Disability Insurance: What Residents Need to Know – Part 1
As a medical resident who is just starting out, you have likely heard about disability insurance, but you may not know a lot about what it is, and why it is important. In this series of posts, we will be discussing a few things that every medical resident should know about disability insurance.
In this post we will look at the likelihood of disability, and discuss how you can begin to protect yourself now and in the future. In subsequent posts we’ll address some of the key provisions to look for in a disability insurance policy, ways to make sure your policy meets current and future expenses, and ways to increase your disability benefits over time, as both your earning potential and financial obligations expand.
Likelihood of Disability
As a resident, you are beginning what will hopefully be a long and successful career as a physician. The possibility of suffering either a short or long-term disability is probably the last thing on your mind, especially if you are still young and healthy. However, the American Medical Association (AMA) reports that 60% of surveyed physicians have a colleague who has sustained a disability accident or injury.[1] A Social Security Administration report shows that it is significantly more likely that a worker born in 1996 will become disabled during his or her career than die,[2] and just over 1 in 4 of today’s twenty-year-olds will become disabled before they retire.[3]
Protection Against Disability
The majority of young doctors under 40 are married, have children, are homeowners, and 75% report that they are their family’s primary breadwinner.[4] Young doctors also face substantial student loan debt, totaling around $166,750, on average. With a resident’s salary averaging just $50,000 a year,[5] it can be tempting to put off adding the additional expense of an insurance premium. However, with most young doctors having less than $50,000 in an emergency fund [6], it’s never too early to start planning to protect your family and provide for care in the unfortunate event you can no longer practice.
While many residents and doctors choose to take part in disability plans offered by their employers, these plans will often not provide adequate coverage, and any disability benefits you do receive will likely be taxable. In contrast, an individual plan provides coverage that is yours as you move from your residency and through (potentially) many different employers. Individual plans also typically allow you to adjust your disability coverage as your income potential grows.[7] However, not all individual policies are created equal and it is important to carefully choose a disability insurance policy.
In our next post, we’ll examine some key provisions to be aware of when shopping for an individual disability insurance policy.
[1] Robert Nagler Miller, Residents: Your disability insurance coverage may fall short, AMA Wire, April 4, 2017, https://wire.ama-assn.org/life-career/residents-your-disability-insurance-coverage-may-fall-short
[2] Johanna Maleh and Tiffany Bosley, Disability and Death Probability Tables for Insured Workers Born in 1996, Social Security Administration, Office of the Chief Actuary, Actuarial Note, No. 2016.6, October 2016.
[3] You, disabled? What are your chances?, The Council for Disability Awareness, 2015, http://www.disabilitycanhappen.org/chances_disability/
[4] 2015 Report on U.S. Physicians’ Financial Preparedness, Young Physicians Segment, American Medical Association Insurance, https://www.amainsure.com/reports/2015-young-physician-report/index.html?page=5
[5] Kathy Kristof, $1 million mistake: Becoming a doctor, CBS Money Watch, Sept. 10, 2013, http://www.cbsnews.com/news/1-million-mistake-becoming-a-doctor/
[6] 2015 Report, Supra.
[7] Miller, Supra.
[8] 2015 Report, Supra
Chronic Pain and Anxiety Disorders
Chronic pain by itself is often debilitating, and the struggle to obtain a correct diagnosis, effective pain management, and ongoing treatment can be stressful and overwhelming. As we discussed in a previous post, depression often co-occurs with chronic pain, and can further complicate treatment. The same is true of anxiety disorders.
Chronic Pain Disorders Associated with the Co-Occurrence of Anxiety
Like depression, anxiety is more likely to co-occur with certain conditions, such as:
- Back Pain
- Neck Pain
- Joint Pain
- Arthritis
- Migraines
- Fibromyalgia
It is no secret that physicians and dentists have stressful and demanding careers. One Cardiff University study showed that of 2,000 British doctors, at various stages of their careers, 60% had experienced mental illness.[1] Often practitioners ignore or fight through both chronic pain and anxiety and show up to work, to the point of endangering themselves or others before acknowledging their disability or seeking adequate treatment.
