Should I increase my disability policy based upon my situation?

[JK]

I am a new attending just out of training. I have two disability policies from MetLife and Principal (through the help of one of the excellent agents from this site) that have been in force since residency. Upon graduation last year, I increased the amount of the benefit due to my rising income (guaranteed salary). I subsequently have had a large increase in salary due to hard work and reapplied to see if I could increase further. Surprisingly, they are offering me more than I initially thought.

My question to the forum is...should I take the full benefit or only a portion of it. I know the conventional wisdom is to have your disability cover your expenses + retirement savings. Here are some of the details to help with the decision.

-Benefit: ~20k/month

-Annual Premium: ~6,300 (I pay annually rather than monthly)

-Age: early 30s

-Married, one kid, one on the way.

-Annual expenses (current): 120-140k...although of course this is subject to change since I'm so young (although hopefully I'll keep lifestyle inflation in check).

-Net worth: 600k

-Liabilities: student loans paid off. Renting currently so no mortgage.

-Group disability policy: none (I am an independent contractor)

I realize some primary care specialties may not even qualify for that high of a monthly benefit but what have some of the higher income specialists done if in a similar situation. I'm leaning towards going for the increase since 6k isn't THAT much money and I'm still young without a huge NW, but on the other hand, 6k isn't insignificant and 20k/month benefit after taxes is pretty large. I would appreciate any/all opinions. Thanks

 

[CordMcNally]

Only you can truly know how much you need but $20k/month straight cash should be plenty for about 99.5% of people. Are you one of those people?

[IntensiveCareBear]

"Never ask the barber if you need a haircut."

[pulpsnatcher]

Do you have a cost of living adjustment in your present policy?

[Tim]

You could cut the benefit to $15/mo and actually trim your expense and steer more to the retirement buckets (even taxable). That way you can cancel it when the saving buckets are big enough.

How much do you need each month including savings and expenses? That is your answer. Or maybe not.

[Scott at MD Financial Services]

JK wrote:

I am a new attending just out of training. I have two disability policies from MetLife and Principal (through the help of one of the excellent agents from this site) that have been in force since residency. Upon graduation last year, I increased the amount of the benefit due to my rising income (guaranteed salary). I subsequently have had a large increase in salary due to hard work and reapplied to see if I could increase further. Surprisingly, they are offering me more than I initially thought.

My question to the forum is…should I take the full benefit or only a portion of it. I know the conventional wisdom is to have your disability cover your expenses + retirement savings. Here are some of the details to help with the decision.

-Benefit: ~20k/month

-Annual Premium: ~6,300 (I pay annually rather than monthly)

-Age: early 30s

-Married, one kid, one on the way.

-Annual expenses (current): 120-140k…although of course this is subject to change since I’m so young (although hopefully I’ll keep lifestyle inflation in check).

-Net worth: 600k

-Liabilities: student loans paid off. Renting currently so no mortgage.

-Group disability policy: none (I am an independent contractor)

I realize some primary care specialties may not even qualify for that high of a monthly benefit but what have some of the higher income specialists done if in a similar situation. I’m leaning towards going for the increase since 6k isn’t THAT much money and I’m still young without a huge NW, but on the other hand, 6k isn’t insignificant and 20k/month benefit after taxes is pretty large. I would appreciate any/all opinions. Thanks

 

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It does not seem you need extra benefit, assuming I am reading this correctly and you have $20k per month for $6k per year in premium.  Unless it an increase option from one of those carriers (use it or lose it process) that forces you to maintain a certain percentage level based on amount eligible for, if it were me I would probably pass until next year when you have a different expense load (new baby) then see where things stand.

[JK]

Thanks for all the feedback so far. To answer some of the questions.

-Yes, I currently have a COLA rider as this was important to me since purchasing it as a resident.

-The increase I am mentioning was in fact the result of a previous rider I purchased that allowed me to increase my amount without additional physical, labs, etc... My income increased and so they offered me more disability if I want it.

-I am currently checking on the "use it or lose it" comment as that will also weigh in my decisions. Would lean more towards accepting the full amount if it is a "lose it" type of situation.

[fasteddie911]

What's your current benefit and premium?

[JK]

After my first increase (at the time of my contract), here are my current policy details

Benefit: 16,650/month (aggregate between two policies)

Premium: 5200/year (aggregate between two policies)

One possibility I am inquiring with with my agent if I should taken the increase that MetLife is offering to the fullest and potentially cut back/cancel the Principal policy next year as apparently that policy isn't quite as strong. Essentially the options I see are....

1-Take the full increase and keep both policies. 20k/month. 6k/year

2-Decline the increase and keep current 16k/mo. 5200/year. A lot will hinge if declining my increase option will have other repercussions.

3-Take the full increase with Metlife and potentially cancel the slightly weaker Principal policy next year.

4-Take some portion of the increase offer but not all of it (say something in the ~18 range).

I'm probably (almost certainly) splitting hairs and overthinking things at this point, but I always like to consult the WCI forum and some of my knowledgeable colleagues before doing any financial decisions such as this.

 

[ENT Doc]

Decrease your expenses and it simplifies your decision markedly.

[CordMcNally]

ENT Doc wrote:

Decrease your expenses and it simplifies your decision markedly.

Click to expand...

I feel like this statement could go into any "should I" or "can I afford" thread and be spot-on every time.

[Scott at MD Financial Services]

JK wrote:

After my first increase (at the time of my contract), here are my current policy details

Benefit: 16,650/month (aggregate between two policies)

Premium: 5200/year (aggregate between two policies)

One possibility I am inquiring with with my agent if I should taken the increase that MetLife is offering to the fullest and potentially cut back/cancel the Principal policy next year as apparently that policy isn’t quite as strong. Essentially the options I see are….

1-Take the full increase and keep both policies. 20k/month. 6k/year

2-Decline the increase and keep current 16k/mo. 5200/year. A lot will hinge if declining my increase option will have other repercussions.

3-Take the full increase with Metlife and potentially cancel the slightly weaker Principal policy next year.

4-Take some portion of the increase offer but not all of it (say something in the ~18 range).

I’m probably (almost certainly) splitting hairs and overthinking things at this point, but I always like to consult the WCI forum and some of my knowledgeable colleagues before doing any financial decisions such as this.

 

Click to expand...

The Principal increase option is a Benefit Update process so you have to accept a certain % of benefit they offer you or they remove that feature from your policy.  Where you state it is an inferior product to Met, I don't get that, can you elaborate as to why you drew that conclusion or what justification someone had when they told that to you?  I am certain some reps would tell you to drop one of those to increase the other but I don't see the reason other than the rep had sold you both but if you now drop one of them and increase the other they get to earn comp on that increase sale again.

Anyway that is my input as a rep on product terms, process and comp.

[Anne]

I'm in favor of purchasing as much as you need, not as much as you can get. This applies to many things, not just disability insurance.