Tag Archives: disability insurance policy

Do I Have to Keep Paying Premiums Even Though I’m Disabled?

If you are thinking about filing a disability claim, you are likely wondering whether you will be able to meet your monthly expenses if you’re no longer able to work.  You may have made a list of your necessary expenses, and likely included your disability insurance premium payments on that list, as your agent likely told you that your policy would lapse and you would lose your coverage if you missed a premium payment.  At this point, you probably started to wonder whether you still have to keep paying the premium after you file the claim, and if so, for how long?

The answer depends on the specific terms of your policy.  The paragraph that you’ll want to look for when you’re reviewing your policy is typically titled “waiver of premium,” but some policies address waiver of premiums as part of a larger section of the policy that discusses premiums more generally.

How Do Waiver of Premium Provisions Work?

Generally speaking, waiver of premium provisions state that your insurance company cannot charge premiums during periods of time when you are disabled.  A waiver of premium provision typically will also require your insurance company to reimburse you for premiums you have previously paid during your period of disability (i.e. the premiums that you paid while the insurance company was investigating your claim).

Waiver of premium provisions are included in most disability insurance policies.  If you are considering purchasing a policy that does not include a waiver of premium provision, you may have the option to purchase a waiver of premium rider.

Here is an example of a waiver of premium provision from an actual disability insurance policy.

Under this policy, the waiver of premium provision requires you to pay premiums either for 90 consecutive days after you become disabled, or until the end of the elimination period (the elimination period is the number of days you must be disabled before you are entitled to benefits, and is usually noted on the first few pages of a policy).

So, for example, under this policy, once you have been disabled for 90 consecutive days, you no longer would have to pay premiums (at least until you recover from your disability, or your insurer terminates your benefits).  You also would receive a refund of any premiums that you paid for any period prior to your date of disability.

Notably, the waiver of premium provision above also requires you to be receiving benefits for the waiver to apply.  This is significant because, depending on the terms of your policy, in some cases you could be disabled but not receiving benefits.  For instance, your policy might have a foreign residency limitation that prevents you from receiving benefits if you are living in another country, even if you remain disabled. In such a case, you might have to resume paying premiums until you returned to the United States in order to keep your coverage in force.

The Takeaway

Timely and proper payment of premiums is critical, as a failure to pay premiums can result in you losing your disability coverage completely.  It is important to read your policy carefully so that you have a clear understanding of when you are required to pay premiums, and when you are entitled to a refund of past premiums.

Most insurance companies will provide you with written confirmation that premiums have been waived, and it is best to keep paying your premiums until you receive this written confirmation, even if you think that you no longer have an obligation to pay premiums under the terms of your policy.  If you have questions about whether your insurance company should have waived and/or refunded premiums under the terms of your policy, an experienced disability insurance attorney can review your policy and explain your rights and obligations under your particular policy.

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Don’t Owe Your Insurer Money – Be Aware of Overpayment Provisions

 

In previous posts, we’ve discussed how insurance companies typically place caps on how much coverage a policyholder can receive.  For physicians and dentists, this typically results in monthly disability benefit amounts that are lower (and sometimes much lower) than the monthly income you would bring in if you were still able to practice.

In some cases, policyholders are able to supplement their income by working in another field, but this is only possible if your policy allows you to work in another occupation.  Alternatively, your policy could contain a “no work” provision, which would foreclose this as an option. And some newer policies even require you to be working in order to collect benefits, so you don’t have a choice–you must find another job if you want to receive your disability benefits each month.

If you are not able to work in another occupation, due to the nature of your disabling condition and/or the contractual terms of your policy, you may be placed in a position where you must either cut expenses, find another source of income, or both.  If you find yourself in this unenviable position, or you are planning ahead and contemplating what you might do in this sort of situation, you will want to keep in mind that some policies–particularly employer-sponsored plans–can contain offset provisions, which allow the insurance company to reduce your monthly benefit if you receive additional income from certain enumerated sources.

What Types of “Other Income” Can Be Offset?

There are many types of income that your insurer might include in an offset provision.  Some examples include:

  1. Social Security benefits;
  2. Pension plans;
  3. Sick leave or a salary continuation plan of an employer;
  4. Income from other disability insurance policies;
  5. Retirement benefits funded by an employer;
  6. Workers’ compensation;
  7. Partnership or shareholder distributions; or
  8. Amounts paid because of loss of earning capacity through settlement, judgment, or arbitration.

