I talk to a lot of physicians who are comparing individual disability insurance to a plan offered by their medical association (AMA, ADA, etc.).
At first glance, Association Disability Insurance seems to offer physician-friendly, own-occupation coverage at a fraction of the cost of some other types of plans. Is there a catch? After all, if the association offers it, it must be good…right?
Unfortunately, as with all things in life, you get what you pay for.
Limitations of Association Sponsored Disability Plans
Association Rates Increase Every Five Years – Although initially low in cost, rates for association plans increase as you get older. The $2,000 annual premium out of residency will increase to over $9,000 by age 55 and $11,000 by age 60! In many cases the cumulative premium of the association plan is actually higher than a much better individual plan.
Association Policies have no Guarantees – The insurance company can increase your rate, restrict your payout, change the definitions and language in your contract; the insurance company maintains total control. I recently spoke to a physician whose partner bought an association plan in the 90’s with an “own occupation” definition of disability. Some years later he developed a tremor in his operating hand and filed a claim only to find out that the “current” policy required that he be disabled form “any occupation”. His claim was denied because the insurance company determined that he could earn an income doing something else. With association disability insurance there is no guarantee that when you file a claim, the contract will be the same as when you bought it.
Not a TRUE Own Occupation Policy – Let’s say you become disabled from your regular occupation and decide that, in addition to your disability benefit, you’d like to earn a little extra income from teaching or consulting. With a “true” own occupation disability policy, income earned in a different occupation while on claim will not reduce your benefits.
This is not the case with association disability plans. If you earn any income while on claim, your benefits are reduced.
Limited Partial Benefit – Illnesses are responsible for 70% to 90% of all disabilities. In many cases the illness starts out as a partial disability and over time becomes a total disability. Some examples include chronic pain, MS, back problems, etc. The drawback of many association plans is that they require a period of TOTAL DISABILITY before they will pay a claim. For someone with MS, it could be 20 years before they are totally disabled; all the while, their income drops from $30K per month to $5K per month with no benefit being received.
No Cost of Living Rider – The COLA rider allows a benefit to increase by 3% annually to keep pace with inflation while on claim. The benefit of this rider is that it protects your buying power if you are out of work for a long period of time. Many association plans do not offer a COLA rider.
Association Benefits Can Offset Your Group Disability Benefits – If you are buying extra insurance to add to your employer’s group disability plan, an association policy may not be a good choice. At time of claim, many group disability plans will “offset” their payout by any other group/association coverage you have in-force at the time. In other words, the two policies could cancel each other out.
Your income is your greatest financial asset; make sure to protect it with a high quality individual disability contract.