Simultaneous individual and group disability policy question

[bonehead]

I have an individual disability policy that I bought as a resident with a benefit currently at 4k/month.  I'm an attending now with a hospital that has a "free" group policy which is not nearly as good.  For example, the group policy covers for 60% of my own-occupation income for 2 years, then the own-occupation clause lapses.  I looked into increasing my benefit with my insurance salesperson and apparently I can only go up to ~8k/month (max is 12k/month) due to the presence of the group policy.  I obviously want the full benefit of my own insurance as it is far more robust.

Is it possible to do this even with the group policy in place?  It seems like it should.  If so, should I be looking for a different individual policy altogether to access the full benefit?

[Winkleweizen]

Hmm,  Whos is yours through?  I had one as a resident at 4500 and then increased it at graduation to 15k and still have the group disability.

[bonehead]

It's through Guardian.

[Arkad]

I believe you may find this to be the case with all of them. You can max out on the individual policy before you get the group policy but not after you have it. In fact most companies may have a deadline for this, some may be 6 months before you start the new job. You couldn't get the maximum less than 6 months before starting the new job in those cases. Unfortunately many residents do not know this and should be maximizing their plans well before starting a new job if possible.

[bonehead]

Arkad wrote:

I believe you may find this to be the case with all of them. You can max out on the individual policy before you get the group policy but not after you have it. In fact most companies may have a deadline for this, some may be 6 months before you start the new job. You couldn’t get the maximum less than 6 months before starting the new job in those cases. Unfortunately many residents do know this and should be maximizing their plans well before starting a new job if possible.

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Interesting.  You also can't maximize the policy if you are still a resident, which is the entire point of the FPO rider in the first place.

If this is true, how then are you supposed to get around it if it takes an attending's salary to exercise the FPO, but you cannot access the full FPO benefit once you take an attending position with group coverage?

[scbunker]

I had a similar situation. My employer provids me with a 'free' disability program, but it also provided own-occ for only two years. When I went to go buy individual disability for myself, I disclosed my employer's policy, and the insurance agent said that the coverage my employer provided disqualified me from getting another policy. I think it was because the monthly benefit of my employer's policy was so high.

[LBKCLU]

Any of the carriers will look at both your income and employer provided group LTD in terms of determining the amount of individual disability insurance coverage available. If the group LTD plan is employer provided and the premiums paid by the hospital are not added back to your taxable income (making the benefits income tax-free upon receipt), any benefits paid as a result will be taxable. Therefore, the individual carriers will discount the group LTD plan by 25-30% when doing their calculations.

They will then look at your income to determine your eligible amount . From that, they will subtract out the amount of coverage you already own individually and then the discounted group LTD coverage. If there is room to go, you can purchase that amount. If you are already over that amount, you would need to keep your individual coverage at its current limit.

There are also a few things to keep in mind:

1. As a resident, fellow or "New In Practice" Physician, you can automatically purchase a certain amount of coverage regardless of your income or group LTD coverage (FYI, Orthopedics is $7,500 month from your last 6 months of training up to 24 months of practice, depending upon the specific carrier).

2. Applications will ask if you have or if you will be "eligible" for other coverage within 12 months. If you are using your employment contract to purchase a higher amount of coverage as an Attending, the group LTD coverage will need to be disclosed and will be taken into consideration.

3. There are Issue & Participation limits for both individual and group LTD. For example, any one carrier will issue $15,000-$17,000 month on their own. Up to $25,000 month with other individual coverage (if you are combining companies) and up to a total of $35,000 month with group LTD.

Beyond that, if your income replacement ratio is low, you can go to Lloyd's of London and insure 65% of your income (minus the other coverage inforce).

Insurance carriers don't take the definition of total disability into consideration when determining theses limits. They can't take the chance of giving you incentive not to work and potentially overinsuring you in the event the group LTD plan does pay.

Hope this helps.

 

[DK Unger]

It's also worth noting that if you become an attending with a public/government employer (think the UC system or the VA), all the carriers will assume you have some level of group LTD even if you do not enroll in any voluntary group LTD offered. This is because public/government employees have disability retirement type plans (FERS/UCRP). The assumptions vary between carriers. Some carriers are more liberal about these assumptions.

[Arkad]

LBKCLU wrote:

Any of the carriers will look at both your income and employer provided group LTD in terms of determining the amount of individual disability insurance coverage available. If the group LTD plan is employer provided and the premiums paid by the hospital are not added back to your taxable income (making the benefits income tax-free upon receipt), any benefits paid as a result will be taxable. Therefore, the individual carriers will discount the group LTD plan by 25-30% when doing their calculations

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If the hospital offers a choice of paying the tax or not, could you initially opt to use the 25-30% discount to increase the amount of individual coverage and then at sometime later change your election to pay tax on the premium thereby getting more individual coverage and also tax free benefits at some point?

[LBKCLU]

Yes, you could do that but, keep in mind, for group LTD, there is a 3 year look back in terms of those benefits being taxed or not https://www.irs.gov/irb/2004-26_IRB/ar06.html

You would just not on your FIO application if the premiums are paid on a pre-tax or post-tax basis at the time you apply for the increase in coverage.

 

[InsureIncome]

The devil is in the details. There are some key concepts that are counter-intuitive, of which to be aware.

As mentioned above, Individual Disability Insurance (IDI) insurers use “Issue and Participation” tables to determine insurable benefit amounts. “Issue” is the amount the insurer will sell directly; “Participation” is the amount it will sell in combination with other IDI and Group LTD.

Counterintuitively, unlike GLTD which insures a percentage of earned income (typically 60%) to an employer specified cap (which may result in less than 60% insured income because of the limiting cap); with IDI, the percentage of earned income insured, decreases as income increases. For example, one insurer’s I&P table allows issue limits of $5k/mo at $100k (60%), $9,200/mo at $200k (55%), $13,500/mo at $300k (54%), $15,900/mo at $400k (48%), $17,480/mo at $500k (42%), at $1M, the IDI issue limit is only 17%.

As Larry mentioned above, IDI insurers typically offer special (no financial qualification) limits to residents and new physicians.

GLTD is an offset product, promising to pay a percentage of earned income to a specified cap (all of which are determined and changeable by the employer) MINUS a long list of “other income benefits” including: State Disability, Social Security DI, Workers’ Comp and work earnings from any source (which can negate the implied own occupation language).

Be sure to read your GLTD policy carefully to understand the effective net benefit the LTD coverage offers. In some instances, the GLTD benefit can be completely offset, with only the minimum monthly benefit payable, typically $100.

Lastly, if your IDI is personally paid with after tax premium, your benefits are income tax free and the benefits are specifically excluded from the long list of “other income benefits” that may reduce your GLTD benefit.

However, if your IDI premium is employer paid, it may be considered a qualified sick pay plan, which is considered an offset-able income benefits. In short, if you own a $15k/mo employer paid IDI plan and are insured by a $15k/mo GLTD, you may only receive $15k/mo during claim; Surprise!