[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.]

Q.

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.

A.

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.

General Comments


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.

NML Partial Disability Wording Not Unique

 

Michael Relvas: Contrary to what your agent told you, some of the “Big 6” do use similar wording to NML.
Standard:  You are not totally disabled, and you are working in your occupation or any other occupation, and due to injury or sickness you have a loss of duties “OR” a loss of time “OR” a loss of income.
Guardian: You are considered residually disabled if solely because of sickness or injury, your loss of income is at least 15% of your prior income, and you are gainfully employed. No specific loss of time or duties is required.
I’m glad that your agent pointed out that all total and residual benefits are not created equal, because he is correct.  The concern however is not the word OR, it is whether or not you are required to have BOTH a loss of income AND a loss of time/duties, or if a simple loss of income is sufficient to trigger a claim.  Neither Guardian nor Standard require both however, which means that they have similar requirements to NML (Standard being arguably more favorable for the first six months).  But, speaking of differences, Standard and Guardian require a 15% loss of income versus 20% that NML requires.  I would never base my argument on this difference, but certainly it is in the favor of Guardian and Standard.
Equally as, or even more important than the qualification guidelines, you need to know how the actual benefits are paid and which policy would be likely to pay you the most, in the greatest number of circumstances.

 

Lawrence Keller: Under the Partial Disability Rider a 20% Loss of Income is required (some companies require only a 15% loss of income).  Your income must be reduced by 80% or more in order to collect full benefits under this rider (other companies typically use 75% or more).

 

White Coat Investor:  It would appear your agent is making a far bigger deal out of the word “OR” then he probably should.  Some of the policies available from the Big 6 do indeed use “AND” but the two most commonly used by physicians in my experience (Guardian and Standard) do not.

 

NML Definition of Total Disability Is Inferior Too

 

White Coat Investor:  The NML policy you sent me is not a true specialty-specific own-occupation policy.  For more money, it will give you a special “medical occupation” rider which is kind of like a specialty-specific own-occupation policy, but not quite.  Here is its wording (emphasis mine):

 

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. 


Lawrence Keller:   Northwestern Mutual’s “Medical Occupation” definition of Total Disability is inferior to a policy that has a true “Own-Occupation” definition for many reasons.  Essentially, it transforms the focus of any claim for benefits that you would submit for total disability in your specialty to a claim based solely on your loss of income. Unfortunately, their definition penalizes you if you are smart, motivated and resourceful enough to work in another occupation or medical specialty, are successful at it and are paid well as a result. Keep in mind, the definition of total disability is only one aspect of a high quality disability insurance policy. Northwestern Mutual falls short in several other areas as well.  You can find more information on this “Medical Occupation” definition in this article I’ve written previously or from this article written by a disability attorney.

 

Mental/Emotional Condition Limitations

 

Michael Relvas:  NML limits the benefit period on claims related to mental/emotional conditions to a maximum of 24 months.  Based on the statistical information that I have seen, 12-13% of long term claims fall into that category.  I’m not saying that it isn’t OK to accept this limitation, but just wanted to be sure you knew about it. Neither Guardian nor Standard (or a few others) would have this same limitation for a family doc.

 

Lawrence Keller:  There is a limitation for disabilities related to mental and nervous conditions to a maximum of 24 months over your lifetime (some companies do not have this limitation – like MetLife, Standard and Guardian).

 

White Coat Investor:  I have this same limitation on my 8 year old Standard policy, but I know a high-powered attorney who became severely bipolar in his 30s and was lucky to have a disability policy that didn’t have this exclusion.  It shouldn’t be taken lightly.

 

Other Issues With NML

 

Lawrence Keller:  There are a few other problems with NML policies that generally aren’t seen with policies from “The Big 6”:
  1. 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.
  2. The Recovery Benefit (Transition Benefit) is limited to a maximum of 12 months.
  3. 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).
  4. 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.
  5. 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):

  1. You need to buy IDI from an independent agent who can sell you policies from any company
  2. IDI is far more complex than most insurance policies and you need to take some time to understand the product, and
  3. 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.