In our last post we discussed how it can be difficult to save for retirement if your only income is your monthly disability benefits. One way to help ensure financial security into retirement age is to purchase a lifetime benefit option with an individual disability insurance policy. While older policies often featured full monthly benefit payments for life, newer policies insert qualifiers that limit whether a claimant will actually receive the full benefit amount for his or her lifetime. Our last post looked at the injury versus sickness limitation. In this post, we will be taking a look at another provision that limits lifetime benefits: the graded benefit rider.
Graded Lifetime Benefit Riders
Under this rider, claimants receive benefits for life, provided they are disabled prior to a specified age and remain continuously totally disabled. However, the amount of the monthly benefit they receive varies based on how old the claimant is at the onset of his or her disability.
For example, a policy may have a benefit period that ends at age 65, with a graded lifetime benefit rider (sometimes called a “lifetime extension for total disability”) that will pay 100% of monthly benefits for life if the policyholder is disabled prior to age 46. However, if the policyholder becomes disabled after age 46, his or her lifetime benefits will only be a certain percentage of the monthly payment.
Below is a provision from an actual policy, illustrating how benefit amounts are calculated under this type of rider:
Using this chart as an example, if your benefit payments are $10,000 per month and you become totally disabled at age 46 (100% under the policy) your insurance company will continue to pay you $10,000/month after you turn 65 for the rest of your life. If you become totally disabled at age 55, the percentage of monthly indemnity payable would drop to 50% and your insurance company would pay you $5,000/month after you turn age 65. If you don’t become totally disabled until age 64, the amount payable would only be 5% of your monthly benefit. In other words, you would have a year or less of monthly payments of $10,000, followed by monthly payments of $500.
While a graded lifetime benefits rider is one way to ensure that you continue to receive disability income after your standard benefit period ends, you must keep in mind that these payments may not provide much income if you become disabled later on in life.
Further, in order to achieve lifetime benefits under this rider, you must remain totally disabled. So, for example, if you return to work, were pushed off claim, or went into residual disability claim status, you lose the lifetime benefits. And even if you are later able to reestablish total disability, the lifetime benefit will be a lower percentage of the monthly benefit, because you will have re-set your total disability date for purposes of calculating your monthly benefit under the rider.
Lifetime benefits offer a way for policyholders to continue to collect at least some income after the benefit period of their policy ends. However, when choosing a policy, physicians and dentists must carefully consider their age at the time of purchase, premium amounts, and the policy language before buying a policy. Knowing how your policy’s lifetime benefits work is an important step in planning for your financial future.
In our next post we will look at another option individuals have to supplement their retirement income: the lump sum benefit rider.
Having a disability policy is an important step in protecting your financial security and ensuring a monthly source of income if you are forced to step away from practicing and file a claim due to a disability. However, as we’ve discussed before, your monthly benefits typically will not match the monthly income you were earning as a doctor, dollar for dollar. As a result, you may not have any funds left over, after your monthly expenses, to save for retirement. This can be problematic since many plans have a benefit period ending at age 65 or 67, but the average American life expectancy is around 79.
There are a few options residents or doctors have when buying a policy that can help ensure financial stability past retirement age. One option is selecting a policy with a lifetime benefit rider. Older policies, from the 80’s and 90’s, were often drafted in policyholders’ favor and a lifetime benefit provision meant just that—full monthly benefits would be paid out until a claimant’s death. Many newer policies still offer an option to purchase “lifetime benefits”, but there are additional qualifiers in the policy language that dictate the amount of the benefit the claimant will receive, or whether he or she will receive lifetime benefits at all. In our next few posts, we will look at two common lifetime benefit limitations that are common in newer policies. In this post we will examine the injury versus sickness limitation.
Injury v. Sickness Limitation
Under some policies, the nature of your disability (i.e. whether your disability is caused by an “injury” or by “sickness”) can determine whether your benefits will last a lifetime. Here’s an example of such a provision, taken from an actual policy:
As you can see, under this policy’s language, you only receive lifetime benefits if your disability stems from an injury occurring before age 65. Further, no matter how permanent a sickness is, the policyholder will not be eligible to receive lifetime benefits under this policy.
