Every individual disability insurance policy can be different so it can feel like comparing apples to oranges. The good news is if you know what to look for it can help simplify the process.
Comparing Disability Insurance Policies; The Basics of Every Plan
When comparing disabilities policies, we talk a lot about “following the money” to determine how you will be paid benefits in the unfortunate event of a claim.
Disability insurance is one of the most complex financial and insurance tools to compare because products are not uniform in their benefits and features from company to company. The best way we have found to evaluate is by creating a side by side matrix for each physician we work with, breaking down the differences and discussing how each policy would perform in different scenarios.
However, before doing this it is important to understand the basics so there is a foundation to build from so you can make an educated and informed decision on which policy is right for your specific needs. We prefer to use the analogy of a three-legged stool to describe these basics and better understand the most important parts of a policy. When all three components are properly constituted and functioning, the foundation of a policy, like a stool, will be balanced and sturdy.
What’s at stake?
If you make over $32,400 per year you will fall well within the top 1% in worldwide income. (According to The Global Rich List, based on World Bank data from 2008.)
With your chosen profession, you have a career path that may lead you to $300,000 or more of annual income. As your income increases, so does the importance of financial security and the need for at least a basic layer of disability protection.
Why do you have more to lose than the average working person?
Study, luck, drive, 10+ years of school, five to six figures of student loans… the things average people won’t do. The beautiful thing is this adds up to what can be a very rich and rewarding life of fulfillment, wealth and value add to society. The downside is there is greater risk, when there is more to lose.
What is the value of this difference?
A financial professional or accountant would say if you are unable to work the last 20 years of your working life (Age 45 to 65) and you fall into the top 1% at $200,000 annual income, you would need, $4M to make up the difference of income lost during those years.
(20 x $200,000/year = $4M)
Disability Income Insurance is a great tool to help protect part of your income if you are unable to work due to an illness or injury.
For those students and professionals who are beginning to navigate the waters of comparing individual disability income insurance, tips to help simplify the process can be extremely beneficial.
As I mentioned earlier, we like to think of breaking down a disability contract like you would view a three-legged stool.
The Seat | Non-cancellable, Guaranteed Renewable Policy
This is the base that holds it all together. Non-cancellable, guaranteed renewable means that if you pay your premiums on time, the insurance carrier cannot change the policy provisions or raise rates before you are age 65. Period. End of story.
Leg #1 | Own Occupation
The first leg is protection if you are totally disabled from your specific occupation. There are basically 3 definitions:
Choices:
1. You are unable to do the material and substantial duties of your regular occupation, whether or not you choose to work in another occupation. Full benefits are paid. This is referred to as True Own Occ.
2. You are unable to do the material and substantial duties of your regular occupation and you decide to work in another occupation. Benefits will be reduced or eliminated because you are working. This is referred to as Modified Own Occ.
3. You must be unable to do the material or substantial duties of any occupation for which you are qualified by education, training, or experience before benefits will be paid. This is referred to as Any Occ.
Leg #2 | Partial Disability
This is one of the most important features as many claims are partial in nature at some point. Without this rider the insured must be totally disabled to satisfy the elimination period and receive benefits. Our experience over a combined 40+ years and talking with the heads of claim departments at the companies we work with, is many disabilities do not begin with a total claim.
For example, assume a Doctor sees 25 patients a day, but due to a degenerative disease, the Doctor must reduce their schedule to half days. The income drops 40%, but the Doctor is still doing all of their duties. This would be considered a partial disability and with most policies, they would receive a partial benefit. This amount would pay proportionately from the benefit to the loss of income.
Leg #3 | Recovery/Return to Work
Considered a residual benefit that is paid following a period of total disability. The recovery benefit pays a partial monthly benefit once you have returned to work full-time after a disability but continue to
experience a loss of income due to a sickness or injury. It is important that the policy you own will continue to pay benefits until age 65 or longer under this claim scenario.
Why it is so important: As the income ladder typically only goes one way, up, this is a vital component to supplement a loss of income. As you rebuild your career over months, years or maybe never returning to the pre-disability earning levels, this policy provision will help supplement the shortfall.
While there are many more riders and features to a policy, understanding these basic policy provisions will be a great start in comparing which policy is best for you.
Our Comparison Process
One of our goals is to share the economy of time, mind and money. Economy of time is we understand you have more fun things to do, so we want to help you make an educated and informed decision as quickly and efficiently as possible. That being said, we like for you to tell us the speed you’re comfortable going and we keep it at that pace.
The economy of mind is our focus on making the process a little less daunting. Because you don’t need all of the choices….you just need the right choices. Working with residents for a combined 40+ years, we’re constantly monitoring the industry and are comfortable with the companies and solutions we offer.
And the economy of money is we understand you’re on a budget and everyone’s is a little different. We prefer to break our comparisons into three categories: good, better and best.
Step 1: We gather your date of birth (we are able to locate the rest of the information thanks to some nifty technology and our data from working with other residents at your program).
Step 2: We email your personalized options and are available to review via phone call on your commute, web meeting in off hours or back and forth over email.
Step 3: When you’re ready, we can take an application over the phone in about 10 minutes and email for an electronic signature (we dislike paper as much as you).
Step 4: In 1-2 weeks you will receive your policy and check it off the list of things a busy physician needs to do.