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Which Disability Insurance combo should I use?

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  • Which Disability Insurance combo should I use?

    I just finished residency and am looking to solidify my disability insurance. I had a policy from residency but am looking to add a little more and would appreciate some input among the different options.

    I'm 33 years old, living in CA, have no debt, annual income around 300k per year rising to 350-400k in the next five years as I progress up the partnership track, and have a net worth of approximately 250k.

    Getting married in a few months to a general dentist with an income around 140k per year with excellent benefits (public health), huge student debt >400k, savings of about 130k and 5.5 years out of 10 into public service loan forgiveness (we will likely do married filing separately starting next year). We are saving at a rate of almost 200k per year and expect to be financially independent in around 10 years.

    We have combined fixed expenses of around $3200 per month such as housing, basic groceries, insurance, transportation and variable "fun" expenses like international travel, eating out at great restaurants that can be up to 4k per month for average monthly expenses of around 7.5-8k ($90,000 per year spending). We are thinking of buying a house in the next few years which might bring our combined spending to around 100k per year, though in the case of disability we could cut back to 50-60k per year if needed and still live very comfortably. Basically, we are pretty close to being each other's disability policy and could support our family on 1 salary alone however I want to have a little buffer to not have to be super financially stressed in the setting of disability.

    I currently have 2 disability insurance policies:

    1) Private policy through Standard Protector Platinum: $5,600 monthly benefit, $159 per month fixed/level payments, 90 day elimination period, 10 year benefit coverage, excellent partial disability rider. No COLA. I liked this policy term at 10 years since the average length of disability claims is around 3 years and this was a less expensive way to carry a level term policy that I would likely use for the convenience of a modest steady income stream to adjust my life/career in the case of disability while my wife would keep working. I figure that it would be unlikely that there would be a disability that wouldn't kill me but would last for more than 10 years. And if I was wrong it would likely be more severe and I would have social security disability plus a group policy to rely on too. I also have family in the area where we live and could likely move back with them in case of catastrophe and have minimal expenses.

    2) Group policy through Hartford: $5000 monthly benefit, $100 per month. 60 day elimination period, Benefit to the age of 65, typical group coverage caveats such as own occupation for 2 years.

    I applied for a more traditional policy and was thinking of using this either instead of the above policies or in addition to some combination.

    3) Guardian ProVider Plus Limited policy. I would do a graded policy as it is less expensive than a level term for 12 years and I expect to be financially independent in 10 years or less. I could have better coverage early career and then drop it. Unfortunately I did have a low back strain in residency and it was noted on a visit to a doctor. As a result this policy would have lumbosacral spine exclusion, except fracture would be covered. Should I add this policy even with the exclusion? Perhaps even dropping the group policy in order to get more coverage on this one even though low back issues wouldn't be covered?

    - $5k per month benefit with 3% COLA $132 per month and rising yearly

    - $7500 per month benefit without COLA $175 per month and rising yearly

    - $10k per month benefit without COLA $233 per month and rising yearly

    Would you add this new extra policy, perhaps subtracting out one of the others? I'm thinking of going with just the 2 versions of private insurance Guardian and Standard while dropping the group policy, then in about 5-10 years switch to just the Standard fixed policy as I will have "pre saved" for retirement and would just need to pay for living expenses while allowing the savings to continue building.

  • #2
    Another brief way of phrasing this is as follows:

    - I have a 10 year personal DI policy that would be a "lifestyle smoother" plan that would allow me to transition and adjust with a bit of buffer in the case of disability.

    - I have a group policy that would help a bit like the above but also give protection for the catastrophic illness that is lasting long term. It's also relatively cheap but that's because it doesn't cover as much.

    - New policy (with the low back exclusion) could be that "something extra" while I'm early career and building the nest egg for the next few years. I have a great dream of living comfortably, having an early retirement or at least early financial independence. If I were to be disabled today I would be "okay," given family resources, and especially with the current DI policies in place, but this dream would be impossible.

    Should I insure for the FI/RE dream and not just total catastrophe for me and my family?


    • #3

      If you determine you need the extra coverage above the group and Standard policy, I would also look at the Guaranteed Renewable product from Ameritas in CA, it is a projected level contract that has never changed its rates on existing policy holders since 1966, so 51 years.  By using that product I bet the break even on the graded is more around 4-5 years not 12 when used with the discount combos we get for our clients.

      Let me know if we can help further.
      Scott Nelson-Archer, CLU, ChFC
      281-770-8080 Direct / [email protected]


      • #4
        What about the relative strength of group disability insurance? Would it be worth carrying more individual coverage and dropping group altogether or is a bit of both individual and group a good blend of cost saving and reasonable coverage?


        • #5
          Individual insurance is portable; group insurance tied to an employer generally isn't. That said, unisex rates can make a group policy significantly more affordable for a female doc.


          • #6
            Group insurance is ok, they just don't have a definition that will protect you in your specialty, they only protect income with a sliding scale.  What that means is at the very best group product it will state if you can't do your specialty (determined by the Department of Labor occupational guide) then benefits will be paid as long as you are not working in any other occupation for wage or profit.  In addition, they are allowed to reduce the group benefit by 'other income' which typically are Social Security, Workman's' comp, No-fault insurance settlements, distribution from employers retirement accounts, other group or association plans and the list goes on to name about 20 other distribution sources.  In the individual market once you purchase the benefit they don't offset for anything else, what you purchased is what you get.   As for dropping the group, most of the time the group is considered 'forced coverage' in other words the employer provides it as an employee benefit thus the employee does not have the right to drop it regardless of the quality.  Believe me, once physicians know how some of these employer plans work (Cleveland Clinic, Hopkins, and Kaiser just to name a few) they really want out but their is nothing we can do but build an augmentation plan around that group plan offering the best we can.

            If we can help further just let us know.
            Scott Nelson-Archer, CLU, ChFC
            281-770-8080 Direct / [email protected]


            • #7
              You are right, group coverage is cheap to buy typically.  There are several reasons for that in my opinion.

              1:  The ability to get on claim is typically restricted with language in the elimination (waiting) period that states things like you have to be Totally Disabled or Totally AND Continuously disabled to Become claim eligible.  That is far different than you have to loose 15% or 20% of your income to be claim eligible.

              2:  The group policies typically say you have to be Totally disabled AND Not Working in Any Occupation for Wage or Profit to stay on claim.

              3:  They have benefit offsets (open the contracts and read 'income offsets') so they rarely have to pay the policy benefit limit they state in the policy.

              4:  They (carrier) can change the terms of the policy on you (employer group) any time they want.

              5:  They (carrier) can change the rates on the policy (employer group) any time they want.

              6:  They (carrier or employer) can cancel the policy any time they want.

              In a nut shell they are harder to get on claim, harder to stay on claim and if the carrier starts experiencing claims that they don't like they can change the terms of the policy to restrict future claim capacity by any employee not yet on claim.

              They are cheaper but there are reasons why....
              Scott Nelson-Archer, CLU, ChFC
              281-770-8080 Direct / [email protected]