New DI Article

Disability Income Insurance: You get what you pay for!

By David Richards – Financial Advisor and Disability Income Specialist – The Guardian Life Insurance Company of America, New York, NY.

One of the most common adages of our time is the simple saying, "You get what you pay for." Nowhere is this more accurate than in the purchase of disability income insurance. After all, as another equally compelling saying goes, "What’s more important than protecting your most valuable asset – your ability to earn a living in your own occupation?"

Think about it for a minute: do you purchase the cheapest car or home appliances that you can buy? Of course you don’t. If you want something that will stand the test of time and has the features you want, look for a quality brand a pay and little more for it. Quality always comes with a price. What could be more important than buying the highest-quality disability income policy (DI) to protect your family during your working years? What would be the point in trying to save $50 or even $100 per month on a disability insurance contract when you give up the potential for literally millions of dollars in a real-life claim scenario?

There is no point in using price alone to compare DI products. Think about it this way: Would you go to Las Vegas and bet $1,000,000 of your own money for the chance to win a prize of $100 per month until retirement age? Of course you wouldn’t! But that’s exactly what many professionals do every day when they settle for the "best deal" (price-wise, that is) on a disability insurance policy. Even though the strongest contract can cost a little more, many people will be surprised to know that premiums for similar plan structures don’t really vary all that much from company to company when we’re talking about non-cancellable, individual disability income policies. But contract language does vary dramatically today from one plan to the next. And contract language is the number one consideration when purchasing a DI policy. The right words in a DI contract can literally mean millions of dollars to a claimant if they ever have to use their coverage.

The important features to look for in a quality disability contract are:

A Non-Cancellable and Guaranteed Renewable contract. These contracts have guaranteed premiums to age 65 and cannot be cancelled by the insurance company, as long as premiums are paid on time by the insured.

A True "Own-Occupation" definition of Total Disability is vital for professionals. This definition essentially says that if you can’t perform the material and substantial duties of your regular occupation, you will be considered totally disabled, even if you can work in some other capacity. This means that if you become totally disabled in your regular occupation (as a dentist, physician, attorney, etc…), that you will receive your full disability benefit even if you choose to work in another occupation because of the disability. Most companies selling disability insurance today sell a modified version of the definition or a Loss of Earnings policy where total disability is never even defined in the contract. These contracts will reduce the disabled professionals’ benefits if they are disabled in their regular occupation and return to work in another. Once their income in their new occupation reaches 80% of their prior income, their disability benefits go away completely.

This true "Own Occupation" feature is, in my opinion, especially important for younger professionals, who if totally disabled in their regular occupation, would likely work in another as soon as physically possible. This is the heart of your plan.

The Future Increase Option is another vital feature of a quality disability contract. In the strongest policies, this feature allows you, on each policy anniversary (until a certain age), to increase your monthly benefits without any medical underwriting (blood work, health questions, etc.). You only have to prove financially that you qualify for the increased coverage.

Most companies today have limited increase options on their plans. Some offer an "Update Benefit" that is only available every three years. This leaves the insured with inadequate coverage if they have an increase in income from year to year.

Other optional features to look for include compound Cost of Living Adjustments, Residual or partial benefits that pay to age 65, as well as a Lifetime benefit for total disability.

As you’ve probably gathered by now, I’m of the opinion that quality of contract means everything when considering the purchase of something as important as a disability insurance policy. Going with the cheapest plan can be a disaster financially if you ever need the coverage. And don’t we buy the coverage in case we need to use it? Ask yourself this question: When working at your job and/or running your business, do you sell your services for the lowest price in town? Do you have to sell your service for the lowest price to earn business, or do your customers come to you for the quality of your service and your reputation?

As the old saying goes, "you get what you pay for". No adage could be truer than this one in the disability insurance market. The best value is the contract that generates the most benefits in the greatest number of disability scenarios. After all, isn’t that why we buy the coverage in the first place?

David Richards is a Financial Advisor and Disability Income Specialist for The Guardian Life Insurance Company of America, New York, NY. He can be reached for comment at 877-402-0485 ext. 3211