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Product Enhancements in Disability Insurance

Jan. 10, 2012
New competition in disability coverage is providing big benefits to dentists looking to buy a new policy or upgrade their coverage.

by Marshall W. Gifford

If you have not reviewed your disability coverage in the past few years, you might be in for a few surprises. Over the past 10 years, five companies have entered the marketplace for “true own occupation” coverage for dentists, and three of the five have been since 2008. Prior to 2002 only one company offered “true own occupation” coverage for dentists. There are now six highly rated companies offering top quality coverage to dentists. This new competition is a big benefit to dentists looking to purchase their first disability policy or those looking to upgrade their coverage. The increase in the number of companies offering disability coverage has sparked innovation in benefits and prompted more competitive pricing reducing premiums for dentists.“Own occupation” coverage means if you can’t do your job as a dentist, you will be paid. If you can’t practice dentistry, but can teach at a dental school or work at another type of job, you will get your full disability benefit regardless of your new income. The six companies currently offering the true own occupation definition for dentists are Met Life, Principal, Ameritas, The Standard, Mass Mutual, and Guardian/Berkshire. With six companies competing for your business, we have seen numerous product enhancements. Over the past 10 years, coverage limits have increased from $10,000 per month to $25,000 per month, depending on the company offering the insurance. A common newer benefit that most companies now offer is the catastrophic disability benefit. For very little cost, this benefit will increase the amount of your disability benefit if you have a “long-term care event.” This is when you are unable to perform two of the six activities of daily living such as eating, dressing, bathing etc. So the catastrophic rider layers an additional amount of coverage on top of your base policy to cover the additional cost of care needed if you have a serious disability requiring long-term health care. Since these severe disabilities are less likely, the cost of this rider is quite minimal. If you do not have the catastrophic rider on your current policy, it can typically be added, but it will require that you provide medical information and be approved. Another new benefit offered by one company is the compassionate care rider. This benefit allows you to collect benefits from your policy if you need to take time off to care for a family member, defined as child, spouse, or parent. Benefits are payable for up to 180 days. Some companies also offer spousal riders. This option allows a stay-at-home spouse to be insured and collect benefits if he or she is disabled. You could use the benefits to hire someone to do what your spouse did. It permits you to continue to run your practice and not have the stress and demands of running both the house and your business. The nondisabling injury rider is also a new option. This benefit allows you to collect benefits on your policy even if you are not disabled. It applies to situations where you have an injury that requires medical attention. Simply submit the bills to the insurance company, and it will reimburse you up to a maximum of $2,500 per occurrence. If offered on a policy, this is built into the policy at no extra charge.Most companies have also changed the future purchase option in the last couple of years. Think of this feature as a line of credit. You apply for a certain amount of disability coverage now, and when your income is higher in the future, you have the opportunity to increase your policy with no medical questions. So, if your health were ever to change after you purchase your initial policy, you still have the ability to protect your future income potential. Historically, a company might issue $5,000 in benefits and give you the option to add $5,000 more. Now the future increase option amounts can be much higher. Most companies will issue up to $15,000, and share the risk with another company up to $25,000. A couple of companies also offer a pension replacement option which allows you to get additional benefits up to the IRS qualified plan limit ($50,000 in 2012). So, in addition to your traditional disability benefits, you could apply for up to $4,166 per month of benefits that would be paid to a trust account to replace the contribution not going into your practice’s retirement plan while you are disabled. Aside from the definition of disability, there are other key features you want to make sure are included in your plan. These can also vary from company to company, and include:Inflation Agreement — This provision adjusts your benefit with inflation up to a certain percentage. Depending on your policy, this might cap at 3%, 6%, or even 10%. It is important to understand the details of this option, since not only can the percentage vary, but also whether you have a compound interest or simple interest crediting. Simple interest compounds the base benefit and compound interest compounds the inflation-adjusted number. So, compound interest is the preferred option. Recovery Benefit— Many disability companies realize that dentists are paid on their production, unlike a salaried employee. If a salaried employee goes out on disability for two years and then comes back, that person will go right back on salary at the same income level he or she was at before the disability. However, if you are running a practice and you are paid on production, just because you come back to work full time does not mean your income is restored immediately. The recovery benefit kicks in when you are back to work full time and you can do everything you were doing before your disability, but your income is not back to where it was. The recovery benefit states how long the policy will continue to pay you disability benefits if you have a loss of income after returning to work full time. Most policies pay anywhere from six months to the full benefit period of age 65, 67, or 70. Partial Benefits – This feature is frequently called the the “residual benefit.” This comes into play when you are partially disabled. For instance, let’s say you are having back issues and you are unable to stand for an entire day and can only work half days. If your income is cut in half, the residual disability benefit rider will kick in and pay roughly half of your benefit to replace the lost income. Most policies begin to pay after a 15% to 20% loss of income. So if your income was $200,000, then drops to $170,000 or $160,000, you would be eligible to start receiving benefits. You would be paid a proportionate benefit until you have a 75% or 80% loss of income, at which point you would be considered totally disabled and receive the full benefit. As you can see, there are a lot of moving pieces in a good disability policy and there have been a lot of changes over the past five years. For a more thorough summary of the features and for a quote, you can visit This site is a unique website with up-to-date videos and text explaining the key points of disability contracts. It also includes a one-of-a-kind quoting tool that lets you receive a quote from all six own occupation insurance companies instantly. If you haven’t looked at disability coverage for a few years, you might be surprised!
Marshall Gifford CLU, ChFC, CLTC, is a senior partner with North Star Resource Group in Minneapolis, Minn. He is a founder of the North Star Resource Group Medical Division, and co-owner of North Star Disability Consultants. He graduated Summa Cum Laude from Minnesota State University at Mankato in 1993 with a degree in business administration. He has been a financial advisor since 1993, and is the co-author of “Real Life Financial Planning for the Young Dental Professional. “ Gifford specializes in working with dental professionals with their personal and business financial-planning concerns. His specialized practice caters to the needs of over 450 dental professionals across the country.