While anxiety alone can result in an inability to practice, either indefinitely or in the short-term, it is also quite common in those suffering from chronic pain to experience an anxiety disorder. Anxiety disorders are also the most common type of psychiatric disorders in the United States, with 19 million adults affected.[2]
Chronic Pain and Anxiety—Worse Together
Facing a long-term or permanent disability can be anxiety provoking for a physician or dentist, who must (1) face giving up a career he or she invested so much time and financial resources to establish; (2) seek a correct diagnosis, course of treatment, and adequate pain management; and (3) often struggle with adapting to the loss of a previously enjoyed quality of life. Conversely, chronic pain is also common in people with anxiety disorders,[3] with up to 70% of people with certain medical conditions (including hypertension, diabetes, and arthritis) had an anxiety disorder first.[4]
Regardless of whether anxiety or chronic pain came first, individuals suffering from anxiety can experience pain that is particularly intense and hard to treat.[5] In a 2013 study, 45% of 250 patients who had moderate to severe chronic joint or back pain screened positive for at least one of the common anxiety disorders (generalized anxiety, social anxiety, PTSD, OCD). Further, those that had an anxiety disorder reported significantly worse pain and health-related quality of life than their counterparts without anxiety.[6]
Symptoms of Anxiety[7]
There are several anxiety disorders and, while the below list is by no means exhaustive, sufferers of anxiety often exhibit the following symptoms:
Generalized Anxiety Disorder
- Difficulty controlling worry
- Restlessness, feeling wound-up or on edge, irritability, muscle tension
- Being easily fatigued and problems with sleep
- Difficulty concentrating or having their minds go blank
Panic Disorder
- Sudden and repeated attacks of intense fear
- Feelings of being out of control during a panic attack
- Intense worries about when the next attack will happen
- Avoidance of places where panic attacks have occurred in the past
Social Anxiety Disorder
- Feeling highly anxious about being around other people (including having a hard time talking to them, blushing, sweating, trembling, or feeling sick to your stomach)
- Feeling self-conscious in front of others and worried about feeling humiliated, embarrassed or rejected, or fearful of offending others
- Worrying before an event and/or avoiding places where there are other people
- Having a hard time making and keeping friends
Post-Traumatic Stress Disorder
- Flashbacks, bad dreams, difficulty sleeping, frightening thoughts, angry outbursts
- Avoiding places, events, objects, thoughts, or feelings that are reminders of the traumatic experience and trouble remembering key features of the traumatic event
- Being easily startled and feeling tense or “on edge”
- Negative feelings about oneself or the world, and distorted feelings like guilt or blame
- Loss of interest in enjoyable activities
Obsessive Compulsive Disorder
- Fear of germs or contamination
- Unwanted or forbidden thoughts, including aggressive thoughts towards others or self
- Having things symmetrical or in perfect order; excessive clearing and/or hand washing; ordering and arranging things in a precise way; repeatedly checking on things; compulsive counting
Treatments for Anxiety
Some of the treatments that have been successful in addressing anxiety in those with chronic pain include:
- Cognitive-behavioral therapy (CBT)
- Psychodynamic therapy (talk therapy)
- Support groups
- Relaxation or meditation training
- Alternative treatments, such as acupuncture and hypnosis
- Exercise
- Medication
Chronic pain sufferers who recognize any of the above-referenced symptoms in themselves should talk to their doctor to address these serious issues.
[1] Michael Brooks, Why doctors’ mental health should be a concern for us all, NewStatesmen, April 11, 2016, http://www.newstatesman.com/politics/health/2016/04/why-doctors-mental-health-should-be-concern-us-all
[2] What are Anxiety Disorders?, Global Medical Education, https://www.gmeded.com/gme-info-graphics/what-are-anxiety-disorders
[3] Chronic Pain, Anxiety and Depression Association of America, April, 2016, https://www.adaa.org/understanding-anxiety/related-illnesses/other-related-conditions/chronic-pain
[4] Global Medical Education, Supra.
[5] Celeste Robb-Nicholson, M.D., The pain-anxiety-depression connection, Harvard Health Publications, http://www.health.harvard.edu/healthbeat/the-pain-anxiety-depression-connection
[6] Health Behavior News Service, part of the Center for Advancing Health, Chronic pain sufferers likely to have anxiety, ScienceDaily, May 8, 2013, https://www.sciencedaily.com/releases/2013/05/130508213112.htm
[7] Definitions according to National Institute of Mental Health: https://www.nimh.nih.gov/index.shtml
I used to practice __________ but now I’m _____________?
As a dentist or physician, you spent years in school and invested countless hours to establish and maintain your practice. You even protected this investment by purchasing a disability policy. Yet, if you do become disabled and make a claim, your insurer might still make the argument that you are only trying to retire and get paid for it. Unfortunately, disability insurance claims by doctors and other healthcare professionals are especially targeted for denial or termination.
When you are disabled and are no longer able to practice in your profession, it may seem logical to simply refer to yourself as “retired,” especially if you are not working in another capacity. While it’s certainly understandable that you may not want to explain to everyone who asks why you’ve hung up your lab coat, you need to keep in mind that innocently referring to yourself as retired will likely prompt your insurer to subject your claim to higher scrutiny. Insurance companies often attempt to take statements out of context in order to deny or terminate disability benefits by alleging that a legitimately disabled claimant is:
- Malingering
- Making a lifestyle choice.
- Unmotivated by or unsatisfied with work.
- Embracing the sick role.
Remember, in the insurance company’s mind, there is a big difference between “disabled” and “retired.” Below are some common situations where you should avoid referring to yourself as retired:
- When asked for your profession on disability claim forms.
- When talking to your doctors or filling out medical paperwork.
- On your taxes, other financial forms, and applications.
- Around the office.
- At social functions or gatherings.
- On social media.
Disability insurers can—and often do—employ private investigators to follow claimants on social media; interview staff, family, or acquaintances; and track down “paper trail” documents (such as professional license renewal forms, loan applications, etc.) to see if you have made any statements that could be construed as inconsistent with your disability claim. Disability insurers also routinely request medical records and may even contact your doctor(s) directly regarding your disability. So, for example, saying something off-hand or even jokingly, such as “I’m retired—I can stay out as late as I want now!” to your doctor, or at a social event like a block party, could lead to your insurer trying to deny your claim if they later spoke to your doctor or your neighbor.
