Provide the reader with a high‐level, general overview of the topics pertaining to disability insurance. These are concepts and terminology a physician should be aware of as well as the core elements they should review in a potential plan.
As every individual, their health, and their circumstances are unique – this is an educational piece and not a specific insurance recommendation.
What is a disability insurance contract?
An individual insurance policy that steps in to pay tax‐free(1) income when an illness or accident prevents the policyholder from performing their material & substantial duties and income is lost.
How can I tell if a potential plan recognizes my medical specialty?
The carrier will furnish a proposal to review and it will outline their definition of own occupation. This can be listed as “true”, “pure”, “regular”, or “your” own occupation. If that carrier’s proposal is unclear to you as the reader, ask your agent, “is this their best definition of own occupation for the full benefit period and does it recognize my medical specialty?” It is also the opinion of the author that the definition of disability should not restrict you from earning income, during a disability, that is outside your own occupation.
Which carriers in the marketplace offer this level of own occupation specialty‐specific language?
– Ohio National(2)
– Mass Mutual(3)
– Mutual of Omaha (4)
At a minimum, you should review proposals from the bolded carriers above. This will give you a feel for what the marketplace has to offer.
Great, I have all these .pdf proposals now… what are the core elements I should be reviewing?
Core elements, at least at the initial review stage, should be uniform among the carriers’ proposals so you can compare them in an apples‐to‐apples fashion.
The carriers’ proposals and specimen contracts provide the precise language – this run‐through is a plain English summary of what these contract concepts will cover:
- Non‐Cancelable & Guaranteed Renewable (“to age X”)
– These contracts can be set to age 65, 67, and some even go to age 70. There are shorter periods available as well.
– This terminology means that until age “X”, your policy cannot be canceled, premiums cannot be increased, and restrictions cannot be added, as long as you continue to pay the premiums as they come due.
- Elimination Period
– The period of time, stated in days, a policyholder must satisfy before the policy will look to pay claims.
– The most commonly proposed elimination period is 90 days. Shorter and longer elimination periods are available and will influence price.
- Benefit Period
– How long the policy will remain in effect and/or pay benefits.
– The most commonly proposed elimination period is age 65.
– Age 67, 70, or reduced payout periods such as 10 years are also available.
- Premium Structure
– Level – the premium for your original policy remains static unless you make material changes to the plan.
– “Graded” – a couple carriers offer graded/reduced premium structures in the early part of a policy. This lowers monthly cost during residency/fellowship, as an example.
– Always review the graded premium schedule with your agent to fully understand the cost structure and changes over time.
- Monthly Benefit
– The amount the contract will pay for each month you are totally disabled, under the terms of the policy, due to accident or illness.
– The most common amount proposed for medical residents/fellows will be $5,000.
- Residual/Partial Rider
– One of the most important riders in a disability contract.
– This is what steps in to potentially pay partial, permanently partial, and residual claims.
– Without a strong residual/partial rider, the policy would effectively be “totally disabled” or “not disabled at all”.
- Future Insurability Rider
– The carriers vary on how they label their respective riders, but the central concept remains unitized. o Right behind residual/partial, this is a critical element of a contract – especially for those currently in residency/fellowship.
– Once you are approved for your disability plan and your future insurability rider, you now have the ability to increase your coverage (with no additional medical underwriting, just some light financial paperwork) as your income grows, or if you lose your group benefits. Subject to the carrier’s criteria and review process. o Here are the questions to ask your agent or to review:
– Does this rider add cost?
– Does this rider have required reviews?
– What is the maximum this policy can be expanded to if I have the income to support it?
- “Mental/Nervous” Provisions
– Carriers will outline what their contract provides with regard to claims arising from; anxiety, depression, adjustment, mental/mood disorder, and substance abuse/recovery. Each carrier has their own duration options. o The spectrum of options you will likely see:
24 months – 60 months – Unlimited
– What these durations are telling you is how many months of payment your contract will provide for disabilities in this domain. Should the mental/nervous provisions be exhausted during the policy’s life cycle, the contract should remain valid and in place to provide for benefits arising from other illnesses or accidents.
– Clarification: The vast majority of carriers do not include Pick’s, Parkinson’s, Alzheimer’s, stroke, or trauma in the mental/nervous category.
– We love discounts and don’t want you spending any more money than is necessary to get a terrific plan that meets your needs and wants.
– Your agent should be exploring any/all discounts the carriers can afford you, noting that carriers vary on their discount programs and availability.
- Additional Key Riders To Review
– Cost Of Living Adjustment Rider (“COLA”)
– This is the contract mechanism that increases the monthly benefit paid for each annual anniversary the policyholder is on claim.
– It does not adjust monthly benefit for those who are not on claim.
– The carrier will lay out, in percentage form, either a simple or compound interest figure. Catastrophic Rider (“CAT”)
– This rider provides an additional monthly benefit, on top of the contract’s stated monthly benefit, for catastrophically disabled policyholders. The general criteria for catastrophically disabled is that the accident, illness, or cognitive impairment renders the policyholder unable to perform two or more activities of daily living.
- Student Loan Rider
– Some carriers offer a rider that will pay an additional monthly benefit, on top of the contract’s stated monthly benefit, that is earmarked for the policyholder’s student loans.
– Always review your student loan promissory note and supporting documentation to determine if your student loans would be forgiven in the event of death or disability.
- Other Riders and Features
– Each carrier will have their own embedded as well as optional contract features and riders, it never hurts to explore and understand these as well.
You made it, great job! Yes, it’s a lot of terminology but my hope is that this 30,000 foot view has helped decipher some of the key terms and concepts. Always work with a licensed agent, with experience in the own occupation disability space, and ask as many questions as you need to in order to make an informed decision on which plan is right for you.
Informational purposes only, not a specific recommendation of insurance Executive Summary – Individual Disability Insurance
(1) Assumes the policyholder is paying the premium cost with after‐tax dollars. When individual disability plans are paid with pre‐tax dollars, the benefits paid under the plan could be subject to taxation. (See General Items)
(2) At this time, new contracts cannot be written for those that reside in New York or California. However, a contract secured by a policyholder (residing outside of NY or CA) would still be valid if they were to later move to and reside in New York or California.
(3) Excellent company. We have just found that their price structure has not be in line with the other major carrier options in the marketplace. A proposal from Mass Mutual is always available should you want to review it for yourself.
(4) Excellent company. They have recently revitalized their contract version to be in line with the needs & wants of the medical marketplace. At this time, they do not have the same degree of special programs and discounts that the other major carriers offer.
- Carrier names listed in this document are for informational purposes only. The presence of a carrier name in this document does not imply their endorsement of this informal informational document.
- Each carrier’s contract will govern contract stipulations and provisions for the policyholder.
- We cannot and do not specifically recommend one carrier over another; as independent brokers it our job to help clients review each carrier, their proposal, and their contract provisions to ensure it is in keeping with that individual’s needs & wants.
- We are not licensed tax or legal professionals, always consult a licensed professional in these fields with your specific tax and/or legal questions.
- Informational purposes only, not a specific recommendation of insurance