Comparing Disability Insurance Policies
The Top Things To Look For...2
by Gary Fegan
Insuring your life's worth of income against a disability is one of the most important decisions that you will make and should be considered very thoughtfully! You need to thoroughly evaluate and understand the policies that you are considering. You do not want to be surprised at claim time (when you need the policy most) that the policy will not cover your claim.
Therefore, please see the following ten things to consider when looking into disability insurance:
1) The definition of disability – This is simply the most important thing to understand when considering a policy. There are many varying definitions of disability. Some policies are true own occupation, some are modified own occupation, and some simply are not own occupation. Through Guardian Life Insurance Company's wholly owned stock subsidiary Berkshire Life Insurance Company of America policy2 offers a true own occupation definition of disability with medical specialty language1, true own-occupation with enhanced language for MD’s and DO’s (For “M” class physicians that have a partial rider and no graded lifetime benefit rider), two year true modified thereafter, and two year modified any-occupation thereafter.
For professionals, you should look for what is called a “true own occupation definition of disability. A couple of companies, such as Berkshire Life Insurance Company of America, offer medical specialty language in their definition of occupation for physicians (It is applied if true own occupation is selected and the policy has no partial rider or the policy has graded lifetime). Guardian Life offers medical specialty language in their contract for physicians and dentists. This means that if a doctor who has limited his or her occupation to a single medical specialty can’t work in his or her specialty due to a disability, he or she can collect benefits if he or she is working as another type of physician.
For blue-collar workers, look for a policy that has a modified own-occupation definition of disability. This means that you can collect benefits if due to a disability you can’t perform the substantial and material duties of your occupation and are not working in another occupation. Most companies offer a two-year modified own-occupation definition of disability for blue-collar workers.
This means that for the first two years, you get the modified own-occupation definition. After two-years, you can only collect if you can’t work in any occupation based on training, education or experience. You want a definition as close to the following as possible:
Total Disability or Totally Disabled means that, solely due to injury or sickness, you are not able to perform the material and substantial duties of Your occupation. You will be totally disabled even if you are gainfully employed in another occupation so long as, solely due to injury or sickness, you are not able to work in Your occupation. Working an average of more than 40 hours in a week, in itself, is not a material and substantial duty.
Your Occupation means the occupation (or occupations, if more than one) in which you are gainfully employed during the 12 months prior to the time you become disabled. If you have limited your occupation to the performance of the material and substantial duties of a single medical specialty or to a single dental specialty, we will deem that specialty to be your occupation. (Only dentists or M class physicians with no partial rider or with graded lifetime will have this language.)
2) The Elimination Period - Think of the elimination period as a deductible. It is the period of time that must elapse from the onset of a disability, before you are eligible to receive monthly benefits. The vast majority of disability insurance policies sold today use a 90 day elimination period; it has almost become an industry standard. However, there are often good reasons to go with some of the other available choices.
If you have short term disability protection already with a 6 month benefit, then you may want a 6 month elimination period on your personal long term disability insurance policy so when one ends, the other begins. You may also not have enough savings to last 90 days until benefits begin, in which case you may want to go with a shorter elimination period like 30 or 60 days (even though it may be much more expensive to do so.) Berkshire offers the following elimination period choices, just know the longer your elimination period is, the less expensive the policy is, and the more money you will need to risk with self insurance: 30 days, 60 days, 90 days, 180 days, 360 days and 720 days. When comparing proposals be sure that you consider like elimination periods.
3) The Benefit Period - The benefit period is shown on the schedule page. It is the longest period of time for which an insurance carrier will pay benefits for a continuous disability from the same cause. Many companies offer various benefit periods including 2 years, 5 years, 10 years, to age 65, to age 67, and to age 70. When comparing proposals be sure that you consider like benefit periods.
4) Does the policy offer inflation protection during a disability? - This is an optional rider3 you can choose to apply for with your policy. If you become disabled without this rider, your monthly benefit would never grow to keep pace with inflation. If your disability was resolved within a year, this would not be an issue. If your disability lasted longer than a year, then you would most likely want to have a COLA4 rider on your policy to make sure the monthly benefit continued to grow with inflation.