While the focus of your disability claim should be on your condition and how it prevents you from working, insurance companies can latch on to innocent statements like this in an effort to deny legitimate claims. Eschewing the word “retirement” is a good and easy first step to help avoid unwanted and unwarranted scrutiny from disability insurers.
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.
Are Benefits Taxable?
The Answer Is: It Depends
Whether your disability benefit payments are taxable depends on what type of disability insurance 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 disability insurance policies that you purchase yourself. Generally speaking, if you pay the premiums with after-tax dollars, the disability benefits you receive are tax free. However, if you pay with pre-tax dollars or deduct your premiums as a business expense, then your disability 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 disability insurance 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 disability benefits you receive are tax free.
Employer-Sponsored Policies: These types of disability insurance 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 disability 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 disability 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 disability insurance 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 disability benefits actually available to you will substantially decrease if you are required to pay income tax on them.
Selecting a disability insurance policy is an important decision, and how disability 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 disability benefits at some point in their careers, choosing to save now could hurt you financially down the road.
Chronic Pain and Depression
Chronic pain is often difficult to diagnose and treat. Consequently, those who suffer from chronic pain typically must also deal with a significant amount of stress, due to repeated failed treatments, numerous medical appointments, interruption of work and enjoyable activities, and the inability of their friends or family to understand their physical limitations. This can, in turn, cause or worsen depression. When depression occurs alongside chronic pain, it can make dealing with and treating the pain even harder.
Chronic Pain Disorders Associated with the Co-Occurrence of Depression
While mental health conditions, including depression, can often be disabling in and of themselves, they are unfortunately also quite common in those suffering from chronic pain. Depression is more likely to co-occur with certain conditions, such as:
- Back Pain
- Neck Pain
- Joint Pain
- Arthritis
- Migraines
- Fibromyalgia
Studies show that rates of depression are high in residents and medical students (15%-30%) than rates in the general population, and the risk of depression continues throughout a physician’s career.[1] According to a British study, 60% of dentists reported being anxious, tense, or depressed.
Dentists, doctors, and other medical professionals place extreme amounts of pressure on themselves because the stakes of their professions are so high. In addition to perfectionism and self-criticism, other predictors of depression in doctors include: lack of sleep, stressful interactions with patients and staff, dealing with death, constant responsibility, loneliness, and making mistakes.[2]
Often practitioners work through both chronic pain and psychiatric disorders for some time before acknowledging their disability or seeking adequate treatment. In the case of depression, this can be due in part to the social stigma that surrounds it. For all of these reasons, depression may go undiagnosed or seem less of an immediate concern to those suffering from chronic pain. However, if you are experiencing symptoms of depression and chronic pain, studies show that it is important to treat both, because chronic pain can become much more difficulty to treat if the depression is allowed to progress unchecked.
Chronic Pain and Depression—Worse Together
Facing a long-term or permanent disability can trigger depression—this is especially understandable for doctors or dentists who have put years into medical school and establishing their careers, only to become disabled and have to step away from a profession that has become a significant part of their identity. Depression can also precede chronic pain. For example, several studies have examined the link between depression before the onset of back-pain.[3]
Regardless of which came first, together they are formidable to treat. Major depression is thought to be four times greater in people with chronic back pain than those in the general population, and studies show that individuals suffering from both chronic back pain and depression experienced a greater degree of impairment than those with either depression or back pain alone.[4]
Treatments for Depression
Focusing solely on pain management can prevent both the patient’s and treating physician’s ability to recognize that a psychiatric disorder is also present. Yet, even with correct diagnoses, both issues can be difficult to treat together.[5] For instance, those who suffer from both chronic pain and mental illnesses can have a lower pain threshold as well as increased sensitivity to medication side-effects.[6] Some treatments that have proved successful in addressing depression in those with chronic pain include:
- Cognitive-behavioral therapy (CBT)
- Psychodynamic therapy (talk therapy)
- Relaxation or meditation training
- Acupuncture
- Hypnosis
- Exercise
- Medication
Symptoms of Depression
- Little interest or pleasure in doing things
- Feeling down, depressed, or hopeless
- Trouble falling asleep or sleeping too much
- Feeling tired or having little energy
- Poor appetite or overeating
- Trouble concentrating
- Feeling bad about yourself, or that you are a failure or have let yourself or others down
- Thoughts that you would be better off dead, or hurting yourself in some way
Chronic pain sufferers who recognize any of the above-referenced symptoms in themselves should talk to their doctor to address these serious issues.
_________________________________________________________________________
[1] Robert P. Bright, MD, Depression and suicide among physicians, Current Psychiatry, April 10, 2011.
[2] Id.
[3] William W. Deardorff, PHD, ABPP, Depression Can Lead to Chronic Back Pain, Spine-health.com, Oct. 15, 2004, http://www.spine-health.com/conditions/depression/depression-can-lead-chronic-back-pain.
