules.
I was also concerned with the idea of loading up on too much insurance, especially since I have a group policy through my employer. However, when I actually read the entire employer policy and saw that it was basically 20 pages outlining all the ways they could get out of paying my claim I decided to keep my individual policy in force. The peace of mind is nice, and I think it is necessary at this stage in my career with a wife who stays at home with two young children. While my chances of disability are low, I just can’t take on that risk right now. However, my plan is to reach financial independence and drop the policy long before I hit age 65.
ArkyDore,
Thanks for the additional info. No surprise that the salesmen gets a commission for renewing and signing people up.
But what you mentioned is quite useful. Are there any data of physician cohorts regarding what are the commonest disabilities claimed, and maybe we can look at risk factors and also medical specialties as well. So perhaps, as you say, we can reduce our chances for disability as well.
In my daily life, I’ve figured out certain driving routes that would avoid overly dangerous left turns over multiple lane roadways simply due to higher risk of collision. Maybe such mindset could be put in place.
Of course we also don’t want to be a bubble-wrapped hermit either.
I am left slightly confused as to what exactly “regular occupation” vs “own occupations” means exactly, and which is “better”?
Principal has a Regular Occupation Rider on their policy. This is the same as “Own-Occupation” with other carriers.
The Regular Occupation (HH757)Rider states that “If you become totally disabled from your regular occupation and choose to work in another occupation, you’ll receive full benefits, regardless of the income you earn from the other occupation.”
Commissions have been discussed on this website many times – I don’t think anyone is hiding it. As WCI has stated in the past, the agent with whom you work is well compensated, so be sure that he/she truly provides you a service and helps with questions, comparisons, etc.
I could agree that overloading on insurance may be a poor use of your cash flow, but under-insuring yourself and actually becoming disabled could be way worse, no?
I too would love to see the type of data that you mentioned, but unfortunately I don’t think the insurance companies will be releasing that anytime soon. There is some generalized information available on the web though:
Leading causes of disability
Reduce your chances of disability
Other statistics
Based on these statistics, I don’t think I would qualify the risk of disability as “crazy low”. More importantly, the financial impact of a disability can be “crazy high” and that’s why people buy it.
I know friends in other professions working in the corporate world, many with compensation comparable to physicians, who have nowhere close to the the disability coverage. I agree that we should all have disability insurance but most physicians are over-insured. These products are sold very aggressively.
I agree that most docs don’t need all they can buy. A resident, however, probably does.
Physicians are also a bit more specialized than many professions. If most of us couldn’t practice medicine, we wouldn’t have a hope of doing anything else that pays anywhere near as much as medicine.
That’s a very good point kal dent. Others who earn $200k+ in the corporate world routinely just go by the “weak” group STD and LTD policies provided by the employer. Do doctors’ employers by tradition not provide group coverage?
I don’t know that I would consider it by tradition, but certainly there is a greater ratio of physicians I speak with who are without group coverage, than other professionals. Many physicians are structured as independent contractors, or are part of small medical groups where each individual is simply responsible for their own coverage.
Even still, many of the non medical professionals earning higher incomes will look for alternate sources of income protection, even if just to supplement their group policies.
Group polices have weaker definitions of disability, group policies aren’t portable, and many doctors are self-employed anyway. The big advantage of a group plan is its lower cost.
My institution now offers the Standard Program to residents. However, I already bought the Principal plan and had a personal health rider placed on the policy. I have a few questions that I’m still confused about after speaking with both representatives. The Standard rep didn’t point out Principal’s Benefit Update Rider in his comparison analysis so it makes me wonder what else he didn’t point out in regards to differences in the policies. The Standard lets you automatically upgrade to a nice amount without underwriting which he continuously pointed out. Would anyone happen to know rough differences between Principal and Standard?
Also, would it be advantageous to also purchase the Standard Program before I graduate since I can automatically end up with a nice amount of monthly disability (which is a finite number) without underwriting and still keep my Principal which has the Benefit Update Rider but includes my personal rider they placed on the policy?
Typically the Standard GME GSI plan provides a monthly benefit of $5,000 (lower amounts are also available – generally $2,500 month or $3,500 month), payable after 90 days, to age 67. Also included is a Residual Disability Rider, a 3% Cost Of Living Adjustment (COLA) Rider and an $8,000 Future Purchase Option (FPO) Rider. An $8,000 Catastrophic Disability Benefit (CAT) Rider may also be available as an optional rider.
The policy also includes an amended 3/12 pre-existing condition clause. This means that if an insured was treated for a medical condition (sought advice, care or services from a doctor, or for which he/she took prescription medication within 3 months prior to their effective date), it will not be covered unless the individual has been insured and is still actively at work for 12 months after the effective date of the policy.
No exam, blood tests or urine tests are required in order to purchase the policy. It premium rate is also based on a unisex (gender neutral) rate structure and includes a 15% discount.
In order to purchase the Standard policy, at this time, in addition to your Principal policy, you will most likely need to reduce the monthly on your Principal policy or simply replace it entirely (it depends upon the amount of coverage that you purchased with Principal).
On their own, Principal will issue up to $15,000 month and participate with other individual or group LTD coverage up to a total of $25,000 month.
