Shopping Tips

Value quality over price.

Expect to pay 1 to 4 percent of your income for a good individual disability insurance policy. With some things, cheaper is not necessarily better. Three things that come to mind are life preservers, heart surgery and disability insurance.

Disability insurance is not a commodity; it is a contract that clearly spells out when a claim will and will not be paid. There are significant differences between plans beyond the price. Before you buy anything, make sure you clearly understand the contract.

Look at the company ratings.

Your disability company could potentially pay your salary for the next 20 years. It is important that they be financially sound.

All disability insurance companies are rated by third party rating companies. We do not recommend anything lower than an “A+” rating by AM Best; an A++ is even better.

Be careful of group plans.

Group plans can be changed or canceled at any time. This could leave you without coverage when you need it most.

Most group plans cannot be taken with you if you switch employers. If your health changes and you need to change jobs, this could leave you without coverage.

Most group plan benefits are taxable and do not cover bonuses, which leaves you with a lower net after-tax benefit.

Group plans have a benefit cap (some as low as $5,000 per month).

Many group disability plans have a restrictive definition of disability. These plans require you to be COMPLETELY disabled before they pay a benefit. In other words, if you have the ability to do any type of work, benefits may not be payable.

Benefits are typically reduced by income received from workers comp, social security, and other income sources.

Most group policy benefits do not keep pace with inflation.

Many group plans do not cover a partial disability (which is the most common type of disability).

Make sure you understand the definition of disability.

A policy that pays a benefit if unable to work in your occupation is preferable to one that pays only if unable to work in any occupation.

Buy from a specialist.

There is a lot to understand about disability insurance. Most insurance agents do not know how the contracts work. Find a disability insurance specialist.

Buy from a broker.

A broker represents more than just one company’s point of view and offers you objective advice.

Consider the inflation protection benefit.

A person disabled for 20 years with a $5,000 per month benefit would be paid a cumulative benefit of $1,200,000 without adjusting for inflation; if increased by 3 percent per year to adjust for inflation, the cumulative benefit would be $1,641,000.

If three or more people from the same employer buy a policy, they can save substantially.

In some cases, three or more women physicians can save nearly 50 percent per year when they buy their policies together.

The 90-day waiting period is usually the most cost effective.

A policy with a 90-day waiting period will cost substantially less than one with a 30 or 60-day period. Increasing the period beyond 90 days does not reduce the premium very much.

Just because your association sponsors a plan does not mean it is good.

In almost all cases, association plans are group plans (see group plans above).

Make sure you read the master association contract (not just the marketing piece they give you) so you can understand all of the contractual provisions.

We recommend policies that are guaranteed renewable and non-cancelable.

The insurance company can never raise your rate or cancel your policy even if your health or job status changes.

They are portable, even if you move to a new state.