[4] William W. Deardorff, PhD, ABPP, Depression and Chronic Back Pain, Spine-health.com, Oct. 15, 2004, http://www.spine-health.com/conditions/depression/depression-and-chronic-back-pain.
[5] Celeste Robb-Nicholson, M.D., The pain-anxiety-depression connection, Harvard Health Publications, http://www.health.harvard.edu/healthbeat/the-pain-anxiety-depression-connection.
[6] Anxiety and Depression Association of America, Chronic Pain, https://www.adaa.org/understanding-anxiety/related-illnesses/other-related-conditions/chronic-pain.
Watch Out for “Work” Provisions
In a previous post, we discussed the importance of how your disability insurance policy defines the key term “total disability,” and provides several examples of “total disability” definitions. The definition of “total disability” in your policy can be good, bad, or somewhere in-between when it comes to collecting your disability benefits.
Disability insurance policies with “true own occupation” provisions are ideal. Here’s an example of a “true own occupation” provision:
————————————————————————————————————————————
Total disability means that, because of your injury or sickness, you are unable to perform one or more of the material and substantial duties of your Own Occupation.
————————————————————————————————————————————
Under this type of provision, you are “totally disabled” if you can’t work in your occupation (for example, you can no longer perform dentistry). This means that you can still work in a different field and receive your disability benefits under this type of disability insurance policy.
Insurance companies often try to make other disability insurance policies look like true own occupation policies, and include phrases like “own occupation” or “your occupation,” but then tack on additional qualifiers to create more restrictive policies.
One common example of a restriction you should watch out for is a “no work” provision. Although these provisions can contain the phrase “your occupation” they only pay total disability benefits if you are not working in any occupation. Here’s an example from an actual policy:
————————————————————————————————————————————
Total disability means solely due to injury or sickness,
- You are unable to perform the substantial and material duties of your occupation; and
- You are not working.
————————————————————————————————————————————
As you can see, under this type of provision, you cannot work in another field and still receive disability benefits. This can be problematic if you do not have sufficient disability coverage to meet all of your monthly expenses, as you’re not able to work to supplement your income.
A “no work” provision is something that is relatively easy to recognize and catch, if you read your policy carefully. Recently, we have come across a definition of “total disability” that is not so easy to spot, but can dramatically impact you ability to collect benefits. Here’s an example, taken from a 2015 MassMutual policy:
————————————————————————————————————————————
OWN OCCUPATION RIDER
Modification to the Definitions Section of the Policy
Solely for the Monthly Benefits available under this Rider, the definition of TOTAL DISABILITY is:
TOTAL DISABILITY – The occurrence of a condition caused by a Sickness or Injury in which the Insured:
- cannot perform the main duties of his/her Occupation;
- is working in another occupation;
- must be under a Doctor’s Care and
- the Disability must begin while this Rider is In Force.
————————————————————————————————————————————
At first glance, this looks like a standard “own-occupation” provision—in fact, it is entitled “Own Occupation Rider.” But if you take the time to read it more closely, you’ll notice that the second bullet point requires you to be working in another occupation in order to receive “total disability” benefits.
Obviously, this is not a disability insurance policy you want. If you have a severely disabling condition, it may prevent you from working in any occupation, placing you in the unfortunate position of being unable to collect your disability benefits, even though you are clearly disabled and unable to work in any capacity. Additionally, many professionals have limited training or work history outside their profession, so it can be difficult for them to find alternative employment or transition into another field—particularly later in life.
These “work” provisions appear to be a relatively new phenomenon, and are becoming increasingly more common in the newer disability insurance policies being issued by insurance companies. It is crucial that you watch out for these “work” provisions and make sure to read both the policies definition of “own-occupation” and “total disability.” While many plans contain the phrase “own-occupation”, including this example, they often aren’t true own-occupation policies and you shouldn’t rely on an insurance agent to disclose this information. Oftentimes, your agent may not even realize all of the ramifications of the language and definitions in the disability insurance policy that they are selling to you.
Lastly, you’ll also note that this particular provision was not included in the standard “definitions” section of the disability insurance policy, but was instead attached to the policy as a “rider,” making it even harder to spot. It’s important to remember that many definitions and provisions that limit disability coverage are contained in riders, which typically appear at the end of your policy. Remember, you should read any disability insurance policy from start to finish before purchasing.
Protecting Your Retirement Income – Part 3
Retirement Protection Insurance?
In our last two posts we discussed two different disability insurance policy riders that may help mitigate the problems that a disabling condition can create for your retirement planning. A graded lifetime benefits rider and a lump sum benefit rider offer two alternative solutions to the same problem, with one providing a reliable, steady income stream and the other providing a greater degree of financial flexibility. If neither of those options are particularly appealing, some disability insurance companies have created another product that, unlike lifetime benefits or a lump sum, is specifically tailored toward the retirement planning challenges posed by a total and permanent disability.
What Is Retirement Protection Insurance?
