Lifetime Benefits, Part 1 – Injury v. Sickness Limitation
Having a disability insurance 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 as a dentist or physician and file a claim due to a disability. However, as we’ve discussed before, your monthly disability 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.[1]
There are a few options residents or doctors have when buying a disability insurance policy that can help ensure financial stability past retirement age. One option is selecting a policy with a lifetime benefit rider. Older disability insurance 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 disability insurance policies still offer an option to purchase “lifetime benefits”, but there are additional qualifiers in the policy language that dictate the amount of the disability 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 disability insurance 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 disability insurance 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 disability benefits under the sickness provision of your disability insurance policy, so they don’t have to pay lifetime benefits.
This provision highlights the importance of carefully documenting and filing your disability 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 provisions of your disability insurance 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.
[1] The World Bank, Life expectancy at birth, total (years), https://data.worldbank.org/indicator/SP.DYN.LE00.IN