In some instances, it is very straightforward to determine when a disabling condition will be classified as an injury (e.g. the inability to walk after a car accident) or as a sickness (e.g. Parkinson’s disease). But in other instances, the distinction between the two becomes less clear and, in many instances, litigation is required to resolve the issue. If the date of an injury is not well-documented, or your limitations arguably have multiple causes, the insurance company will oftentimes elect to pay benefits under the sickness provision of your policy, so they don’t have to pay lifetime benefits.
This provision highlights the importance of carefully documenting and filing your claim from the outset, in order to prevent any ambiguity in the nature of a disabling condition. It also highlights the importance of understanding the provision of your policy you are being paid under, so that you are not caught unawares when your benefits (which you thought were lifetime benefits) are cut off after years of receiving benefits.
In our next post we will discuss another provision that limits lifetime benefits—the graded lifetime benefit rider.
 The World Bank, Life expectancy at birth, total (years), https://data.worldbank.org/indicator/SP.DYN.LE00.IN
The new year is often a time for making resolutions and planning for the future. This should include reviewing your financial situation, including assessing whether you will be adequately prepared in the event that you become disabled and have to stop practicing. We recommend that you make a periodic review of your disability policies and evaluate:
- What type of policy(ies) do I have?
- Do I understand the terms and provisions of my policy(ies)?
- How much coverage do I have?
- Do I have enough coverage?
- Do I qualify for any increase options?
- Should I buy an additional policy(ies)?
Many physicians and dentists purchase their policies as residents or when they are first establishing their practice, and then file their policies away and don’t think about them again until the unexpected happens and they need to file a claim. This is problematic, because financial needs and obligations change over time, and the income and standard of living for a resident is vastly different than that of a physician with a family 20 years down the road.
While insurance companies’ underwriting standards are typically structured in a way that prevents you from collecting the exact same amount of monthly income you were making pre-disability, your goal should be to get as close as possible. In other words, if you are a dentist earning $20,000 a month and need to file a claim, you don’t want to have to end up relying on a disability policy with a monthly benefit of $5,000 as your primary source of income.
Often policies have future increase options that allow you to purchase additional coverage without changes to the terms of the existing policy. Typically, these options will only be available during certain discrete time periods set forth in the policy, so it’s important to read your policy carefully to make sure you don’t miss out on the opportunity to take advantage of an increase option.
If your policy does not have increase options and you’ve outgrown the monthly benefit amount, you can also purchase another policy to increase the total coverage you would receive if you filed a claim. However, if you’re going to be purchasing a new policy, you need to keep in mind that you must purchase a policy that compliments you’re existing coverage, and does not cancel out your other policy or policies.
For example, some policies contain provisions stating that a claimant cannot collect total disability benefits if he or she is working in another profession (a “no-work” provision). Other policies require the policyholder to work in some other capacity, in order to collect total disability benefits (a “work” provision). Thus, if you were to purchase a new policy with a “work” provision, and your old policy had a “no work” provision, one of the policies would be rendered useless (because it would be impossible to collect total disability benefits under both policies).
When purchasing a new policy, it’s also important to keep in mind that disability policies have become increasingly more complex, restrictive and less favorable to policyholders over time. There is no longer a “standard” policy that every company sells—each policy will have it’s pros and cons, and it is therefore important to take your time to familiarize yourself with the policy at the point of sale, so that you know what you’re purchasing. And if you didn’t pay close attention when you purchased the policy, or you can’t remember exactly what your policy says, you should review your policy to assess whether it still meets your needs and make sure that you have an accurate understanding of the scope of your coverage.
Reducing the risk of having to fight for benefits requires understanding the terms of your policy from the beginning, carefully and thoroughly filling out the application, and ensuring accuracy and consistency in your claim packet and subsequent filings. As the saying goes, the best defense is a good offense, and the best way to avoid litigation is to file the claim correctly the first time.