Retirement protection insurance was created by some insurers precisely to deal with these concerns. Depending on the insurer, this product may be offered as a standalone policy or as a rider to your existing disability insurance policy. The idea behind retirement protection insurance is to create an investment product that functions similarly to the qualified 401(k) you contribute to in your current occupation, allowing you to take advantage of both the market returns and employer contributions that you currently enjoy.
How does this work? If you become totally disabled and your claim is approved, your disability insurer will establish a trust for your benefit. Each month, benefits are deposited into the trust and invested in index funds and other investment portfolios similar to the options you have with your employer-sponsored 401(k). This product can cover up to 100% of your retirement contributions and 100% of employer contributions at a maximum of $50,000 per year. Under the terms of the trust, you will be able to access these funds after age 65.
Potential Problems
At first glance, this product appears to solve the problems that a disability can create for retirement savings. Specifically, it appears tailor made as a substitute for your employer-sponsored 401(k), which you can no longer contribute to once you stop working due to a disability. However, there are some issues with this particular product that you will want to clarify with your disability insurer before purchasing it as a rider or as a standalone policy.
First, some insurers are using a different definition of disability for this product than for your standard individual disability insurance policy. In many cases, the definition of total disability for this specific product is narrower and more stringent (i.e. you must be unable to perform work in any occupation) than the specialty-specific own-occupation definition in most disability insurance policies purchased by doctors and dentists.
For example, assume you have an own occupation policy with this rider and due to your medical condition you are unable to perform your duties as an orthopedic surgeon. For three years you collect monthly disability benefits through your policy and also enjoy three years’ worth of contributions to the trust account established for your benefit by your insurer. After three years, you go back to work as a primary care physician. Because you are still disabled under the terms of your own occupation policy, you continue receiving monthly disability benefits. However, the retirement contributions to your trust cease because the definition of total disability is “any occupation.” Under this scenario, even though you are totally disabled for the purposes of your disability insurance policy, you are no longer receiving the benefit of the rider you paid good money for because it measures your disability by a different standard.
Second, because the investment account is held in trust, somebody has to manage it. As a result, there may be fees associated with both the management of the trust and the investment account. Also, 401(k) accounts receive special tax treatment – as long as the money stays in your account it is allowed to grow tax-free without any capital gains tax levied against your investment returns. It may very well be that any investment account held in trust by your insurer through this insurance product will be fully taxed.
Before you purchase retirement protection insurance either as a rider or as a standalone policy, you will want to clarify the issues addressed above. Make sure you fully understand the terms (including the definition of total disability), the fees, and the tax implications of this product before you purchase it. Though initially it may look like an attractive option, the costs may outweigh the benefits, and other options to protect your retirement income may be a better solution for your particular circumstances and objectives.
Protecting Your Retirement Income – Part 2
Lump Sum Rider
In our last post we discussed some of the ways a disability can impact your retirement planning and how a graded lifetime benefits rider can help mitigate some of those problems. A lifetime benefits rider certainly has its advantages, but it is not the only solution to the retirement income problems created by a disabling condition. A lump sum rider offers an alternative solution to the same problem.
A lump sum rider offers a different approach to the retirement income issue. Unlike the lifetime benefits rider, which simply pays a set monthly amount for the remainder of your lifetime after you reach your policy expiration age (generally 65 or 67), the lump sum rider provides a one-time payment once you reach policy expiration age. With this rider, in order to be eligible for the lump sum payment, you must receive benefits equal to twelve times the monthly benefit amount during your policy term. Generally speaking, this just means you have to receive disability benefits for at least one year.
The amount of your lump sum payment is typically a percentage of the aggregate sum of disability benefits you received during your policy term, in many cases between thirty percent and forty percent of total disability benefits received. For example, assume you have a disability insurance policy that pays $10,000 per month in benefits and you become disabled at age 50. By the time you reach age 65, your policy will have paid you a total of $1,800,000 in disability benefits. With this rider, when your regular monthly disability benefits terminated, you would receive an additional one-time lump sum payment of $630,000.
This rider has its advantages and disadvantages over a graded lifetime benefits rider. Receiving a lump sum, especially one as large as the example above, can provide you with a degree of immediate financial flexibility that is not available with a set monthly amount like what you would receive with a lifetime benefits rider. For example, you can take your lump sum and turn it over to an investment manager, who will in turn be able to put your money to work for you and create passive income. Or, alternatively, a lump sum can provide you with capital necessary to pay off your mortgage, auto loans, and any existing debt, and use the remainder to supplement any retirement savings you amassed prior to your disability. A lump sum payment also provides a measure of security that lifetime benefits do not: with lifetime benefits the insurance company still controls your monthly payments, and there is no guarantee that your disability benefits will never be terminated.
The disadvantage to a lump sum rider is self-evident: it is a one-time payment. Unlike the lifetime benefits rider, which provides the security and certainty of a steady monthly income, once the lump sum is gone, it’s gone. The degree to which this is a negative characteristic of the lump sum rider largely depends on the type of person it applies to. For individuals more likely to save, invest, and exercise financial restraint, the lump sum rider may offer a greater degree of financial freedom and flexibility. For those more likely to splurge and spend the money they have, a lump sum rider may not have the structure and stability to ensure a reliable stream of income throughout their retirement years. For those individuals, a lifetime benefits rider may be a better solution.