The list above is by no means exhaustive and, again, you should carefully review your policy for its specific list of offsets.

What are Overpayment Provisions?

If your policy contains an offset provision, it will also likely contain an overpayment provision.  In most instances, if your policy contains an offset provision, your insurer will be able collect information about your income from other sources prior to issuing the benefit, and calculate the amount due accordingly. However, in some cases this is not possible.

For example, say you applied for Social Security disability benefits.  In some cases, it can take several years before a Social Security determination is made.  Then, at that point, if your claim was approved, you would receive a lump sum of benefits covering the time period from the date of disability you reported to the date your claim was approved.

This is where the overpayment provision kicks in.  If your policy has an overpayment provision, upon learning of the lump sum payment from Social Security, your insurer could potentially require you to pay the entire lump sum of benefits back to your insurance company (depending on the terms of your policy). This is because the lump sum payment represents several monthly payments you would have received over the relevant time frame.  If your insurer paid the full monthly disability benefit for those months and your policy has an offset provision, your insurer will likely ask for the Social Security benefits as payment for the amounts that should have been offset each month over that time period.

What Happens if You Cannot Pay Back the Overpayment in a Lump Sum?

If you are not in a position to pay back an overpayment in a lump sum, your insurer will seek to collect the overpayment amount in other ways.  One way is reducing and/or withholding future benefits until the full amount of the overpayment has been recouped by the insurer.  Your insurer may also work out a payment plan with you, initiate collection efforts against you and/or file suit to recover the overpayment.

The Takeaway

Offset and overpayment provisions can be particularly devastating if you are caught unaware and find yourself with considerably less income than expected, or an obligation to repay a large sum to your insurer.  When selecting a policy, you should try and avoid these types of provisions if at all possible.  If you already have a policy, you should read it carefully, so that you are fully aware of any offsets that could occur and any overpayments that you could potentially be responsible for under the terms of your policy

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Can You Move Out of the Country and Still Receive Disability Benefits?

The answer depends on what your disability policy says. Many people don’t realize that their policy may limit their ability to receive disability benefits if they move out of the country. If you’ve ever wondered why claims forms ask for your updated address, one of the reasons might be that your policy contains a foreign residency limitation, and your disability insurance company is trying to figure out if they can suspend your benefits.

Foreign residency limitations allow disability insurance companies to stop paying benefits under your policy if you move out of the country. These limitations may be especially relevant if you have dual citizenship, you want to visit family living abroad, or you plan to obtain medical care in another country. A foreign residency limitation may also affect you if your policy allows you to work in another occupation and you have a job opportunity in another country that you want to pursue. For instance, if you are a dentist and can receive disability benefits while working in another occupation, your insurance company may suspend your benefits if the opportunity you pursue is in another country.

Foreign residency limitations benefit disability insurance companies in several ways. By requiring you to remain mostly in the country while receiving benefits, these limitations simplify the payment process and reduce the possibility that insurers will need to communicate with doctors in other countries to manage your claim. They also make it easier for insurance companies to schedule field interviews and conduct surveillance of you to find out if you have done something that could be interpreted as inconsistent with your claim.

While these limitations are not included in every disability insurance policy, it is important to check if your policy—or a policy you are considering purchasing—contains a foreign residency limitation, because it could limit your ability to collect benefits later on.

Foreign residency limitations vary by policy. Here is an example of one foreign residency limitation from a Guardian policy:

This limitation highlights several details you should look for if your disability policy contains a foreign residency limitation, including the length of time you can spend in another country before your insurance company will suspend your benefits, whether you can resume receiving benefits if you return to the country, and when you will have to resume paying premiums if your insurance company suspends your benefits. Another important consideration is the effect a foreign residency limitation will have on your policy’s waiver of premium provision. Under the policy above, premiums will continue to be waived for six months after benefits are suspended. However, your policy may have a different requirement regarding payment of premiums, so it’s important to read your policy carefully.

Here is an example of another foreign residency limitation from a different Guardian policy:

This limitation contains much less detail than the first limitation. For instance, it does not clarify how suspension of benefits will affect waiver of premium. If your disability policy contains a foreign residency limitation that does not discuss waiver of premium, you should look to your policy’s waiver of premium provision to find out when premiums will become due after benefits are suspended. The policy above also defines foreign residency differently than the first policy. At first glance, it may seem that you can continue to receive disability benefits any time you leave the country for twelve months or less. What the policy actually says, though, is that the insurance company will only pay benefits for twelve months that you are out of the country at any time you are covered by the policy. So, if you have received benefits for twelve months while living in another country—even if those months were spread out over several years—your insurance company will not pay benefits in the future unless you are in the United States or Canada.

