Disability Insurance: The Good News Just Keeps On Coming

Disability Insurance
The Good News Just Keeps On Coming!
Ron Cohen, RHU, RR

Straight off the press! Physicians might like to know, the disability insurers have placed them in the “wanted” category again. A couple of years ago, “Regular Occupation” policies seemed to be a thing of the past….not any longer. $10,000 per month was also the maximum monthly benefit carriers would issue, not any longer. Things have changed to say the least. Competition is alive and well and getting better every day. Leap Frogging is back and the beneficiaries of this competitive fight among disability carriers are the physicians. Granted, there aren’t that many carriers out there in search of physicians, but those in play, well, they just do not want to get “outdone”.
Now, physicians in all specialties, have access to $20,000 of personal Individual Non-Cancelable and Guaranteed Renewable policies. Plus, if you have Group Coverage available, the carriers will now “participate” to $25,000 per month. Add to that, your ability to purchase the “hot product”, the pension protection DI plan (which protects your pension contributions: dollar for dollar) and the new IRS Contribution Ruling: $46,000 before age 50 and $51,000 for ages 50 and above…well, your new DI coverage total monthly benefit, could almost total $30,000 per month.
As most physicians prefer the Individual contracts and the guaranteed level premiums, we find ourselves in the “best of times”…a far cry from the mid 1990’s. Yet, the problem for most docs remains. Investigating these products is time consuming. Comparing them, well, let’s just say verbiage, contractual language, provisions, benefits, cost comparisons, it’s not an easy task.
What you need to know:
In order to obtain $20,000 of individual coverage, you will probably need to “stack” contracts. It will take a combination of policies (it can be done with 2 carriers), due to the current “ISSUE LIMIT” of a single carrier. For example: Carrier A has a maximum issue limit of $15,000 and carrier B a “Participation Limit” of $20,000. Thus, you must first obtain Carrier A’s policy for any amount up to $15,000 per month and then Carrier B’s policy for the balance of $20,000 per month.
During this procedure, you are also eligible for the Pension Plan Disability policy, which is considered “over and above” all other issue and participation limits noted above. Thus, if you are contributing $51,000 per year, the carrier will issue a policy for $4250 per month in addition to all other personal DI coverage.
The end result should be viewed in this manner. Your personal disability: $20,000 per month = $240,000 per year and is Non-Taxable.
Your pension contribution policy $4250 per month =$51,000 per year and is currently non-taxable. Your pension DI benefits will be paid into a “trust” each month and invested (you will dictate where and how) until age 65, just as if you had been working all along. Taxesare due each year on the gains in the Trust. Each year, the Trust willprovide the insured with a 1099 form, reporting capital gains and interest unless the policyholder chooses an annuity. Upon request, the Trust will reimburse the insured for any taxes paid.
The end result you not only protect your personal income, but also prevent your pension plan from being disabled! What will they think of next?
Change in the Residual Disability Rider
Some physicians might be familiar with “partial disability” benefits. This is where you return to work and the insurer provides a 50% minimum benefit for the first 6 months. Residual benefits have varied over the years, and the requirements have typically been: you are under the care and treatment of a physician, you are working in your occupation, and you have a loss of time and or duties and a loss of 20 percent of pre-disability income. The Residual rider also provided a minimum benefit of 50% and or the actual loss of income percentage (whichever is greater) for the first 6 months. The new “twist”, is the reduction of loss is now 15% and the carrier only requires a loss of income (no time or duties) and the medical care requirement. They will also continue these benefits as long as the loss of income continues, even to age 65. This is part of the “Recovery Benefit”, which is one of the, if not the most important features in a disability policy. A disability which allows you to return to “your occupation”, might find you struggling to pay your overhead and your income as well. Most physicians do not realize, that income as defined in these contracts, means after your overhead is paid the money left is your income. A typical doc will find a dollar earned means .50 cents in their pocket. In other words, you might be back to work and never financially recover…Residual is a must buy rider. Well worth the expense.
Cost of Living Rider
Over the past 20 years, the big issue has been inflation. Realistically, few physicians understand what their inflation riders really do and mean. If you base the inflationary factor into a disability policy (in other words, you purchased the COLA Rider) for 6% and the CPI (consumer price index) during your disability reports a 2 percent factor, your policy uses that 2 percent. End result, you overpaid for the rider. Using the last 10 years, the CPI hit 3 percent 1 time. Thus, the old COLA Riders were expensive and out of touch. The new twist is to guarantee a 3 percent compounded rate without using the CPI.
Add to that a 4 year set back (that’s when the benefits to not start inflating for 4 years) and your cost and benefits for this rider are more realistic and affordable. Nice twist!

The Most Important Feature
Read your policy and if you are not able to understand it, don’t buy it. It’s really that simple.

Ron Cohen, RHU entered the insurance business in 1969 and began specializing in disability insurance. In 1977, he began his own firm, Ron Cohen Insurance, Inc. In 1977, Ron founded the Houston Association of Health Underwriters and is the only president to have served two terms. He is also a board member of the Texas Association of Health Underwriters. In 2005, Ron co-founded the International DI Society. He has been a guest speaker for many insurance companies, societies, clubs, and several Disability Income Training Council meetings. In the past 2 years, Ron has authored over 200 articles advocating disability insurance to the public and the insurance industry. Ron received the National Association of Health Underwriters Lifetime Presidents Achievement Diamond Award.
You can reach Ron at ron@roncohenrhu.com or 281-492-2295.