However, if neither the lifetime benefits rider nor the lump sum benefit rider seem to suit your retirement needs, there is a third option. In our next post, we will discuss retirement protection insurance – a product that is specifically tailored to the problems that a disability can create for retirement planning.
Protecting Your Retirement Income – Part 1
Graded Lifetime Benefits Rider
In previous posts we’ve talked about the importance of protecting your investment in your education and your career with an individual disability insurance policy. A vast majority of doctors and dentists purchase individual disability insurance policies to protect their financial security and standard of living in the event they become disabled and can no longer practice. However, one factor that many healthcare professionals may not take into account is the effect that a disability may have on their retirement. Most standard disability insurance policies pay benefits until the policyholder reaches retirement age – often age 65. However, that is where the financial protection of a standard individual disability insurance policy ends.
As long as you have an adequate individual disability insurance policy, your income will be sufficiently replaced during your employable years. However, many people overlook the fact that even with adequate income protection during the term of your disability insurance policy, a disabling condition can still seriously derail your efforts to financially prepare for your retirement years. If you had the foresight to obtain an individual disability insurance policy early in your career, you’ve likely been planning for your retirement as well by contributing to a qualified 401(k) plan or similar retirement vehicle.
However, you may not have considered the following scenario: at 50 years old you are suddenly no longer able to continue practicing dentistry due to debilitating back and neck pain. You’ve been contributing to your 401(k) for the last 20 years with employer-matched contributions. Your claim is approved by your disability insurer, but because you had to quit your job, not only is your employer no longer matching your contributions, but you can no longer contribute either because IRS rules prohibit contributions to a qualified 401(k) plan if you are not working. Your 401(k) is 15 years short of where it needs to be for retirement, and your disability insurance benefits stop at age 65. How do you continue planning for your “retirement” years?
Fortunately, there are several options available to you. First, many disability insurance companies offer a graded lifetime benefits rider. In exchange for an increased monthly premium, this rider extends your disability benefits from the standard policy term of age 65 or 67 to lifetime. With this rider, if you become disabled, you will receive your full policy benefits until age 65 or 67 (depending on your disability insurance policy). After that, you will receive a certain percentage of your full benefits for the remainder of your lifetime, based upon the age at which you became disabled.
With many disability insurance policies, the baseline age for graded lifetime benefits is 45 years old. Meaning, if you become disabled at or before age 45, your monthly benefits after age 65 will still be 100% of the monthly benefits you received before age 65. If, however, you become disabled after age 45, you will still receive 100% of your monthly benefit until age 65, but your monthly benefit amount after age 65 will be reduced by 5% for each 5-year period after age 45 that the disability began.
Using the example above, if you had a disability insurance policy that pays $10,000 in monthly disability benefits and became disabled at age 50, you would receive $10,000 a month from age 50 until age 65, and $9,500.00 a month for the remainder of your lifetime. If you became disabled at age 55, you would receive $10,000 per month until age 65, and then $9,000 per month for the remainder of your lifetime.
This rider is one solution for the difficulties that a disabling condition can pose to your retirement planning. It offers a secure source of income to supplement any retirement savings you’ve already amassed. However, it is not the only solution to the retirement income issue created by a disability. In the next few posts, we will evaluate two additional options: the lump sum rider and retirement protection insurance.
Disabilities Insurance and Student Loans: How Can I Protect Myself?
Picture this scenario: you’ve just graduated dental school. You have well over $100,000 in student loan debt. You recently started working in a dental practice. But then, unexpectedly, you become disabled and are unable to work. All of a sudden you have no income and no way to make your student loan payments. What would you do?
This scenario may seem far fetched, but one in four people will become disabled at some point before retirement. Medical and dental students routinely graduate with hundreds of thousands of dollars in debt, and student loan debt in the United States has surpassed $1.3 trillion. If you are carrying a heavy student debt burden, a disabling condition can have a magnifying effect on your financial security. An inability to pay your student loans puts you at risk for default and a slew of financially-damaging penalties.
You might also be surprised to learn that student loan debt cannot be discharged in bankruptcy. In fact, the only individuals who are eligible to have their federal student loans discharged are those who meet the federal government’s stringent standard of “total and permanent disability.” Keep in mind that this discharge provision only applies to federal loans. Private lenders may or may not have similar provisions in their loan agreements.
In the event of a disabling condition – even if you have a disability insurance policy – your monthly benefits may not be enough to cover both their living expenses and your student loan payments. One potential solution is purchasing a disability insurance policy with a student loan protection rider. Disability insurers have started to offer student loan protection riders that typically allow individuals to secure monthly benefits in addition to their standard policy benefits for the purpose of covering their student loan payments. Usually, no loan documentation is required until a claim is filed. Additionally, students can receive discounted rates, including no cost while in school, on group disability insurance policies through either the American Dental Association or local dental associations. Whichever policy you choose, your insurance company must still determine that you are totally disabled before you are eligible to collect the benefits associated with this rider.
