Myth #2
You Should Only Purchase a Guaranteed Standard Issue (GSI) Plan if Your Fully Underwritten Application Will be Declined or Modified
INCORRECT!
According to the Milliman 2021 Annual Survey of the US Individual Disability Income Insurance Market, 50% of individual disability insurance policies are either modified (34%) or declined (16%). This means that one out of every two individuals who apply for personal disability insurance either won't qualify to purchase a policy at all or won't qualify to buy a policy the way they desire.
While those residents and fellows with pre-existing conditions, those who participate in "hazardous" activities, and those who are unsure about what is in their medical records or prescription drug history may benefit most, it also works exceptionally well for those residents and fellows who want to streamline the process and obtain coverage quickly.
Underwriting can take six to eight weeks or longer. During this process, the proposed insured answers questions regarding their medical history, and the underwriter reviews and gathers prescription drug history and medical billing codes. They may also request medical records from their physician(s). Once the underwriting process is complete, the proposed insured may be offered a modified policy. This modified policy may include higher premiums, a shortened benefit period (benefits payable for two, five, or ten years per disability instead of until the insured’s age 65 or longer), exclusion riders (where the policy will not pay benefits for certain medical conditions or specific body parts), or they may be declined coverage entirely.
In contrast, GSI policies are typically approved and issued 24-48 hours after applying. Of course, this may vary - especially at the end of the academic year when many graduating residents and fellows choose to purchase disability insurance.
Residents and fellows early in their careers should take advantage of the Special GSI program as soon as possible, as the insurance company can discontinue it without advance notice. I have witnessed this firsthand at several teaching hospitals.
Currently, Guardian allows individuals to apply for coverage on a fully underwritten basis with Guardian while still allowing them to qualify for the Special GSI program. If dissatisfied with the underwriting outcome, they can opt for the GSI plan as a fallback option. This means they do not risk becoming ineligible for the Special GSI Program should they apply on a fully underwritten basis.
In most cases, if an applicant applies to a disability insurance company other than Guardian (assuming the GSI plan at the institution is with Guardian) and their application is declined, postponed, modified, or if an application is withdrawn, they will become ineligible for the Special GSI offer.
The same applies to individuals receiving disability benefits, such as VA disability benefits for those previously on active duty. It also applies to those who have not worked full-time for at least 180 days before applying for coverage, including those previously on maternity or paternity leave.
One well-known insurance company will not offer a GSI plan to individuals who have been declined for individual disability insurance in the past five years, had their applications postponed, had their applications modified, or had withdrawn their applications. This is true even if they applied to this company on a fully underwritten basis and the GSI plan at their institution is with the same company.
Another well-known insurance company will not offer their GSI plan to insureds who have applied for coverage and had it declined in the past seven years. This is true even if they used this company to apply on a fully underwritten basis and the GSI plan at their institution is with the same company. Surprisingly, at this time, a modified offer does not make one ineligible for this specific company’s GSI plan.
Myth #3
You Should Apply for a Guaranteed Standard Issue (GSI) Policy and then “Shop” for Better and/or Cheaper Coverage.
INCORRECT.
Nothing could be further from the truth; this message is "dangerous" and jeopardizes the continued existence of GSI plans altogether.
If a Guaranteed Standard Issue (GSI) plan is available at your institution, with few exceptions, it should be your first choice, regardless of the insurance company offering it. There is a tremendous difference between medical management and probability underwriting. What may seem insignificant to a physician can undermine your ability to qualify for coverage in the eyes of an underwriter.
GSI plans are predicated on volume. Insurance companies offer these plans to balance both "good" and "bad" risks. If they only attract "bad" risks and their GSI plans become a dumping ground for uninsurable residents, fellows, and individuals with health issues, they will become a distant memory.
Many residents and fellows have successfully obtained coverage they otherwise might not have qualified for by using GSI plans. However, it’s important to remember that some insurance agents may discourage participation in GSI programs or provide reasons to avoid applying. These agents may either lack access or will earn less money—either because they cannot be compensated for the sale or must share the commission with endorsed agents. This often leads to poor outcomes for residents and fellows due to adverse underwriting decisions.