As you can see, foreign residency limitations vary among disability policies. If you are thinking about leaving the country, it is important to read your policy carefully first so that you understand how leaving the country may affect your ability to recover benefits.

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Comitz | Beethe Attorney Ed Comitz Posts CE Course on Dentaltown

Ed Comitz’s Continuing Education course “Disability Insurance Roulette: Why is it So Hard to Collect on My Policy” is now available through Dentaltown.  This CE is an electronically delivered, self-instructional program and is designated for 2 hours of CE credit.  In this course, Ed discusses why it is so difficult for dentists to collect disability benefits and how to avoid the most common mistakes made by dentists when filing disability claims.  Ed also covers the key provisions to look for in disability insurance policies and provides an overview of the disability claims process.  Finally, the course discusses how disability insurance claims are investigated and administered, and identifies common strategies used by insurance companies to deny claims.

Information on how to register can be found here

 

For more information regarding what to look for in a policy, see this podcast interview where Ed Comitz discusses the importance of disability insurance with Dentaltown’s Howard Farran.

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Are Benefits Taxable?

 

The Answer Is: It Depends

Whether your disability benefit payments are taxable depends on what type of policy or plan you have and how your premiums are paid.  This post is not intended as tax advice—we’ve outlined some basic information below only.  You should always speak with a tax professional regarding your particular situation.

Individual Policies:  These are policies that you purchase yourself.  Generally speaking, if you pay the premiums with after-tax dollars, the benefits you receive are tax free.  However, if you pay with pre-tax dollars or deduct your premiums as a business expense, then your benefits will likely be subject to federal income taxation.

Group Policies: Group policies are those offered through associations such as the ADA or AMA.   These types of policies offer special terms, conditions, and rates to members and function much like individual policies, with similar tax consequences.  Generally speaking, if you pay the premiums (with after-tax dollars) then the benefits you receive are tax free.

Employer-Sponsored Policies: These types of policies can be less straightforward when it comes to taxes, as the payment of premiums can be structured several ways.  According to the IRS website:

  • If your employer pays the premium and does not include the cost of the premiums in your gross income, then benefits you receive will generally be fully taxable.
  • If the employer only offers a policy, but you pay the entire premium without taking a tax deduction, then the benefits you receive will generally be tax-free.
  • If both your employer and you pay the premiums then the tax liability will generally be split.

If you are unsure what type of policy or plan you have, and you think your employer might be paying the premiums, you can look at your application (there is typically a portion that states who is responsible for the premiums) or talk to your HR department.  For more information, talk to your accountant.  You can also go to to the IRS website on disability insurance proceeds to find additional information.

It may be tempting to save money by enrolling only in a plan solely paid for by your employer, paying premiums with pre-tax dollars, or deducting premiums as business expenses.  But keep in mind that, if you do become disabled, the amount of your benefits actually available to you will substantially decrease if you are required to pay income tax on them.

Selecting a policy is an important decision, and how benefits will be taxed is a significant factor to consider. With statistics showing that one in four dentists will be disabled long enough to collect benefits at some point in their careers, choosing to save now could hurt you financially down the road.

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Understanding Your Policy: Examination Provisions

Disability insurance companies are constantly searching for new ways to expand the power and control they have over their policyholders through the use of restrictive policy provisions.  In previous posts we’ve discussed how disability insurers are expanding their control over their policyholders’ medical treatment by implementing more stringent care provisions.  However, care provisions are not the only avenue for disability insurers to exert a greater degree of influence in the claims process.  Over the years, insurers have also expanded the scope of their authority under examination provisions.

The most basic examination provisions simply notify the policyholder that he or she may be examined by the insurer’s doctor or interviewed by a representative of the insurer, like this policy from Northwestern Mutual:

  • Medical Examination. The Company may have the Insured examined by a health care practitioner.
  • Personal Interview. The Company may conduct a personal interview of the Insured.
  • Financial Examination. The Company may have the financial records of the Insured or the Owner examined.