An alternative solution is to simply purchase additional disability coverage to ensure that both your monthly living expenses and student loan payments are accounted for in the event of a disability. One advantage to this approach is that you have greater flexibility to allocate your monthly benefits where you see fit. Before you purchase a student loan protection rider or additional coverage on your individual disability insurance policy, check with your insurance provider to see how much both options cost in comparison to the additional benefits you receive. Depending on your carrier, one option may be more financially beneficial than the other.
fMRI Brain Scanning: The Future of Proving Pain?
Many disability claimants suffering from chronic, intense pain are surprised and disheartened when their reported pain levels are received with skepticism by their insurance company. Since pain is a subjective feeling, treating doctors typically ask patients to self-report their pain on a scale of 0-10, so that they can diagnose and treat the pain. Unfortunately, most insurance companies are unwilling to accept self-reported pain levels and will often try to downplay the severity of the claimant’s pain, citing a lack of objective evidence.
Recently, researchers have developed a technology called functional MRI scans, or fMRIs, for short, which may provide a new way to objectively verify the existence of pain. In this post, we will examine this technology and discuss how it might be used in the context of disability claims.
What is an fMRI?
fMRI scanning is a noninvasive technique used by doctors to map and measure brain activity. More specifically, fMRIs are used to measure and observe increases in MR signal caused by neural activity in the brain. The fMRI data is then analyzed to determine which parts of the brain were active during the scan. The data is then compared to known neurological signatures, or “biomarkers,” to determine if there are any correlations between the neural activity in the brain and the symptoms reported by the patient (such as chronic pain).
The Use of fMRI Scans to Prove Pain
Recently, a number of companies and researchers are focusing on using fMRI scans to produce objective evidence of pain. For instance, Dr. Joy Hirsch, a professor at the Yale School of Medicine, claims to have developed a test that is capable of distinguishing real, chronic pain from imagined pain.
fMRI scans are also now being used to support the cases of claimants in disability cases. For example, a woman in New York recently used an fMRI scan to convince her insurer, after two years of litigation, that her disability claim never should have been denied. An fMRI scan was also recently used in the case of Carl Koch, a truck driver from Arizona who suffered severe burns when the hose of his tanker broke loose and sprayed him with molten tar. Mr. Koch visited Dr. Hirsch, who used functional brain mapping to conclude that Mr. Koch’s pain was real. When the judge ruled that Dr. Hirsch’s testimony would be admissible at trial, the case settled for $800,000 – an amount ten times higher than the company’s original offer.
What the Skeptics Say
The use of fMRI scans to prove pain remains controversial. Some critics argue that the techniques being used in litigation have little support in existing publications. Others, such as Tor Wager, a professor of psychology and neuroscience at UC Boulder, contend that the sample size in available studies is too small. Proponents of fMRI refute both of these claims, arguing that a number of credible studies support the validity of their methods.
The Future of fMRI Scans in Disability Cases
It’s easy to see how fMRI scans could prove useful in a disability claim. For example, many dentists suffer from musculoskeletal disorders, particularly in their spines, that cause chronic, debilitating pain. However, as noted above, these types of claims can be particularly difficult, because many insurance companies refuse to accept a claimant’s self-reported pain levels and limitations. Co-workers, family, and friends can provide statements describing how the dentist’s pain is affecting his performance at work and his quality of life, but once again, insurance companies will typically similarly claim that such statements are “objectively verifiable” evidence of the pain. Sometimes a cervical or lumbar MRI can identify potential causes for the pain, and/or a functional capacity exam (FCE) can help document the limitations the pain is causing—but these types of reports are also commonly challenged by insurance companies intent on denying benefits.
In such a case, an fMRI scan illustrating the doctor’s pain might serve as an additional, objectively verifiable method of establishing the existence of chronic pain. Whether or not insurance companies are willing to accept fMRIs as reliable evidence of pain remains to be seen, and will likely depend, in large part, on how willing courts are to accept fMRIs as admissible evidence of pain. If, in the future, this technology continues to develop and become more precise, and courts and juries demonstrate a willingness to accept fMRIs as proof of pain, fMRIs may eventually be enough to convince insurance companies to accept legitimate disability claims without ever setting foot in a courtroom.
REFERENCES:
- UC San Diego Sch. of Med., What is fMRI?, available at http://fmri.ucsd.edu/Research/whatisfmri.html.
- Sushrut Jangi, Measuring Pain Using Functional MRI, The New England Journal of Medicine, available at http://blogs.nejm.org/now/index.php/9863/2013/04/10/.
- Steven Levy, Brain Imaging of Pain Brings Success to Disability Claim, EIN Presswire (June 29, 2016), available at http://www.einpresswire.com/article/333249721/brain-imaging-of-pain-brings-success-to-disability-claim.
- Kevin Davis, Personal Injury Lawyers Turn to Neuroscience to Back Claims of Chronic Pain, ABA Journal (Mar. 1, 2016), available at http://www.abajournal.com/magazine/article/personal_injury_lawyers_turn_to_neuroscience_to_back_claims_of_chronic_pain.
Disability Insurance for the Professional Athlete: Can It Protect Your Value?