Although filing a successful claim is not easy, it is the ideal. Unfortunately, insurance companies have a strong incentive to increase their bottom lines and often they practice aggressive tactics in improper attempts to justify the denial or termination of even a wholly legitimate claim. If your claim has been terminated or denied, it can seem overwhelming or hopeless to try to reverse the decision. In the event of a denial or termination, many insureds know they can sue their insurer and go to trial. Yet, even if you are ultimately successful in a lawsuit, litigation can sometimes drag on for years. While a lawsuit is pending, you’ll not only have legal expenses, but will also not be receiving benefits (and likely not be in a position to work to offset your expenses, due to the nature of your disability or your policy’s language). There are, however, some alternative options that can be attractive to both parties that policyholders may not be aware of, namely mediation and lump sum settlements.
All too often we see legitimate claims denied or terminated, with the insurance company refusing to reconsider their position. If your claim is terminated, the company knows that it wields a lot of power over the denied individual, including the power of money, the power of time, the power of institutional knowledge, and the power to tolerate litigation. In other words, insurers calculate that spending money on even protracted litigation will end up being cheaper than continuing to pay benefits, and they know that many claimants will just give up and go away if they draw out court proceedings long enough.
While this might sound bleak, there can be alternatives to a full-fledged lawsuit that culminates in a trial (and potentially drawn-out appeals). One such method is mediation. Mediation is where the parties to a lawsuit meet with a neutral third party in an effort to settle the case.
For the most part, mediators are retired judges, or active or retired attorneys. The mediator reviews the case file and then meets with both parties, seeking to facilitate discussions between the parties and try to find common ground in order to reach an acceptable compromise. Because mediation is not binding, the mediator’s recommendation and any subsequent agreement between the parties is not final until the parties memorialize it by putting all the agreed upon terms in writing and signing the document.
Often the insurance company will offer to draft the agreement so they can have control over what the agreement says, and so it is important to stay engaged in the process even after the mediation has ended, in order to ensure that the parties’ agreement is accurately documented. The settlement agreement itself is a very important document, so you should be sure to take the time to carefully review it before signing, to be sure it encapsulates all the agreed upon terms.
It is also important to keep in mind that mediation typically does not result in a full restoration of benefits nor is not always successful. The non-binding nature of mediation means that if the insurance company low-balls and refuses to budge in its offer, the claimant may need to just walk away and resume litigation.
Lump Sum Settlement
Another way of avoiding trial is through negotiating a lump sum settlement. This typically occurs outside of the mediation setting, but sometimes requires the filing of a lawsuit before the insurance company is willing to come to the table. When this happens, your insurer agrees to buy out your policy and you release your right to collect under your policy and your insurer from any obligation to you. The buyout amount will be your policy’s “present value” (i.e. the amount of money you could invest upon receipt, based on a determined interest rate, and end up with the same amount of money you would have received in benefits at the end of your policy), discounted by a percentage that is negotiated by the parties.
A buyout can be an attractive offer and can occur at any stage of the litigation process. A lump sum buyout could even be a preferable alternative to having benefits reinstated, as you would no longer have to deal with your insurer. Your benefit payments would cease being on hold pending the outcome of a trial and you could invest the lump sum in order to provide for your and your family’s future. In addition, unlike monthly disability benefits, the lump sum settlement you receive would be inheritable and available to be passed on to your heirs, should something happen to you.
There are, however, certain drawbacks to a lump sum buyout, including the fact that you and your insurers cannot accurately predict the future of the market with 100% certainty, so the calculations will only be a best estimate. If you are healthy and have lifetime benefits, you could also receive more money cumulatively over time if you were to stay on claim. So, while attractive, especially when faced with litigation, the pros and cons must be carefully weighted when considering lump sum buyouts during the litigation process.
