Life and Disability Insurance Question

[bravo345]

I'm currently a PGY5 and will complete a 1 year fellowship starting this July. During residency I developed paroxysmal afib and had a single ablation/PVI procedure in 2014 which completely cured it (they found a nidus firing frequent PACs in a pulmonary vein). Now I am on no medications (aside from a topical acne medicine) and am an otherwise healthy 31-year old.

Fortunately, I obtained disability insurance during my PGY1 year through Guardian (score). Currently paying $74/month for $4000/month benefit (other policy details are: lifetime benefits, inflation rider, FIO rider up to an additional $12K/month, graded premiums). Unfortunately, I haven't gotten life insurance yet (no kids, have only been married for 2 years). Here are my questions:

1. How will a life insurance company classify my risk level? I have post-procedure follow-up clinic records with my EP doc saying that I am likely completely cured and that I'm a CHADSVASC 0. Even though him and I know that this ablation was likely curative, I think it will be harder to convince the insurance companies of this. Depending on my available rates, I was thinking a $3M 20 or 30 year term plan (my wife has a well-paying job now but may stop working when I start to make an actual salary, we're not sure about kids yet but are open to it in the future).


2. Given that Guardian will also likely ding me for this if I wanted to purchase additional insurance (i.e. more than my FIO allows), my tentative plan was to exercise my FIO rider to the max $12K/month when I am financially eligible, given that this requires no additional medical underwriting. Even though I would have probably added a bit more in an ideal world, I feel like the inevitable premium increase from my afib will not make it worthwhile. What do you think?


3. I've read on other posts about potential problems with trying to exercise an FIO rider once you join a practice with group disability coverage. But now I wouldn't be financially eligible for the rider. How have people gotten around this?

Thanks in advance. I'm new to the site and am loving it!

[Scott at MD Financial Services]

Bravo,

You should just turn in a survey application so the carrier of choice for you can review your medical history and give you a strong estimate of how they would possible approve you for coverage.  By doing this you can get a true estimate but not do a full application thus if they say 'No Thank you' then you don't have to ever report that on future application you had been declined.

As for the graded DI premium, when you become an attending I would seriously look at locking that down with a level premium, usually the graded premium will have a 6-7 year window of them being less then they become more expensive.  On the question of increase if you have a FIO option and a signed contract in hand then I would apply for that increase now.

[bravo345]

Thanks Scott! Yes you're right about the graded DI premiums; my advisor gave me a projection of when I should switch over to level premiums and it was around 7 years from the start date of the policy (which will be in 2019).

Does switching from graded to leveled premiums require additional medical underwriting or is it just like the FIO rider in that I only have to qualify financially?

[TheGipper]

I don't know. I think you made the right call on the graded premiums. Wish I would have chosen this in residency as well as annual renewable term life insurance.

My projections showed more like a 15+ year break even period, perhaps longer. Remember to add in the value of investing the early savings from graded premiums or using them to pay off debt faster. Many on this board (and I bet you based on you level of sophistication already) will be in a good place to drop or drastically reduce DI and LI by this time. Wish I would have gone this route.

[bravo345]

TheGipper wrote:

I don’t know. I think you made the right call on the graded premiums. Wish I would have chosen this in residency as well as annual renewable term life insurance.

My projections showed more like a 15+ year break even period, perhaps longer. Remember to add in the value of investing the early savings from graded premiums or using them to pay off debt faster. Many on this board (and I bet you based on you level of sophistication already) will be in a good place to drop or drastically reduce DI and LI by this time. Wish I would have gone this route.

Click to expand...

That's a good point. I guess I'll have to estimate the age at which I can self-insure and can feel comfortable dropping the DI/LI policies. If that age is earlier rather than later, I could see how keeping graded premiums for a longer period of time makes sense.

[Scott at MD Financial Services]

Keep in mind when you are told that your graded premium will equal the level premium in year X that does not mean that you can ride the graded premium to that point then switch at that rate, at that point.  The level premium to convert is an every increasing number so there is never a compelling event where you now say something like "my graded premium is higher than the level premium so let me switch"  Your graded premium just keeps getting larger as does the premium needed to change it to a level premium.

An example of how this plays out: Male, age 29, NY called my office yesterday and wanted $5k of benefit as a resident but wanted to keep the cost as low as possible.  Here were his results of a true own specialty definition disability contract, a 90 day wait, age 65 benefit period, with residual.

Guardian Graded $74, Mass Mutual Graded $76, Principal Level $103, Ameritas Level $105, Mass Mutual Level $131, and Guardian level is $134.  Now if you are comparing the Guardian graded to Guardian level premium then sure it is about 80% more but if you compare against Principal level then you are $29 away from the level premium.  What that means when comparing Guardian Graded to Principal Level is about 3-4 years of graded premium increases and now you start to exceed the cost of the level premium.  My point is that everything can be put in certain light, just make sure you look at all options since most of people don't hold on to a disability contract for just 4-7 years.  There are exceptions to that and decide to drop their contracts like PoF has mentioned he has done.  Then we have the other end where we have clients that are 70, still working because they can't afford to retire and have a 9 year old son from a 4th marriage to a 45 year old who still needs to be taken care of.

I am not saying one is right or one is wrong it is just we never know the hand we are dealt and this world has all kinds of people it which is what makes it so darn interesting!