Taken alone, this does not seem to onerous.  However, you need to watch out for additional requirements buried at the end of the provision:

Any examination or interview will be performed:

  • At the Company’s expense;
  • By a health care practitioner, interviewer or financial examiner of the Company’s choice; and
  • As often as is reasonably necessary in connection with a claim.

The final sentence of this provision leaves the open the possibility of multiple interviews throughout the claim, and may be overlooked by a claimant who does not carefully review his or her policy.

Other provisions, like this medical examination provision from a Standard Insurance Company individual disability insurance policy, expressly condition the payment of benefits on your cooperation with the exam:

MEDICAL EXAM – We can have Physicians or vocational specialists examine You, at Our expense, as often as reasonably necessary while You claim to be Disabled.  Any such examination will be conducted by one or more Physicians or vocational specialists We choose.  We may defer or suspend payment of benefits if you fail to attend an examination or fail to cooperate with the person conducting the examination.  Benefits may be resumed, provided that the required examination occurs within a reasonable time and benefits are otherwise payable.

In newer policies the language used by the disability insurance companies has become ever more burdensome.  For instance, some modern provisions for examinations and interviews create far more specific duties for the policyholder and condition the payment of benefits on the claimant’s satisfaction of these duties.  Take this Guardian policy, for example, which outlines the policyholder’s duties and obligations to comply with examinations and interviews in very specific language:

We have the right to have You examined at Our expense and as often as We may reasonably require to determine Your eligibility for benefits under the Policy as part of Proof of Loss. We reserve the right to select the examiner. The examiner will be a specialist appropriate to the assessment of Your claim.

The examinations may include but are not limited to medical examinations, functional capacity examinations, psychiatric examinations, vocational evaluations, rehabilitation evaluations, and occupational analyses. Such examinations may include any related tests that are reasonably necessary to the performance of the examination. We will pay for the examination. We may deny or suspend benefits under the Policy if You fail to attend an examination or fail to cooperate with the examiner.

You must meet with Our representative for a personal interview or review of records at such time and place, and as frequently as We reasonably require. Upon Our request, You must provide appropriate documentation.

Examination provisions containing language this specific and this restrictive significantly limit your rights.  The most significant change in the evolution of the examination provision is the number of obligations upon which your benefits are conditioned.  This policy language allows disability insurers to use your benefits as leverage to compel your compliance with medical exams, interviews, and a litany of other examinations.

Review your disability insurance policy, and particularly your examination provisions in the “Claims” section, to determine what your rights, duties, and obligations are under your policy.  Unfortunately, if your policy requires to participate in examinations, a refusal will likely lead to a denial of benefits.  However, you do not have to attend alone.  No matter how restrictive the language in your disability insurance policy, you always have the right to have an attorney present for any examination or interview.  If you have any questions about your duties or obligations under your policy, contact an experienced disability insurance attorney.

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Understanding Your Policy: Maximum Benefit Period

Your maximum benefit period is one of the most important provisions in your disability insurance policy.  Its terms control the period of time during which you are eligible to receive benefits under your policy.  Many disability insurance policies pay benefits until age 65 or 67, while others pay lifetime benefits.  Others still pay benefits only for a limited amount of time even if the claim  is filed decades before the policy terminates.

It is crucial that you read your policy carefully to fully understand how your maximum benefit period affects your ability to file a claim and collect benefits.  Many people, especially doctors and dentists, work through their pain without realizing that it may affect their maximum benefit period.  As you will see in some of the policy examples we look at in this post, oftentimes the maximum benefit period is more complicated than you may expect.

To begin, some policies have straightforward maximum benefit periods, like this policy from Central Life:

            Maximum Benefit Period for Injury or Sickness

            For Total Disability Starting:

    1. Before Age 63                                                  To Age 65
    2. At or After Age 63                                           24 Months

As you might expect, if you have a policy with this provision and file a claim before age 63, you will receive benefits until age 65.  However, if you file a claim at or after age 63, you will receive only 24 months of benefits.

Most modern policies contain a benefit schedule that details the length of your benefit period more precisely, based upon your age at the time the claim is filed.  This policy from MetLife contains a maximum benefit period schedule similar to those found in many disability insurance policies:

Table A.         Maximum Benefit Period Varies By Age When Disability Begins

Age When Disability Begins                         Maximum Benefit Period

Before Age 61                                               To Age 65

At Age 61, before Age 62                               48 Months

At Age 62, before Age 63                               42 Months

At Age 63, before Age 64                               36 Months

At Age 64, before Age 65                               30 Months

At Age 65, before Age 75                               24 Months

At or after Age 75                                          12 Months

Though on the surface this provision may seem more complicated that the Central Life provision, the principle is the same: date of disability at X age, you are eligible for benefits until 65 or for X months.  The date of your disability determines whether you receive benefits to age 65 or only for a few years or months.  The older you are, the fewer months of benefits you will receive.  The only difference is the more precise breakdown of the maximum benefit period after you reach age 61.

When looking for your maximum benefit period, keep in mind that it may be defined in one place, and then clarified elsewhere in the policy.  This can be confusing to the policyholder – for example, take a look at this Paul Revere policy:

   Commencement Date            Maximum                   Maximum

          Monthly Amount        Benefit Period*

From Injury:        91st Day of Disability              $2,600.00                    To Age 65

From Sickness:     91st Day of Disability              $2,600.00                    To Age 65

*The Maximum Benefit Period may change due to your age at total disability.  Please see Policy Schedule II.

At first glance, it may appear to the policyholder that they are eligible for benefits until age 65, regardless of when his or her disability starts.  However, when you turn to Policy Schedule II, you find a benefit schedule identical to the MetLife policy discussed above.  If you had this policy and did not read it carefully, you might assume that you are not eligible for benefits if you become disabled at age 65 – ultimately depriving yourself of the 24 months of benefits you would still be eligible to receive.

Some policies require a bit more calculation.  For example, policies like this one from Mutual of Omaha take your Social Security Normal Retirement Age into account:

Age at Disability Maximum Benefit Period
61 or less to Age 65 or to Your Social Security Normal Retirement Age, or 3 years and 6 months, whichever is longer
62 to Your Social Security Normal Retirement Age or 3 years and 6 months, whichever is longer
63 to Your Social Security Normal Retirement Age or 3 years, whichever is longer
64 to your Social Security Normal Retirement Age or 2 years and 6 months, whichever is longer
65 2 years
66 1 year and 9 months
67 1 year and 6 months
68 1 year and 3 months
69 or older 1 year

This provision is ultimately designed to work out to your benefit by providing you with the longest period of time, but its multiple parameters require a bit of calculation to determine your actual maximum benefit period. If your policy contains a provision like this, you can use this calculator to determine your Normal Retirement Age.

Finally, it is important to note that many policies have specific, limited benefit periods for certain conditions such as mental illness and substance abuse.  It is extremely important that you read your policy carefully to understand these exceptions, like the provision found in this MetLife policy:

Limited Monthly Benefit for Mental Disorders and/or Substance Use Disorders

The Maximum Benefit Period is limited to 24 months for all periods of Disability during your lifetime if:

    1. Such Disability is due to a Mental Disorder and/or Substance Use Disorder;
    2. You otherwise qualify for Disability benefits; and
    3. You are not confined in a Hospital.

However, any time during which you are confined in a Hospital does not count towards this 24-month limit.

As you can see from just these five examples, the maximum benefit provision can take many different forms in a disability insurance policy.  It is critical that you read your policy carefully and have a firm grasp on how your maximum benefit period provision affects your eligibility for benefits.  If you have any questions about your policy, contact an experienced disability insurance attorney.

 

 

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Policy Riders: A Guide to the Bells and Whistles of Individual Disability Insurance – Part 4

Provisions Appearing As Policy Terms or As Riders (2 of 2)

In this series of posts we are discussing policy riders, the add-ons to your basic disability insurance policy that provide additional terms or benefits in exchange for higher premiums. In part one, we walked through the basics of policy riders and evaluated the commonly-purchased COLA rider. In part two, we analyzed two benefit-based riders that enable you to increase your monthly benefits without the hassle of applying for additional coverage.

In the part three, we looked at a pair of provisions that may appear as policy terms or as riders, depending on the insurer.  Some of these provisions can have a significant effect on your rights and benefits in the event of a disability, and identifying where and how they may fit into your policy is critical to ensuring you are fully protected.  In this fourth post, we’ll look at two more provisions that sometimes appear as policy terms and sometimes appear as riders, depending on the insurer.

Own Occupation

On this blog we have spent a significant amount of time writing the importance of purchasing an individual disability insurance policy to that defines “Total Disability” in terms of your own occupation, rather than any occupation.  This is especially true for doctors, dentists, and other highly specialized professionals who have invested years of time and hundreds of thousands of dollars in their careers.