Most carriers offer different options for the cost of living rider. The Guardian’s policy offers three options, all of which have a guaranteed minimum adjustment of 3%; 3% Compound, 6% Maximum, or the 4-Year Delayed COLA. Our agency is a proponent of the 4-Year Delayed COLA rider. It is the least expensive, and still provides excellent protection against inflation for a long term claim.
5) Is the policy an accident only policy? – The policy must cover future disabilities caused by accident or injury- You do not want a policy that will only cover you in the event of an accident!
6) Can you increase the benefit as your income increases? - Prior to disability – Most carriers allow you to increase the benefit without any evidence of insurability as long as you’re employed and your income is increasing. The Guardian’s policy offers The Future Increase Option Rider5 which allows you to apply for additional coverage each year until age 55 without additional medical underwriting. Financial eligibility will be determined by your income, employment, and all other disability insurance with any insurer that you own, have applied for, or for which you are eligible.
7) Is partial/residual benefit covered? - “Residual disability or residually disabled” is defined as “you are gainfully employed and you are not totally disabled under the policy but, solely due to injury or sickness: You are unable to perform one or more of the material and substantial duties of your occupation; or you are unable to perform the material and substantial duties of your occupation for more than one-half of the time normally required. Partial disability either requires a 15% loss of income for the Enhanced Partial Disability Benefit Rider, or a 20% income loss for the Basic Partial Disability Benefit Rider.
Most carriers require you to have a loss of income of at least 15% (may vary from policy to policy) of your prior income. The way most companies pay a residual claim is that they pay for a proportionate loss of income after satisfying the elimination period. For example, let’s say you are making $100,000 a year and have a monthly benefit of $5,000. If you were in a car accident and could only work part-time and were only making half of what you were before you were disabled, the company would typically pay $2,500 (half of your monthly benefit).
Some companies require a loss of income of at least 20% to collect benefits, but some only require a loss of 15% to begin collecting. Under the recovery benefit, if you return to work full-time after a period of disability, but are earning less than 80% or 85% of what you were before you were disabled, then you will collect some or all of your monthly benefit until you get back to almost what you were making before you were disabled. Most other companies pay only when the loss of income is 20% or more, and they may require a loss of time or duties in addition to the loss of income, possibly preventing you from receiving benefits sooner.
8) Does the policy reduce benefits if you collect disability benefits from Social Security? – You may not want a policy that offsets by benefits paid from Social Security Disability (SSD). Some policies offer a reduced premium to allow the benefit to be offset by SSD, and it may be worth considering. However, when comparing policies, make sure that you know whether or not the policies offset with SSD.
9) Is the policy non-cancellable and guaranteed renewable? – As this coverage is an essential part of your financial picture and stability, you want to make sure that the policy that you decide on is going to be there when you need it. With Guardian’s policy, you may renew this policy at the end of each premium term until the expiration date. During that time, Guardian cannot change the premium or cancel the policy.
10) Does the policy cover Mental and Nervous Claims? – If yes, for how long? Look for a policy that would pay in the event of a disability due to a mental or nervous issue for the full benefit period. Even if there is no family history of stress or depression, you never know what might happen in life that may trigger a severe reaction.
Make sure to do a thorough comparison before selecting your disability insurance coverage!
1. Only to Dentists or “M” class physicians who have a policy without a partial rider or have a policy with the graded lifetime rider.
2. Disability insurance Policy underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. Product provisions and availability may vary by state.
3. Optional riders are available for an additional premium.
4. The Cola benefit is not necessarily protection against increases in the cost of living.
5. Restrictions and limitations apply. While medical information is not required when exercising a future increase option, applications to exercise an increase option will be financially underwritten, taking into consideration both the applicant’s then current income, as well as all disability insurance which is then in force, or for which the insured has applied or is eligible to receive.
James Fegan is a Financial Representative. The Guardian Life Insurance Company of America (Guardian), New York, NY. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
Individual disability insurance policy Forms 18ID, 18UD, and 18GI underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. Product provisions and availability may vary by state. In New York: These policies provide disability insurance only. They do not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. For policy form 18ID, the expected benefit ratio is 50%. For policy forms 18UD, 18GI, 18UD-F, and 18GI-F, the expected benefit ratio is 60%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits, when averaged over all people with these policy forms.
2016-22745 Exp 6/2018