In most cases, the premium rates for Guaranteed Standard Issue (GSI) plans are the same or lower than those of fully underwritten plans. However, GSI plans typically limit claims related to mental and nervous conditions and/or substance abuse disorders, and some include a pre-existing condition limitation.
Currently, Guardian only offers the Future Increase Option (FIO) Rider on its GSI plans, which has an associated cost. Alternatively, applicants can apply to Guardian on a medically underwritten basis and elect to have the Benefit Purchase Rider (BPR) included in their policy. This is a no-cost rider that allows an insured to increase their coverage, regardless of their health, as their income rises. Again, in the worst-case scenario, the Special GSI Program will still be available if the fully underwritten application is declined.
If you are concerned about the maximum benefit of $15,000 per month due to your future earning potential and are in good health, you can supplement your GSI plan with a small, fully underwritten policy. This would provide a higher level of coverage than the GSI plan alone, even if the second policy includes modifications. This supplemental policy should also be done with the same insurance company offering the GSI plan.
However, if you have no other disability insurance coverage, remember that you must earn approximately $350,000 annually to qualify for a $15,000 monthly benefit, roughly $600,000 to be eligible for a $20,000 monthly benefit, and $1,100,000 to qualify for a $30,000 monthly benefit.
I often propose a combination of GSI and fully underwritten coverage for clients who apply for a medically underwritten plan and receive unexpected modifications. This approach can be utilized with Guardian and Standard but not with Ameritas unless the GSI plan is purchased first.
Using Guardian as an example, a combination of GSI and fully underwritten coverage for a resident might look like this:
1. GSI plan - $4,500 per month, payable after 90 days, to age 65. Also included is an Enhanced Partial Disability Benefit, a 3% Compound Cost of Living Adjustment (COLA) Rider, and a $10,500 Future Increase Option (FIO) Rider.
This policy allows an insured to reach $15,000 per month ($4,500 base policy plus the $10,500 FIO Rider).
AND
2. Fully underwritten plan - $500 per month (the lowest monthly benefit Guardian makes available) payable after 90 days, to age 65. Also included is an Enhanced Partial Disability Benefit, a 3% Compound Cost of Living Adjustment (COLA) Rider, and a $4,500 Future Increase Option (FIO) Rider or a Benefit Purchase Rider (BPR).
This policy, in combination with the GSI plan, allows the insured to reach either $20,000 per month (the maximum GSI plan benefit is $15,000) plus $5,000 (the $500 base policy plus the $4,500 FIO Rider) or $30,000 per month (the BPR allows for the maximum monthly benefit currently available to physicians).
The GSI plan would not contain any exclusion riders. The outcome of the fully underwritten policy would be subject to Guardian’s standard underwriting practices and guidelines.
Conclusion
The famous opening line from Charles Dickens's novel A Tale of Two Cities is, "It was the best of times, it was the worst of times." It signifies a period of extreme contrasts and contradictions, during which both positive and negative aspects coexisted simultaneously.
This concept mirrors the current state of the disability insurance industry. Agents and brokers with access to Guaranteed Standard Issue (GSI) plans for their clients are experiencing “the best of times,” as they can assist clients in securing high-quality individual disability insurance with minimal difficulty. In contrast, those agents who lack access or are negligent in their duties put potential clients at risk, essentially playing Russian Roulette with their financial futures.
Your ability to earn an income is your most valuable asset. It allows you to repay debts, accumulate wealth, and create a comfortable lifestyle for yourself and your family. With significant income potential at risk, a long-term disability could leave you financially devastated. Therefore, please don’t take the purchase of disability insurance lightly; your entire financial future may depend on it.
1 Optional riders are available for an additional premium. Some policy benefits and features are not available to all occupations. Certain conditions and limitations may apply to certain riders.
2 In either case, a non-citizen may still receive a travel exclusion.
The material discussed is for general informational purposes only and should not be construed as a recommendation or advice.
Please note that individual situations can vary; therefore, the information should only be relied upon when coordinated with professional advice.
Lawrence B. Keller is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 355 Lexington Avenue, 9th Floor, New York, NY 10017, 212-541-8800. Securities products and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. AR Insurance License #1057229, CA Insurance License #0C37340. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian.