[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.]
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.
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.
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!!!
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!]