In this great post, Michael Relvas CFP® details what you should be thinking about when choosing a disability insurance policy.
Conceptually, disability income insurance is quite simple – it’s an insurance policy that pays you a monthly benefit if you become too sick or injured to work. Disability insurance is a form of income protection which is obviously important because your income is important. There are different types of disability insurance policies which can be secured through multiple outlets, such as employer-sponsored group policies, professional association policies, and private/individual disability insurance policies. There are benefits to each, but private policies generally offer ophthalmologists the most favorable policy terms/definitions and fewest limitations. Unlike life insurance, which is generally straightforward as it pays upon death, the term “disabled” can be interpreted in many ways. Evaluating when, for how long, and under what circumstances a disability policy will pay benefits is critical in determining the level of protection it provides.
Defining “Disabled” & Understanding Why “Own-Occupation” Matters
The definition of disability is one of the most important provisions in a disability insurance policy because it defines the circumstances under which one is considered disabled and therefore entitled to receive disability benefits. There are three primary components to consider when comparing policies: 1) the definition of total disability, 2) the definition of your occupation, and 3) the definition of partial disability. Logically, policies that define these terms based on your ability to work as an ophthalmologist will provide the best protection.
The definition of “total disability” can vary substantially from one policy to the next. Slight wording variations are even found with policies that are similarly interpreted in the event of a claim. It is therefore mostly important to understand the concepts of these terms rather than exact wording or catchy titles which could be misleading.
The ideal policies for ophthalmologists define “total disability” as being unable to perform the material and substantial duties of one’s occupation, because of an injury or illness, even if working in a different capacity for wage or profit. Furthermore, they define “your occupation”, as the occupation or occupations you were engaged in based on the duties you were performing for wage or profit, at the time the disability began. The three primary focus points are:
These policies pay benefits if an injury or sickness prevents you from performing the material and substantial duties of “your occupation”, opposed to just “any occupation”.
It is important to note that your occupation is evaluated based on the occupational duties you are performing, for wage or profit, at the time of claim and not necessarily what they were at the time of application.
These policies pay full benefits if you are totally disabled from working in your occupation, even if you are gainfully employed in a different occupation.
Considering that most disabilities are illness-related (opposed to accident-related) and most illnesses do not totally disable a person overnight, it is generally recommended that ophthalmologists include a good partial disability benefit in their private disability insurance policy whenever possible. Partial disability is when a person is not fully prevented from working in his/her occupation but experiences a loss of income as the result of an injury or illness. Partial disability benefits should be accessible without first requiring a period of total disability, should be payable for the full benefit period of the policy, and should even pay upon recovery from a total disability if a significant enough income loss persists.
The Short List of Features and Riders You Should Know
Private disability insurance policies include several moving parts, many of which come standard but some of which are optional and customizable. Below is a list of features to consider when comparing and evaluating disability insurance policies:
Guaranteed Renewable – when a policy is guaranteed renewable, it means that the insurance company is unable to modify the terms of the policy during the guaranteed renewable period, often until age 65 or 67, so long as you pay the premiums timely.
*Policies that are guaranteed renewable are not necessarily noncancelable, which means the terms are guaranteed but the pricing may not be.
Noncancelable – when a policy is noncancelable, it means that the insurance company cannot increase the policy premiums during the guaranteed renewable period, often until age 65 or 67, so long as you pay the premiums timely.
*Policies that are noncancelable are generally also guaranteed renewable. Policies that are both noncancelable and guaranteed renewable offer the greatest guarantees and reliability.
Elimination Period – The number of days you must be totally or partially disabled, measured from the start of a disability, before benefits become payable. The elimination period should NOT require consecutive days of disability and should not require any specific number of total disability days opposed to partial disability days.
Long term disability policies are most commonly designed using a 90-day elimination period, but most insurance companies offer 60-day, 180-day and 360-day elimination periods as well.
Benefit Period – The longest period of time that benefits are payable for a continuous disability. Most insurance companies offer 2-year, 5-year, to age 65, to age 67 and to age 70 benefit periods, but a benefit period payable to age 65 or later is generally recommended.
Benefit Increase Riders – There are optional policy riders that allow for additional coverage to be purchased at a future date, without requiring additional medical screening. This is particularly important for students, medical residents/fellows and new attending physicians whose earnings are expected to increase.
Insurance companies use various names to identify these types of riders and offer multiple versions that provide unique guarantees, so evaluating the options is important. Medical students, residents, fellows and new attending ophthalmologists who expect their earnings to increase in the future, are generally recommended to include one of these riders.
Cost of Living Adjustment Riders – The primary purpose of this optional policy rider it to provide annual increases to the monthly benefit throughout a disability claim, beginning after benefits are paid for 12 months. The adjustment percentage and calculations can vary from one policy to another, so it’s important to review the details.
It is generally recommended that younger physicians secure a COLA rider that increases benefits using a compound interest factor opposed to simple interest.
Benefit Period for Mental Health & Substance Abuse Disorders – Certain insurance companies will limit the benefit period for claims related to mental health and substance abuse disorders to 24-months while others will pay benefits for the entire benefit period of the policy. While many people may initially feel comfortable with this limitation, it is important to note that ~9% of long-term disability claims are caused by mental health and substance abused disorders.