To determine if you have an own occupation policy, look under the “Definitions” section of your policy for the definition of “Total Disability”:

Total Disability or Totally Disabled means that, solely due to Injury or Sickness, You are not able to perform the material and substantial duties of Your Occupation.

Your Occupation means the regular occupation in which are engaged in at the time you become disabled.

This is a typical own occupation definition of Total Disability.  If your policy does not define total disability in terms of Your Occupation, Your Regular Occupation, Your Current Occupation, or similar language, it is unlikely that you have an own occupation policy.  If that is the case, you may nonetheless be able to purchase an own occupation rider.  An own occupation rider will likely come with a significant premium increase, but for most medical professionals the high cost is justified by the additional income security the provision provides.

Lifetime Benefits

Most modern-day disability insurance policies pay benefits until the policyholder reaches age 65, though in some unique cases a standard policy may pay lifetime benefits.  More often, however, a lifetime benefits provision must be purchased as a policy rider.  The provision usually includes language stipulating that the disabling condition must occur before a certain age (typically between 45 and 55) in order for the policyholder to be eligible for lifetime benefits at 100% of their monthly benefit.  If the condition occurs after the cutoff age, the policyholder will only be paid a percentage of their monthly benefits for the remainder of their lifetime.  For example, the provision may structured as follows:

Lifetime Benefit Percentage is determined based upon the following table:

If Your continuous                                                                 The Lifetime Benefit

Total Disability started:                                                          Percentage is:

Prior to Age 46                                                                              100%

At or after Age 50, but before Age 51                                               75%

At or after Age 55, but before Age 56                                               50%

At or after Age 60, but before Age 61                                               25%

At or after Age 64, but before Age 65                                               5%

At or after Age 65                                                                           0%

A lifetime benefit extension rider can be enormously advantageous if you become disabled prior to the cutoff age.  However, as you can see from the table, it can also have rapidly diminishing returns if you become disabled later in life, depending on your policy’s terms.

In the last post of this series on disability insurance policy riders, we’ll be taking a look at some of the more recent policy rider products disability insurance companies are offering to the next generation of professionals, such as the student loan rider.

 

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Policy Riders: A Guide to the Bells and Whistles of Individual Disability Insurance – Part 3

Provisions Appearing As Policy Terms or As Riders (1 of 2)

In this series of posts we are discussing policy riders, the add-ons to your basic disability insurance policy that provide additional terms or benefits in exchange for higher premiums. In part one, we walked through the basics of policy riders and evaluated the commonly-purchased COLA rider. In part two, we analyzed two benefit-based riders that enable you to increase your monthly benefits without the hassle of applying for additional coverage.

All of the provisions we’ve discussed so far are typically purchased as policy riders, and are rarely included in the basic terms of your policy.  In the next two posts, however, we will evaluate provisions that may appear as policy terms or as riders, depending on the insurer.  Whether an additional provision is included in your policy or must be attached as a rider, additional benefits typically come with a higher premium. Some of these provisions can have a significant effect on your rights and benefits in the event of a disability, and identifying where and how they may fit into your policy is critical to ensuring you are fully protected.

Partial/Residual Disability Benefits

Partial disability benefits, also referred to as residual disability benefits, pay a percentage of the maximum benefit amount in the event that the policyholder’s medical condition prevents him or her from performing some, but not all, of the duties of his or her occupation on a full-time basis.  At first, this may appear to be an attractive option for a dentist suffering from a lumbar disc herniation, for example, who wishes to keep working to the degree he is able while receiving a portion of his disability benefits.

The most important benefit of a residual disability claim is that it allows you to preserve your pre-disability occupational definition while collecting a portion of your monthly disability benefits. If you have an own occupation policy, preserving your pre-disability occupational definition is vital to ensuring that any future total disability claim is accepted and fully paid down the road.

However, there are also some drawbacks to partial disability claims. For example, most insurers calculate monthly benefits for a partial disability claim using a formula that takes into account your prior monthly income, your current monthly income, and the maximum benefit amount under your policy.  However, calculating these figures can be tricky for doctors and dentists who are often paid a percentage of their production.  If your insurer measures your prior and current monthly income based on the overall profit of your clinic, your personal drop in production may not be fully taken into account and your partial disability benefits may end up being significantly less than your actual lost income.

