[Editor’s Note: This is a guest post from Scott Nelson-Archer, CLU, ChFC, owner of MD Financial Services, Inc. His firm specializes in disability insurance for physicians including “Own Specialty” . I received no payment for this post and like all guest posts, was judged on value of content alone]
I frequently review disability contracts for clients or compare contracts they might already have. There are two basic categories of features to consider, Macro and Micro. We will discuss Macro features in this article as that is where the meat in a disability contract is; so let’s go through those:
Non-Cancelable – This means the carrier does NOT have the right to EVER change or cancel any provision in your policy, whether we are talking the language OR the premium; everything is fixed until you hit age 65. Group policies and association policies don’t have this feature. They can change these, sometimes as often as every 30 days, without your consent.
Elimination Period– Most of us think of this as simply a number of days (90, 180, etc.) but, while that is true, the larger issue is: what does the definition stipulate? Quality contracts will have a 15% or 20% loss of income to trigger elimination qualification days. Some group and most association plans will have language that states you have to be “Totally and Continually” disabled for the elimination period to become benefit-eligible. Which would you rather have, a 15-20% loss of income or need 100% loss of income to trigger benefits?
Examples of Typical Disability Definitions
- If you are unable to work in your medical specialty, full benefits are payable even if you are working in a different occupation.
- If you are unable to work in your medical specialty, full benefits are payable. However, if you choose to be employed in another occupation; the carrier will pay full benefits equal to the monthly benefit for “Total Disability” until your post-disability earnings plus your disability benefit payments exceed your pre-disability earnings. At the point at which your earnings plus benefits exceed pre-disability earnings, the benefits begin to decrease dollar for dollar.
- If you are unable to work in your medical specialty, full benefits are payable if you are not working at a different occupation. Proportionate benefits are payable if you work in a different occupation, with a loss of income. (Note that the choice to work in another occupation is yours and not the company’s).
- If you are unable to work in your medical specialty, full benefits are payable for a limited period of time – two or five years. After that, you must be unable to work at any occupation for which you are “reasonably suited”.
All of these have a period of time for which they are “True Own Occupation/Specialty” definitions but I would suggest they are not all “True Own Occupation” specialties. As of this writing there are no group carriers or association plans that have a True Own Occupation offering for physicians…even though some of their marketing suggests otherwise!
Residual– This feature allows the contract to pay you a partial benefit if you are working part time. If you have a True Own Occupation definition, then you will receive full benefits if you can’t work in your specialty. If you are working in your specialty but at a reduced schedule that impacts your productivity and, thus, income, then you will get a partial/residual benefit. Generally speaking, the mathematical equation is the percentage of income lost to the percentage of benefits to be paid.
Recovery– This final feature is also quite important since there are many people who get hurt or sick and then return to work after a certain period of time. While most people go back to a 40-hour salaried work week, physicians generally work over 40 hours and their pay is calculated by a somewhat complex compensation calculation. A high-quality contract will literally compare pre-disability income to post-disability income, and calculate the percentage of the benefit that will continue to be paid based upon the loss as a percentage of income.
The Residual feature is simply a continuation of the Recovery feature beyond the point you go back to full time. Most contracts don’t include Recovery. Let’s say, for example, that you have downshifted from your previous 60-hour workweek (with more profitable billing codes) to a 40-hour week. You are still working full time, but, because you don’t have Recovery in your policy, you are off of claim even though you may be making significantly less.
I always like to say that there are no loopholes in contracts; rather, there is just “language”. If you don’t pay attention to the language, then you’ll have the same surprise that I get when I don’t read about those nasty side effects my doctor keeps warning me about!
If you’re thinking that this is a lot to digest, you’re right! When you don’t know the terms that matter, it’s difficult to make sure you have the right contract specifically for you. If you’d like a second opinion to make sure you have the right “language” and the best price for the coverage you need, contact us for a no-charge, no-obligation review of your policy
Scott Nelson-Archer, CLU, ChFC