Picking a Disability Insurance Policy: How to Choose the Right Coverage for You

Disability insurance is a critical part of any physician’s financial planning, but the process of choosing a policy can be vexing.

In my capacity of a disability claim consultant I have performed audits on thousands of disability policies for almost 20 years. Seeing how insurance companies handle claims from interpretation of contractual language to their attitude has given me great insight into the nuances involved in the disability claim process. My experience has also taught me what aspects of the disability contract are the most important and where the emphasis should be when including the various options available at the time of purchase.

Intermittently I receive a telephone call from professionals asking me what kind of disability policy they should buy and what to look for in a disability policy. Since I no longer sell disability insurance, I would tell them to ask around their local community and find out who is knowledgeable with respect to disability products.

More recently I was approached by an individual who had two proposals provided to him by two competent insurance salespeople. He was earning approximately $300,000 per year and wanted to make the correct choice in product. After reviewing both proposals with appropriate note taking, I told him to put three columns on a large pad with the Annual Premium for each of the two companies.

I then explained the key benefits and differences for each of the two companies so that he could see which of the two provided the most competitive benefits and offered the best “value” for his particular situation. The key items included:

As a result of my audit I made the following recommendations:

1. Apply for Insurance Company #1’s disability policy since overall value, contractual wording, and benefits were considerably to his advantage.

2. Lower the Waiting Period to either 180 days or 90 days since a one-year waiting period was NOT cost effective.

• 180-day Wait — Annual Premium – $3,388.63

• 90-day Wait — Annual Premium – $4,247.73

Although he would save approximately $859 per year with the 180-day wait, should he have a claim he would lose approximately $26,000 in benefits (difference between the 180-day wait and the 90-day wait). We both agreed that a 90-day wait would be the “best value” since just one claim over the next 30 years would “wipe out” the “difference.”

I further recommended that he increase the monthly benefit with company #1 from $8,700 monthly to $10,000 based upon his earnings, which would have enabled him to purchase the higher amount.

In helping my client to make a decision, I asked him the key questions to find out what was the most important for him in terms of contractual wording as well as add-on benefits. Often one company will be stronger in one area but not as strong in another area. In this particular case described, the company I recommended was not the company I would have recommended a dozen years ago. My prior “first choice” company had added more restrictive wording in recent years whereas the recommended company had broader overall wording and better add-ons that made this a simple choice for me. It was clear that my client had not understood the significance of these differences but once pointed out to him he agreed wholeheartedly with my opinion. Since the amount of future potential benefits was several millions of dollars, the choice to pay me a fee for my opinion was money well spent, in his mind.

Ideally, disability insurance should be purchased at the beginning of one’s career…with the monthly benefit increased as your income increases (and including an “Insurability Option” so that you can purchase increased coverage regardless of your health). However, not everyone recognizes the need to purchase this important product until they see a friend or family member who has benefited from having a policy in force. So even if you are in mid-career…a disability policy purchase is viable before your health has changed whereby the choice to purchase may no longer be in “your ball court.”

Disability insurance should be the cornerstone of anyone’s total financial picture since the effects of not being able to work and do what you do best without having “cash flow” can have devastating financial consequences. You need disability insurance which can often pay benefits on a tax free basis (if handled properly) to keep you “closer to your world” should you suffer a disability on a long-term basis.

A disinterested third party knowledgeable in disability contractual wording can offer security and an unbiased opinion in helping you to decide what insurance policy is best for you.

Art Fries is a disability claim consultant providing advice on a national basis in the U.S. He is located in Nipomo, California. He can be reached at 800-567-1911 or e-mail friesart@hotmail.com. The web address is: www.afries.com.