Generally, on their own Standard (depending upon your specialty) will normally issue $15,000-$17,000 month, participate with other individual coverage up to $22,000 month and up to $25,000 with group LTD coverage.
Depending upon your medical specialty and income potential, Standard’s GME plan may be enough by itself and the need for additional coverage may not be necessary. While the Princpal policy’s rider can be reviewed in the future (this depends upon your condition and if it is chronic or degenerative) and possibly removed, certainly an amended pre-ex is more favorable than an exclusion rider with the hope of potentially having it removed.
Depending upon your specialty and the institution in which you are doing your training, the policy may or may not include full coverage for mental and nervous conditions.
I would be happy to answer any additional questions that you might have as to how the two companies compare in terms of policy provisions. You can feel free to email me if you want me to help you make a decision.
http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
According to CDA’s 2013 Long-Term Disability Claims Review12, the following were the leading causes of new disability claims in 2012:
Musculoskeletal/connective tissue disorders (28.5%) *
Cancer (14.6%)
Injuries and poisoning (10.6%)
Mental disorders (8.9%)
Cardiovascular/circulatory disorders (8.2%)
They even have a calculator to determine your risk.
I have a general question. I’m not a Dr. but I’m a RPh. What kind of disability insurance is available for pharmacists?
These exact same Own-Occupation policies discussed for physicians are also available to Pharmacists. Since the risk of disability is lower for Pharmacists than a physician doing procedural work for example, you will also qualify for much more favorable pricing than those you may have seen for EM physicians, Anesthesiologists, Surgeons, etc.
You would look for the same coverage that is recommended for physicians. However, as a pharmacist, in most cases, your premium rates will be more favorable.
You will also want to look for discounts, as well as, a unisex rate, if available.
The policies that are available to pharmacists are very similar (or exactly the same) as what is available to physicians.
Do you want to see a comparison quote for all of the top policies for Pharmacists? If so, just go to our website and request a quote.
Does anyone have a suggestion for when to stop carrying a disability policy? If you are in your late 50’s or early 60’s and have reduced your hours clinically and built up other assets, does it make sense to continue these policies (even occupation specific) since they are expensive – while they are of great value in your 30’s to ensure for disability, it would appear that the benefit is more limited later in life – when should you discontinue the policy?
When you’re financially independent, you don’t need disability insurance.
I have been working with an agent on a Principal plan. Is there any reason to seek quotes from other agents or will all agents essentially have the same rate if the plan is exactly the same? Can you negotiate the rate at all? Just thought I would ask before I lock into something.
TIA
If the plan is exactly the same, the rate will be the same with the exception of another agent having access to either an association or multi-life discount (that the agent showing you the policy does not have access to).
If your illustration is showing a discount plan, then any other agent will be showing you the same rates.
Keep in mind if there is a multi-life rate (typically unisex rates plus a 20% discount) and you are male, this will be approximately 2-3% lower compared to the association discounted rate.
If you are female, the multi-life discount will be significantly less expensive than the association discounted rate.
Thanks for the reply guys. Yes it is a multilife plan that myself and several other residents are doing before we graduate in a month. It is the HH750 plan that is presented in this post. I just wanted to make sure before I committed to anything.
Does the broker have the Principal Multi Life Discount program in place for you to use at your hospital? The illustration would show Unisex instead of Male, and there would be a 20% “Multi-Life” discount detailed in the policy summary page of the quote.
Hello! I am looking at a plan with principal and they deposited my check…. Then my lab results came back and they said I would owe an extra $900 a year. We never discussed these amounts changing, and he even said that our policy was all or nothing- no change based on the health result. Is this correct?
Sounds like you either didn’t get the Multi Life discount you were quoted so rate is higher or your policy was “rated” 25%, 50% etc as a result of lab work. Something is off. Email plan summary to me and I would be happy to tell you what happened. When reviewing the final forms did you see reference to a rating? Does the premium summary page say “Unisex” with 20% multi life discount?
[email protected]
Hi,
I was told the Principal plan has a clause that says the following for Own occupation
“In order to be eligible for Total Disability under this rider, there must be also no reasonable job or work site modifications which would allow you to work in your own occupation.”
I didn’t understand what this meant vs. Standard or Met Life. The agent says it is open to interpretation and they may use it to no give me true own occupation coverage. It is the cheapest option by a 100 and seems too good to be true. Any advice appreciated!
It means that if they can get you a cushier chair and you will still be able to work then you’ll have to work. I don’t see that as a deal breaker. I’d probably take the Principal policy.
Thank you so much for the responses. I noted that principal doesn’t use the same language to define own occupation as the other carriers. They say regular occupation but do not specify “medical specialty” in the contract itself. Apparently I was told that they will issue a letter that says they mean my medical specialty. For me, I am in anesthesia and otherwise Standard gives me the best rate. I just don’t want to have issues later with this if something were to happen in the future where they would argue that it is not defined as my medical specialty since it is not in the contract itself. Does that matter?
As long as the Principal policy includes the Regular Occupation Rider, if you are performing the duties of an anesthesiologist at the time of a claim, you would be insured in that medical specialty.
There is no difference in terms of the definition of total disability between the Principal and the Standard policies.
I would be happy to email the letter to you to review. Email me at [email protected]