This final article in our disability insurance series provides tips on how to compare one company’s policy to another company’s policy when shopping for disability insurance coverage. This will help you ultimately choose the right policy to best meet your individual needs and goals.
Occupational Classification and Pricing
Proper classification of occupations is of primary importance in establishing the premium rate that you will be charged by the insurance company. In general, the higher the occupational classification assigned to your profession or medical specialty, the lower your premium rate will be.
It is also important to note that different insurance companies may assign a different occupational class to the same occupation and, as a result, the premium rate may vary greatly from one company to another.
It is therefore important to “shop” for the coverage that you will be purchasing, or to employ the services of an insurance agent or financial planner that specializes in this type of coverage and represents several companies.
For example, one company re-cently created a new occupational classification (6M) for oncologists among a few other medical specialties. As a result of this upgrade (from class 5S), rates for oncologists were reduced by approximately 27%.
Another carrier assigns a more favorable occupational classification (5M compared with 4M) to radiologists who have been practicing for more than 5 years—not including residency or fellowship—either at the time of their initial purchase or once the 5-year time horizon has been met.
Therefore, when applying to that carrier, it is vital that radiation oncologists accurately note their medical specialty on the application for coverage. If they list their occupation as “radiation oncologist,” they would not qualify for the 5M occupational classification available to radiologists. However, if they list their occupation as a “therapeutic radiologist,” they would potentially qualify for the 5M occupational classification.
This seemingly small difference can either cause them to pay substantially more for their coverage or allow them to pay substantially less for the same coverage.
How Do Policies Compare?
Other than cost, the following policy provisions may help you decide which disability insurance policy or policies to ultimately purchase.
Foreign Residence and Travel
Some carriers allow an insured to travel or reside in countries outside of the United States, the District of Columbia, or Canada, but the majority of carriers will limit payments of these claims to a lifetime maximum of 12 months.
Therefore, if you may consider working outside of the United States in the future or would choose to leave the United States in the event that you became disabled, you should make sure that any disability insurance policy you purchase does not contain a limitation for this type of claim.
Mental and Nervous Conditions
Some carriers will cover claims for mental and nervous conditions in the same fashion as other disabilities, but the majority of companies limit these claims to a lifetime maximum of 24 months if the primary cause of disability is solely a psychiatric or substance abuse disorder or diagnosis, including, but not limited to, posttraumatic stress syndrome, anxiety, depression, and/or alcohol abuse/ addiction.
Although many insured persons will opt to purchase disability coverage with the least amount of restrictions, some willingly accept a policy with this limitation to take advantage of the cost-savings associated with it.
A recovery benefit continues to pay benefits (in the same fashion as the Residual Rider) if you return to work on a full-time basis, with no loss of time or duties, but you continue to suffer a loss of income.
If there is a demonstrable relationship between your current loss of income and your previous disability, some companies will continue to potentially pay benefits until you reach either age 65 years or 67, for as long as the required loss of income is met. Other companies, however, may limit recovery benefit payments to a maximum of 6, 12, 24, or 36 months—even if you continue to suffer a loss of income.
The disability insurance marketplace has changed dramatically over the past few years. Although monthly benefits have increased, new riders have been introduced and discounts are, for the most part, easily available. It is important for you to take the time to understand what you are purchasing, and to make sure that the policy meets your individual needs and goals.
Lawrence B. Keller, CLU, ChFC, CFP®, is the founder of Physician Financial Services, a New York–based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at 516- 677-6211 or by e-mail to