We often see claimants who face the loss of their benefits simply give up and accept a denial, daunted by the thought of protracted litigation. While litigation may sometimes be the most advisable way to get benefits, and possibly punitive damages, there are other avenues to explore, advisably with the help of an attorney, that can end in your retaining at least some of the benefits you stand to lose completely when an insurance company denies your claim.
As we’ve discussed in more detail in a previous post, fibromyalgia is a syndrome characterized by chronic, wide-spread muscle pain as well as fatigue, difficulty sleeping, depression or anxiety, muscle knots, cramping, or weakness, painful trigger points, and headaches. Fibromyalgia can be difficult to diagnose, given the relative or subjective nature of most symptoms. Symptoms can also mimic those of rheumatoid arthritis and other diseases, so often a diagnosis is established after other causes of symptoms are ruled out. Doctors will examine a patient’s history, conduct a physical examination, as well as evaluate X-rays and blood work. Doctors will also test patients for 18 tender points. The American College of Rheumatology guidelines suggest that those with fibromyalgia have pain in at least 11 of these tender points.
Although the majority of fibromyalgia cases are diagnosed chiefly by ruling out other conditions, many patients may now have access to a blood test that may diagnose the disease. In 2012 a privately held biomedical company, EpicGenetics, released the FM/a® Test, which is an FDA-compliant blood test designed to diagnosis fibromyalgia. The test identifies the presence of certain white blood cell abnormalities. The use and accessibility of the test has been growing, as Medicare and an increasing number of private insurance providers have begun covering the costs, and the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) has also recently agreed to cover the cost of testing.
The blood test works by analyzing protein molecules in the blood called chemokines and cytokines. Founder and CEO of EpicGenetics, Bruce Gillis, MD, explains that those with fibromyalgia have a lower count of these protein molecules in their blood, leading to weaker immune systems. A diagnosis of fibromyalgia the traditional way can take, on average, more than two years. Many believe that FM/a® offers an objective and concrete diagnosis that allows sufferers to more quickly find adequate resources and treatment.
However, others argue that the test does not offer the diagnosis it promises. Some argue that fibromyalgia is not a discrete medical condition but rather a “symptom cluster” or that the biomarkers the test identifies are also found in people with different illnesses, such rheumatoid arthritis. As of this writing, major medical resource databases such as MedLine Plus, the CDC, and the Mayo Clinic continue to state that there is no lab test or definitive way to diagnose fibromyalgia.
As we’ve previously discussed, disability insurance policy holders can often face challenges with they go to file a claim based on disabilities, such as fibromyalgia, that are considered “subjective conditions.” A test promising objective proof may remove some of these challenges. However, it remains to be seen how insurance companies and the medical community as a whole will agree on what constitutes objective proof of fibromyalgia, whether via this test or other medical advances down the road.
 18 Points Used to Diagnose Fibromyalgia, Health, http://www.health.com/health/gallery/0,,20345635,00.html#where-does-it-hurt–1
 Businesswire, EpicGenetics with the Assistance of Leading Medical Centers, Expands Clinical Study of FM/a® Test to Diagnose Fibromyalgia, Identify Genetic Markers Unique to the Disorder and Explore Direct Treatment Approaches, Yahoo! Finance, Apr. 19, 2017, https://finance.yahoo.com/news/epicgenetics-assistance-leading-medical-centers-120000519.html
 Pat Anson, Fibromyalgia Blood Test Gets Insurance, Pain News Network, May 27, 2015, https://www.painnewsnetwork.org/stories/2015/5/27/fibromyalgia-blood-test-gets-insurance-coverage
 Emily Riemer, Mass General researcher investigating possible fibromyalgia vaccine, WCVB5, July 27, 2017, 6:05 p.m., http://www.wcvb.com/article/mass-general-researcher-investigating-possible-fibromyalgia-vaccine/10364683
 Anson, id.
 Getting a Diagnosis, Fibrocenter, http://www.fibrocenter.com/pain
 Anson, id.