An Insider’s Perspective on Comparing Policies
As of the date this article was written, there are several insurance companies offering private disability income insurance policies to physicians. There are numerous ways these policies can be designed so it is important to have a basic understanding of what to look for. When policies are properly designed for ophthalmologists however, you should mostly be comparing the slight differences in specific nuances of each feature, opposed to evaluating whether the feature is included in the policy at all. Below are the four primary factors I consider when evaluating well designed policies:
Some policies limit the benefit period payable for mental health and substance abuse disorders to 24-months and others will pay benefits up to the policy’s full benefit period. A policy that does not include this limitation is obviously better than one that does and should be priced higher as a result. It is important to identify which policies include such limitations and which do not, and then evaluate the pricing for each to determine which offers the best value.
The calculation some policies use for partial disability benefits may be more advantageous than others, particularly during the first 12 months of a partial disability claim. It’s important to identify which policies include which partial disability benefit version, and then evaluate the pricing to determine which offers the best value.
Some Cost of Living Adjustment riders use a fixed interest adjustment factor and others use a variable rate that is based on CPI-U, which may then be calculated using simple interest or compound interest. It is important to identify which companies offer fixed vs. variable rates and which use compound vs. simple interest, so pricing can be evaluated accordingly.
- There are several types of riders that allow for future benefit increases without requiring medical screening. Some allow you to pre-select the amount of additional benefit available to you, while others use the company’s issue & participation limits to determine the maximum increase available. Some versions can be included with the policy for an added premium, while others are free but include specific stipulations. Again, it is important to identify which policies offer which versions so consumers can determine which is most beneficial for their needs and also evaluate cost appropriately.
Tips for Students, Residents and Fellows
It has likely been suggested that you should purchase a private disability insurance policy during residency because it’s less expensive. While this is generally true, the difference in cost is likely minimal and the real reason you should secure a policy as early as possible is to secure a policy with the fewest exclusions for pre-existing conditions (ideally none), and the best terms possible (particularly relating to medical history). I cannot express how many policies we have issued with exclusions for things that could have been avoided if coverage had been secured sooner.
There are special underwriting programs available through nearly every insurance company that allow 4th year students, residents and fellows to secure private disability insurance regardless of income or group disability insurance benefits, so long as you are medically eligible. This often allows medical residents/fellows to purchase more coverage than their income would typically allow, which is great for those who want and can afford the higher coverage but makes it difficult to afford since the premium is disproportionately high relative to income. Medical residents and fellows are not required to accept the maximum coverage available and securing a lower benefit amount may make it possible to secure coverage sooner.
There are discount programs available at nearly every GME program in the country. Some are exclusively available through a specific insurance agent or agency, but most are open to any agent who takes the time to research availability. Make sure the insurance agent you work with is knowledgeable about the discounts being offered for your hospital and don’t hesitate to ask him/her which discounts are being included. These discounts can generally be accessed for 60-90 days after graduation as well.
- Disability insurance pricing is impacted by numerous factors such as age, state of residence, medical specialty, hospital/employer affiliations, etc. and the cost of coverage is not always less while in training. In terms of trying to secure the best pricing, medical residents and fellows should simply get informed and review personalized quotes before graduation to allow adequate time to determine the most beneficial strategy for their unique circumstances.
Purchasing Disability Insurance?
Private disability insurance must be purchased through an insurance agent or broker who is licensed to sell health insurance products in your state. Agents can be licensed in all 50 states, so you aren’t limited to finding someone local. Some insurance agents offer products exclusively from one company and others work with several companies. There are several competitive disability insurance policies available to ophthalmologists today, so it may be best to work with an experienced broker who focuses on working with physicians and can objectively review all of the options with you. A few things to consider:
Whether you contact an insurance company directly, request quotes from a website online, or speak to a local agent, you must ultimately work with an agent to purchase a policy. Contacting an insurance company directly doesn’t avoid this.
The pricing for disability insurance is established by the insurance companies, with no opportunity for some agents to negotiate better rates than others. The only reason for pricing discrepancies is if different policy designs or discounts are illustrated. Assuming all things are illustrated equally, the final pricing should be identical with all agents.
- Insurance agents are paid a commission when selling a disability insurance policy and the commission is determined/paid by the insurance company, not the agent. Working with an experienced agent will not cost you more than working with any other agent.
Michael Relvas is a CFP® Professional and independent insurance agent that assists physicians and physician families nationwide by providing personalized information, quotes and advice regarding disability insurance. For more information, you can contact Michael at 800-817-4522 or MRelvas@mrinco.com, or visit his website.
Michael Relvas is a Registered Representative and Financial Advisor of and offers securities products and advisory services through Park Avenue Securities LLC (PAS), member FINRA/SIPC. OSJ: 9200 Corporate Blvd. Suite 390, Rockville, MD 20850, phone: 240-683-9700. PAS is an indirect, wholly owned subsidiary of The Guardian Life Insurance Company of America® (Guardian), New York, NY. MR Insurance Consultants is not an affiliate or subsidiary of PAS or Guardian. Michael is insurance licensed in all 50 states (CA #0G91249, FL #W010461, AR #400845).
2019-88775 Exp. 11/21
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