[Editor's Note: This post is rather lengthy for a Friday Q&A series, but I thought it was worthwhile as I've been hearing more and more from docs looking at NML for disability insurance.]
I'm a family practitioner in the market for disability insurance. I met with a Northwestern Mutual (NML) rep who is telling me that NML has a better policy for doctors because of its better partial disability definition. Specifically, I'm told that their partial disability wording is special. Here it is:
Partial Disability: If you are unable to perform one or more of the principal duties of your regular occupation, *OR* spend as much time at your regular occupation as before the disability started; and you have at least a 20% loss of income caused by disability, and you are gainfully employed.
The agent highlighted that most partial disability definitions don't offer an “OR” option, that it's usually loss of income “AND” time and that this is important because it starts the 90 day elimination clock ticking a lot sooner than having to wait to prove a loss of income.
Do you know of other insurance companies with similar language? I've looked at several of “The Big 6” and none of them have this language. Is Northwestern really that much better or am I getting the wool pulled over my eyes? My agent certainly thinks NML should be considered in the top tier of companies for physician disability insurance.
I replied to the reader that I was surprised that anyone would consider a NML policy superior to the contracts provided by the usual “Big 6” disability providers (Berkshire/Guardian, Standard, Principal, Ameritas, Union Central, Mass Mutual). In fact, as I recalled, their policies were not as good. However, I pointed out that I wasn't really qualified to answer his question. I enlisted the aid of a couple of independent disability insurance agents well-known to regular readers of this blog to provide a more complete answer. Michael Relvas, CFP® (one of my advertisers), Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, and I have all contributed to this answer. Their comments have been heavily edited, so if something is not clear, it's probably my fault.
Michael Relvas: I applaud you for doing such thorough research on this issue before making a final decision. Aside from getting informed, you should also be cautious of believing every single thing that an agent tells you. His/her explanation should follow the logic that can be interpreted by reading the contractual provisions yourself. If a definition is worded as such that you need to have it explained, and are still skeptical (as is clear from the fact that you contacted WCI about this), it could be a red flag. To address your original question, NML really isn't any better. While I would not say that you are having the wool pulled over your eyes, I would say that you simply do not have all the facts right.
Lawrence Keller: If the premium for [the NML policy] was very low, I could understand why one might consider it. However, it is often more expensive and less comprehensive compared to other companies in the marketplace.
You are totally disabled when both unable to perform the principal duties of the regular occupation and not gainfully employed in any occupation. [That seems kind of important, no?] If you can perform one or more of the principal duties of the regular occupation, you will be considered totally disabled if:
-more than 50% of your time in the regular occupation at the time the disability began was devoted to providing direct patient care and services;
–you are not gainfully employed; and
-at the time the disability began, more than 50% of your medical charges came from:
i. a procedure-based medical or dental specialty for which board certification is available and you are unable to perform the principal procedures of the medical or dental specialty; or
ii. a non-procedure-based medical or dental specialty for which board certification is available and you are unable to perform the principal duties of non procedure-based patient care and services.
Michael Relvas: The most favorable definition a physician can own is the True Own Occupation definition which states that you are considered totally disabled when an injury or illness prevents you from performing the material and substantial duties of your occupation. (Your occupation is defined as the occupation that you were performing during the 12 months prior to becoming disabled). This definition does not require that you are not gainfully employed elsewhere and it does not include any marketing mumbo jumbo (“medical occupation definition”, “medical specialty definition”, etc). Very clean and clear, if you can't see/treat patients, you are totally disabled. And just in case you are a motivated individual (you know, the type that is willing to put 8 years of schooling and 4+ years of training behind his/her career), this definition will allow benefits to continue being paid, even if you decide to go work in some other capacity.
The policy is NOT Non-Cancellable and Guaranteed Renewable. This means that the premium rates are not guaranteed and may be subject to change by class. This policy form allows NML agents to lower the rates so, when compared to other companies, they do not look as expensive.
The Recovery Benefit (Transition Benefit) is limited to a maximum of 12 months.
When you exercise the Additional Purchase Benefit Rider, a NEW policy is issued. This means that your additional coverage may not be priced or have the same contractual provisions as your original policy (some companies like MetLife, Principal and MassMutual amend your original policy to reflect the increased benefit level. Therefore, everything remains the same. The pricing for the new coverage is simply based on your then current age).
Dividends are used to show that your premiums will go down over time. Dividends are not guaranteed and can be reduced or eliminated if claims experience is not favorable. This has been done by NML in the “Medical Market” before. A dividend (in disability insurance) is nothing more than a pre-approved rate increase.
- The quotes being shown you for comparison with the NML policy don't include discounts of 10-15% available to you through your local medical society. The Mass Mutual policy shown you has you in their 3P classification when you should be in the much more favorable (i.e. cheaper) 5P classification. The pricing doesn't look nearly as competitive when you compare apples to apples.
White Coat Investor: Certainly this exercise emphasizes the three main points I make to those in the market for individual disability insurance (IDI):
- You need to buy IDI from an independent agent who can sell you policies from any company
- IDI is far more complex than most insurance policies and you need to take some time to understand the product, and
- You generally get what you pay for with IDI. Cheaper policies are usually cheaper for a reason.
Perhaps I'm still soured on the fact that a good friend (who was an inadequately trained sales representative) sold me a completely inappropriate NML whole life insurance policy as a medical student, but based on the above information, it still seems to me that NML is excluded from “The Big 6” by independent agents selling disability insurance to physicians for good reason. The definition of total disability seems much weaker to me, the apparent advantage of their “OR” partial disability definition seems insignificant, and barring a huge discount when compared to a stronger policy, I'd give NML disability insurance a pass.