Furthermore, the maximum benefit period for a partial disability claim is typically shorter than a total disability claim. As a result, your insurer has an incentive to continue characterizing your medical condition as a partial disability even if you become totally disabled. In doing so, they may run out the clock paying only a percentage of your benefits for 60 months or until age 65 instead of paying full benefits potentially for life. With these incentives, it is unsurprising that insurers approve relatively few total disability claims that begin as partial disability claims – even if the policyholder stops working completely.  For more information on how insurers assess potential disability claims, see this article.

Some insurers include a partial/residual disability provision in the terms of their standard disability insurance policy, while others offer it as a policy rider. To determine if residual disability benefits are part of your standard policy, check the “Definitions” section of your policy to see if “Partial Disability” or “Residual Disability” is a defined term. If it is, check the section of your policy titled “Benefits” or “Monthly Income Benefits” – if this section contains provisions describing the payment of residual disability benefits, they are included in the standard terms of your policy.

If residual or partial disability is not defined in your policy, the provision is only available as a policy rider. If residual disability benefits are not included in the terms of your policy, consider the pros and cons outlined above before purchasing residual coverage as a policy rider.  The advantages of residual disability benefits may not justify the additional cost associated with the rider in your particular case.

Waiver of Premium

This provision allows you to forego paying your policy premiums while you are receiving disability benefits, freeing up a substantial portion of your monthly income you would otherwise be paying back to the insurance company. This provision usually includes a waiting period – typically ninety days – before it kicks in. Once the waiver takes effect, however, it can significantly ease the financial burden created by a disabling condition, saving you hundreds of dollars every month.

A premium waiver is a standard term in most modern-day disability insurance policies.  The provision is typically found toward the end of the “Benefits” section of your policy, under the subheading “Waiver of Premium.”  If your policy does not include this provision, you may consider purchasing it as a rider.

As you read through your policy, look carefully to determine which of the provisions discussed above appear in your disability insurance policy.  Not only will this help you fully understand your rights under your policy, it will help you determine if additional riders are necessary to fully protect your financial security in the event of a disability.  In our next post, we will look at two more provisions that may appear either as riders or as policy terms.

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Policy Riders: A Guide to the Bells and Whistles of Individual Disability Insurance – Part 1

An Introduction to Policy Riders

In this series of posts we will evaluate the policy riders offered by most disability insurance companies in addition to their basic terms of their policies.  A policy rider is an add-on provision at an additional cost that provides you with additional benefits and/or terms not included in a standard policy.  Individual disability insurance policies have very little room for modification or customization outside of choosing your monthly benefit amount. Policy riders allow you to customize certain aspects of your policy based on your individual needs.

Doctors, dentists, and other professionals purchase disability insurance policies to protect their earning potential and the time and money they’ve invested in their careers.  The basic provisions of an individual disability insurance policy, however, may not be enough to protect you in the event of a disability.  Policy riders may be necessary to ensure that your financial future is secure if you become disabled.

In this first post, we will evaluate a common and widely-available policy rider that can help you protect your benefits from a changing economy: the Cost-of-Living Adjustment rider.

Cost-of-Living Adjustment (COLA) Rider

A COLA rider automatically increases your benefit amount by a certain percentage every year to account for increased cost-of-living due to inflation.  To determine the annual percentage increase, your insurer will often let you choose between a set percentage and tying it to an establish index such as the Consumer Price Index (CPI).  Most insurers will cap the overall increase in benefits – often at one or two times the original benefit amount.

Imagine that you become permanently disabled at age 45 due to severe cervical spinal stenosis.  Your individual disability insurance policy pays $20,000.00 per month to age 65.  Ten years in, you’re still receiving $20,000.00 per month, but inflation has risen at an average of 1.6% per year according to the CPI.  Without a COLA rider, your $20,000.00 has approximately $3,440.00 less buying power than it did ten years ago.  With a COLA rider tied to the CPI, your benefit amount will increase along with inflation and at ten years you will receive $23,440.00 per month rather than $20,000.00 per month.

This particular rider is very important for long-term individual disability insurance, and if you are considering purchasing a policy you should strongly consider a COLA rider for the best long-term income protection. It is a fairly expensive increase to your monthly premium, but it will ensure that your buying power and lifestyle are not affected by inflation in the event of a long-term disability.

In our next post, we will discuss the Automatic Benefit Increase rider, the Future Increase Option rider, and how they both allow you to increase your benefits down the road without jumping through the hoops of reapplying for additional coverage.

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