6 Things to Ask About Your Disability Insurance Policy

The following article is a guest post written by Rick Warren, DIA, MBA. I generally limit guest posting and sponsored posts on The Motivated M.D. unless I find it relevant to my audience. However, I have interacted with Rick Warren and his team at Insuring Income on multiple occasions. I can say with complete confidence that their knowledge of disability insurance is second to none. As I work to build a group of financial resources for my audience, Rick Warren and the team at Insuring Income have solidified their position as the experts of physician disability insurance (in my book). As such, I was pleased to have Rick write a guest post discussing 6 things to ask about your disability insurance policy. If you would like more information from their team, you can find Rick Warren’s information below. Enjoy!

Whether you already own individual disability insurance, are in the process of buying a policy, or just reviewing your options, here are some key central concepts to review.  If you already have an agent or are working with one to buy a new policy, these are very basic, straightforward (and non-confrontational) questions they can answer. Here are 6 things to ask about your disability insurance policy!

In this context we are discussing individual long-term disability insurance.  The premise behind these plans is straightforward; should an illness or accident occur in your life that intervenes with your ability to go to work and earn income, this is where a long-term disability insurance policy would be called upon to pay benefits.

1. Do I understand how my policy works… including all the riders?

As the policyholder/purchaser you should know (or be able to locate) the answers to the following high-level questions: 

• How much does it pay?
• How soon does it start to pay?
• How long will it pay for?
• How much does it cost?

Do I understand the riders?

Disability insurance contracts and proposals are full of insurance terminology and none of the carriers write their proposals/contracts the same as their competitors.

If you have a plan already, you may have known it down to the letter when you bought it, however the details may now be a little foggier.  That’s o.k., just review it with your agent and run through the nuts and bolts.

If you are currently in the market for a policy, your agent and/or the carrier’s proposal should be able to tackle how it works as well as explain the riders.

2. What is the definition of disability and how does it lay out ‘own occupation?’

This is where the carrier will outline what that contract considers your occupation to be and whether the plan will continue to pay if you work in a different occupation during disability.  The definitions have a range from “own” occupation through “modified”/“transitional” and down to “any” occupation.  Noting that the carriers all choose how to label their version; you as the policyowner/purchaser need to know what definition is laid out in your plan and how the policy will behave during a period of disability.

Special note to physicians and dentists – this is the section of the contract/proposal that should spell out that your medical/dental specialty is considered your occupation (“specialty specific” definition of own occupation).

3. Does my policy have a fixed/level cost or do I understand how the price will change over time?

There are three ways individual disability plans can have their cost structured:

Level premium – the cost remains static throughout, it will only be affected when the policyowner makes a material change (e.g., removing a rider) and/or adding benefits.  This option generally yields the lowest overall cost of insurance when stress-tested over a 20-25 year time horizon.

Graded / Step Rate premium – the cost of the policy is lowered by the carrier in the early years, then follows a disclosed pattern of increasing its cost on a scheduled basis.  This option is often used by individuals in the education/training phase of their career and then switched to level premium once they are out of training (think residency and fellowship).  Generally speaking, this option will have a higher overall cost of insurance over a 20-25 year time horizon versus level premium, but the lower cost in the early years may be an attractive option.

“Other method” – you never really know what the cost will be next year and/or the plan’s cost is influenced by external factors.  If you fall into this category, it might be a good time to review your plan and get some answers on its cost trajectory for the years ahead.

4. Does my policy have a future insurability rider and/or a rider that automatically increases the monthly benefit?

Future insurability is a rider on a disability policy that allows the policyowner to increase their coverage later without additional medical underwriting.  The policyowner is underwritten by the carrier to initially get their plan, and if the future insurability rider is approved & included in the policy, the policyowner need only qualify for additional coverage on a financial basis.  Each carrier will have their own name for future insurability as well as rules/guidelines specific to them and their contract.

Some carriers will have an automatic increase rider as a part of their contract/proposal.  These are typically a no cost rider that increases the monthly benefit by “X%” per year for the first “Y” years of the contract.  4% per year for the first 6 years is the most common, but the contract/proposal will lay it out in clear terms.  These riders are designed to just “happen.” They generally require little to no paperwork, and the policyowner is often afforded the opportunity to opt-out by the carrier in accordance with their guidelines.

5. Does my policy have any medical exclusions, or will it?

Medical exclusions are language added to a final disability insurance contract, generally disclosed on its own page(s)/section of the final plan, that lay out the body part and/or condition and/or circumstance(s) where the disability insurance policy may not potentially pay claims.

If you own a policy and it has medical exclusions, you may want to determine if those exclusions are “permanent” or “reviewable” by your carrier.

If you are buying a plan, it’s always best to discuss your health history with the agent to get a feel of how your potential carrier may view your health concern or pre-existing condition before the underwriting process begins.

