Purchasing Disability Insurance With a Unisex Gender Neutral Discount
Principal HH750 Individual Disability Income Insurance Multi-Life Discount1 Program
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 that are available for 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 meaningless.
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, a cost of living adjustment rider, future increase options (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, readers at this site have seen mentions of how it is important for females to find “gender neutral” or “unisex” rates when purchasing coverage. Male and female physicians 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.
As an example, with Principal Financial Group’s Multi Life discount plan, a 31-year old 4th year female emergency resident could obtain coverage that would pay out a monthly disability income benefit of $5,000 (tax-free if 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 point 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. For this specific 31 year old MA female emergency medicine resident, purchasing $5,000 of base coverage with Residual, Regular Occupation, etc., the discount ends up being approximately 45 percent.
It is important to understand the numbers and logic behind the discount. The prior example shows a savings of 45%. The discount is not a flat 45%.
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.
In the example, 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 is where the 45% comes from. This discount also lowers the price 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. This is a discount of 13.36% per year.
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 (It is important to note that 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 to 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-cancellable 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 – It is important to find a policy that will allow you to increase your base benefit as your income increases throughout your career, without having to go back through medical underwriting. All of the major insurance companies offer this. 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. Also keep in mind that the limit could drop. If this happens, then so would your limit. This rider is added at no additional cost, at the underwriter’s discretion. The specific requirement to be able to include this in a policy is that a minimum of 75% of the available base benefit must be purchased, that you are age 55 or younger, and that you are insurable as a Standard risk. If less than 75% is purchased, the rider is not available. The fact that there is no cost removes this consideration from the ultimate decision of “if” and “how” to purchase future options. An important note for the “Benefit Update” rider: This rider is conditionally renewed every 3 years out to age 55. Every three years, the insured submits a Benefit Update rider application. The application asks for income details and existing disability insurance details. Principal will determine the amount of coverage that the insured can add, based on their issue and participation limit tables. In order to keep the Benefit Update rider on the policy for the next 3 year interval, the insured must purchase a minimum of 50% of the available increase. If the Benefit Update rider is not submitted, the appropriate financial documents are not received (Financials are not required if your income has not increased by more than 10% since the last offer and other disability coverage has not changed), or if less than 50% of the available increase is not purchased, the Benefit Update rider will be removed from the policy. In this case, the insured would need to go back through medical underwriting for any increases in the future. This is not a problem is health does not change, but for most, some change in health are seemingly inevitable.
Many physicians want to increase the base benefit after starting in their first job after graduation. The good news is that there are exceptions to the Benefit Update rider for when an increase can be added. If the insured has an increase in income of 50% or more, the next available option to increase can be exercised (as long as it is done within 90 days of the pay increase). In this case, the option is used up and the next option will not become available until the next three year period. This rule solves a problem for a PGY3 resident that is purchasing coverage while also intending to have a large income increase in 24 months. Rather than having to wait until 36 months have elapsed, the physician can properly insure the new income without a medical exam.
The other exception to the Benefit Update rider rule is that the option can be exercised early if the insured loses their group long term disability insurance and does not have a group disability policy to replace it in the new job or place of employment.
- 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. As an example, an this rider could add 4% to the base benefit each year for 6 years (compounded annually). These benefits are added without any financial underwriting and are meant to help the benefit to keep pace with inflation. Although the rider is added at no cost (assuming that the insured is age 55 or younger and that they are insurable as a Standard risk), each policy increase is priced at the attained age at the point that they are added. Principal has one of these riders. The unique aspect of their FBI rider is that a physician could obtain 4-10% as an increase (based on CPI-U) OR they could add as much as $500 to the base benefit if the financial underwriting warrants such an increase. These $500 additions can be added to bring the base benefit up to the maximum issue limit of the company. You are allowed to turn down one increase every 6 years or you lose the rider. At the end of the 6 years, the rider can be continued with financial underwriting. It is possible for medical history to cause Principal to refuse to include the Benefit Update Rider. In this case, the FBI rider can be used as an alternative to the BU rider (assuming that the FBI rider can be obtained). The increases are capped at $500 of monthly base benefit for each year, but the key is that they are added without further medical underwriting.
If you have the Benefit Update rider and the Future Benefit Increase rider on your policy, in the years of the Benefit Update rider review, there are no increases from the FBI rider available.
- 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. Any Principal policy will have this limitation (and discount) if the “Regular Occupation” rider is purchased. If their “Transitional Your Occupation” rider is purchased instead of the “Regular Occupation” rider, coverage for mental/nervous/substance doesn’t have to be limited more than the maximum benefit period. We simply wanted to point this out. For many, it only makes sense to consider a “Regular Occupation” policy. If unlimited mental nervous coverage is something that you are looking for, then take some time to learn about the Transitional Your Occupation rider offered by Principal Life.
How to take the Next Step
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 3 individuals in a single employer to apply under this program to set it up. Although the discount is specific to an employer, the employer does not need to be involved in setting this up. Also, the 3 applications do not need to be submitted at the same time. In a situation where the discount is not setup 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 in 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.
Last But Not Least – Buy coverage now even if you think that you cannot afford it
Does all of this sound like something that you want? Does it seem too expensive, even with the discount? Well, there is a way to secure this coverage now while retaining the ability to “buy up” later.
This post detailed 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. If you remember, the Benefit Update rider allows the insured to increase coverage in future years without a cap, up to the maximum issue limit at the time of the increase. If the 75% number is only $1000, and Principal’s current limit is $15,000, then you have $14,000 of monthly benefit that you can add later without a medical exam (and by the way, the Benefit Update rider has zero cost unless you increase your benefit so you retain the right to buy $14,000 of benefit in the future without an exam!!). And the final piece, if you remember from earlier in this post: The discount is portable! You can add coverage later that will include the 20% multi-life discount AND the Unisex rate!!!!
Now that we understand the specifics, the question is: “How much does a policy cost me if I only obtain the minimum base benefit so I can have the Benefit Update rider with the plan to increase later?”
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. 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 to $10,000, $15,000, etc. 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 them from working in their Occupation.
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Contact Insuring Income today for more information on how we can work together to set up a multi-life discount program using Principal’s Multi-Life Discount plan so that you can take the next step in locking in additional disability income protection at today’s discounted premium rate for you and your family for both now – and the future. We could have the discount in place already from work that we have done with other employees from your company/organization.
Although this post is specifically about the Principal HH750 policy, it is important to note that we work with all carriers. If there is an option that makes sense to consider, we consider it. We can prepare a quote comparison grid that shows all options and we can inform you of which discounts are available (and what would need to be done in order to access a specific discount). The goal is to put you in a position to make a decision.
1 – Multi-life discount based on gender neutral rates.
*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.