In the insurance world, it’s all about the language in the policy. All insurance contracts are essentially promises: You commit to paying a small premium. In return, the insurance company promises to pay a large cash benefit, if certain events come to pass.
But details matter a great deal in insurance. It does no good to pay even a very low premium if the insurance contract is structured in such a way that you could have a need and yet the insurance company has no obligation to pay.
That’s why it’s better to pay a little bit more in premium to get a much better promise – a benefit big enough to be meaningful, with definitions that are broad enough so that you have a reasonable expectation of a payout if you are, indeed, disabled according to the definition in the policy.
Therefore, look beyond premiums to the promise itself. What, precisely, triggers benefits? How is the benefit structured? At what point do they end? Disability Insurance is not a commodity: Contracts can and do vary substantially between carriers. Look not just at price, but also at the protection you get in return.
How? Ask these eight questions and ensure they are answered to your satisfaction. Verify them by looking at the contract itself:
1. How does the policy determine if I’m disabled?
The best plans define disability as a sickness or injury that prevents you from performing the duties of your own occupation or medical specialty. This definition should apply for the duration of the claim, not just for one or two years.
2. If disabled, can I earn an income in a different occupation while still collecting benefits, and if so, how much?
The most comprehensive (and expensive) policies allow you to earn an unlimited income in a different occupation while on claim; others put a limit on how much you can earn.
3. When do disability benefits begin?
The length of time that must elapse from the date of disability until benefits are paid is called the elimination period. Options are 60, 90, 180, and 365 days. The most common option selected with long term disability insurance is 90 days.
4. How long do benefits last?
The maximum length of time benefits will be paid is called the benefit period. Depending on the insurance company, options are 5 years, 10 years, to age 65, 67, or 70 and to age 65 with lifetime extension. The most common benefit period is to age 65.
5. Are partial disabilities covered?
The residual benefit pays a partial monthly benefit in the event of a partial disability. The percentage of monthly benefit paid is typically equal to the percentage of lost income. Cheaper policies require a period of total disability before a partial benefit is paid – this is VERY problematic for disabilities caused by progressive illness. In most cases, it’s better for physicians to go with a more generous residual benefit that allows for a progressive or gradual loss of earning ability.
6. Will the benefit keep pace with inflation?
An optional rider that increases the monthly benefit during each year of disability to keep pace with inflation is called the Cost of Living Addition (COLA). Depending on the policy, the increase is either a fixed amount or based on the consumer price index. This is an important policy feature in long-term disability insurance because during an extended claim, inflation could double the amount of income needed for living expenses.
7. Is there a guarantee I can buy more coverage?
An optional rider that allows you to increase your monthly disability benefit at some point in the future, regardless of health status, is called the Future Insurability Option (FIO). If you expect increases to your income, it’s a very valuable benefit to have for those in early stages of their careers – especially med school students, interns and residents. This rider allows you to buy a small benefit that you can afford now, while allowing you to increase your policy once you’re more established in your career.
8. Can the insurance company change or cancel my policy?
A guaranteed renewable and non-cancelable policy can’t be changed or canceled by the insurance as long as premiums are paid. In addition, premiums cannot be increased.
Now, insurance companies can and do attract market share by being stingier with promised benefits. They can charge less, because they provide less value.
For physicians and future physicians buying individual policies for themselves, our firm belief is that the best value in insurance is the policy that is most likely to pay a claim when you need it. It’s not about price alone, but value.