The bottom line here is that some health items/history, in any of our lives or circumstances, will receive a medical exclusion from any carrier.  However, every carrier follows their own underwriting guidelines, and “Carrier A” may view the health item/history differently than “Carrier B” when it comes to a potential medical exclusion and the overall impact on the rest of the disability policy.

6. Am I able to pay for my policy annually? (Instead of monthly, quarterly, or semi-annually)

I have seen this referred to as “getting a discount by paying annually” …and I don’t support it.  When you pay for a disability (or life) insurance policy annually, you are eliminating fees, not driving down the actual cost of the insurance.

Carriers set their pricing based on annual figures and file their cost structure with your state’s insurance department.  From there, they offer the policyholder the option of paying annually, semi-annually, quarterly, or monthly.  All modes other than annual have some form of “modal factor” (effectively, a convenience fee) that increases the amount a person will pay on an annualized basis.

Generic example for a policy that has a cost of $1,200.00 annually and utilizing a random sample of a carrier’s modal factors.  If paid:

Annually =       $1,200.00

Semi-Annual = $1,230.24 [$615.12 x 2]

Quarterly =       $1,260.48 [$315.12 x 4]

Monthly =        $1,261.44 [$105.12 x 12]

BONUS: ‘Asks’ for those that have a disability policy already

When was the last time I reviewed my policy to make sure it is still aligned with my current circumstances?

You only need to know a couple things to start a review.  These include: your current income, what your individual plan(s) provide(s) in terms of benefits, and what is provided via your employer-sponsored (“group”) benefits.  It’s math from there.

Do I still have an agent for my policy?

Sometimes people move, sometimes people grab a disability policy in training as a part of a greater group, agents retire, who knows… the agent may have won the lottery!  The point is this… if you have a disability insurance policy, you should have an agent (a human point of contact) that can help you review, maintain, and adjust your plan.

BONUS: Items for those that are in the process of researching/buying a disability policy

You may have flexibility beyond what is on the proposal

These plans have some flexibility in how they are designed, what riders are included, and how much monthly benefit they provide.  To a degree, you can curate these plans to fit your unique circumstance, earnings trajectory, etc. without sacrificing overall contract capacity and function.

Example: Physicians and Dentists in training will often receive proposals for $5000.  Most of the carriers have special programs for trainees that affords them this monthly benefit.  That is terrific, and in a lot of cases appropriate, but $5000 is not that person’s only option for starting a disability insurance policy.

(Cautionary note:  carriers have rules/guidelines they follow for their plans that govern what can/cannot be done, your agent can help guide you through this.)

Discounts, and a quick note on ‘unisex’ discounting

Carriers have a variety of discounts they can offer when purchasing a new plan.  Your “ask” is to make sure all the carriers you are reviewing have included all discounts that pertain to you.

Not to be the bearer of bad news, but “unisex discounts” (gender-neutral pricing) have pretty much disappeared when it comes to buying a new disability insurance.  There are a few still out there but they are becoming more-and-more rare with each passing year.  The availability of a gender-neutral price structure can be influenced by the state you live in and the available carriers for your state, but in most cases disability insurance policies are gender-specific.

Take home points

Having the right income protection plan and the right amount of income protection overall is a key foundation block in your overall financial success.  Nobody expects to become disabled…temporarily or permanently.  Taking them time now to review your disability insurance policy and bring peace of mind when planning for the future.  Disability provides income when an illness or accident prevents you from being able to work or provide for your family.  It is critical to know what you own (or are buying) and review it frequently with your agent.  Remember, you should never be afraid to ask questions.  You will always be the best advocate for you.

Rick Warren; DIA, MBA and the Insuring Income agent team have a combined 50 years’ experience in helping people protect themselves and their families via disability and life insurance. As independent agents for all the major carriers they work to find the best solution for each individual’s needs & circumstances. Based in the Greater Boston area, they operate & serve clients in all 50 states + DC.

You can request a set of personalized disability proposals HERE

Instant term life quoting is available HERE

Or, if you prefer to reach out directly to have a conversation first, email info@insuringincome.com

Disclosure from the author – please understand that this is a general article and not a prescription for you or your insurance plan.  Every individual and their overall circumstances are unique. 

This is not intended to recommend a particular carrier or their product, each carrier’s contract is the final contract language that will govern the disability policy and its performance.

I hope you enjoyed this sponsored article titled 6 Things to Ask About Your Disability Insurance Policy. If you enjoyed this article, please make sure to share it with others! You can find the ‘share’ buttons located to the left of the article (on desktop) or at the bottom of the page. Also, it would be very helpful if you would like and follow us on social media. Our social media accounts can be located on the right handed sidebar (on desktop) or at the bottom of the page (on mobile). If you liked this article, make sure to check out Plan for Forever, Live for Now! Thank you again for spending some time at The Motivated M.D.

What has been your experience researching, buying, or maintaining your disability insurance policy? As always, we would love to hear from you in the comments section down below!

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.