After an unprecedented overtime win by the New England Patriots, Super Bowl LI is in the books. Now that the 2016-2017 NFL season is officially over, all eyes are turning to the upcoming 2017 NFL Draft in late April. The most elite players in college football will be vying for the 253 open slots on 32 NFL teams. Of the 253 picks, only the select few at the top of the first round will receive contracts in the millions of dollars. Most of the players in these coveted top spots already know who they are – in the months leading up to the draft, they’ve been communicating with potential teams through their agents and meeting with their potential new coaches. These athletes, who spend most days pushing their bodies to the limit in one of the most dangerous professional sports in the United States, quickly realize how much they have to lose if they get hurt before the draft. A serious injury before the draft can mean millions of dollars in lost income. In recent years, disability insurance underwriters have started to market disability a insurance product to NFL, NBA, and MLB prospects who stand to lose everything if they suffer a catastrophic injury.
Permanent Total Disability
The traditional disability insurance policy for a professional athlete isn’t that different from an own occupation policy that a doctor or dentist might obtain at the beginning of their career. Many high profile college athletes seek out these policies to protect their financial future in the event of a career-ending injury. Some athletes, like former University of Kentucky basketball power forward Nerlens Noel, who was ultimately drafted number six overall in the NBA draft, pay large sums of money for high-value policies through private underwriters. However, many top prospects are also able to obtain policies through the NCAA’s Exceptional Student-Athlete Disability Insurance (ESDI) – a program specifically reserved for athletes predicted to be high draft picks. Former Stanford University quarterback Andrew Luck, for example, obtained a $5 million policy through ESDI before being drafted by the Indianapolis Colts.
However, the difficulty with these policies is that under the definition of permanent total disability, the policyholder must be unable to ever return to their sport in a professional capacity – an injury that merely reduces the policyholder’s earning potential does not make the policyholder eligible to collect disability benefits. So, the policyholder is still able to earn money in his or her sport’s minor league, they are likely ineligible for disability benefits. As medical technology, surgical techniques, and rehabilitation therapies improve, the total permanent disability standard becomes even more difficult to reach. College superstars like Willis McGahee, Marcus Lattimore, and Kevin Ware have suffered horrific on-field and on-court injuries and gone on to play professionally. NFL superstars like Rob Gronkowski and Adrian Peterson have sustained multiple injuries that would have ended their careers a decade ago. Because of the advances in sports medicine, total disability claims by professional athletes are rare. Consequently, the focus of the professional sports disability insurance industry has turned to a new product: loss-of-value insurance.
Loss-of-Value
Loss-of-value insurance is typically a rider on a total permanent disability policy, and is specifically marketed to top college prospects who are expected to be selected in the top tier of their respective drafts, largely football and basketball. For an eligible athlete, the underwriter establishes a baseline projected rookie contract. If the athlete is undrafted or receives a contract significantly less valuable than their projected baseline due to injury or illness, the policy will pay out a benefit.
Take, for example, University of Michigan tight end Jake Butt, who tore his ACL during the first quarter of this year’s Orange Bowl. The injury prevented Butt from participating in the NFL draft process due to surgery and recovery, and the potential first round pick will likely fall in the draft rankings as a result. Prior to this season, Butt obtained a $4 million total disability insurance policy with a $2 million loss-of-value rider for which he is eligible for benefits if drafted after the second round. This year’s NFL draft may test insurers’ willingness to pay up on one of these high-value claims if Butt is not drafted in the first two rounds.
Can You Collect on Your Loss-of-Value Policy?
Loss-of-value insurance is a relatively new phenomenon. So far, only a select few loss-of-value policies have ever actually paid out. In previous posts, we have talked about the incentives that disability insurance companies have to delay and deny benefits for high-earning individuals with legitimate disabilities. In the same way that dentists are often targeted for denial in their disability insurance claims, professional athletes with loss-of-value disability insurance are targeted because of the enormous financial incentive to deny benefits. So, not surprisingly, Lloyd’s of London, the most prominent underwriter in the loss-of-value insurance market, has been sued by several NFL prospects whose claims were denied. A lot of money is at stake in these policies, and to the insurance companies it may be worthwhile to spend years litigating a claim that could cost the insurance company millions of dollars. The importance of an experienced advocate in such a scenario cannot be understated.
To this day, only two professional football players have successfully collected on loss-of-value disability insurance: Silas Redd and Ifo Ekpre-Olomu. Redd, a highly sought-after running back from the University of Southern California, went undrafted in the 2014 NFL Draft after suffering a season-ending knee injury. Ekpre-Olomu, a cornerback for the University of Oregon, collected $3 million from his loss-of-value rider after the projected first-round pick fell to the seventh round in the 2015 NFL Draft due to an ACL tear suffered at the end of his senior season.
If Jake Butt’s draft position drops below the second round, it will provide another interesting test case for how disability insurers handle these high-value claims. Given the large amount of money at stake, it is certainly possible that insurers will keep denying claims until they are forced, through litigation, to settle or pay out.
New Genetic Testing Predicts Most Effective Medications
In today’s pharmaceutical market there are countless prescription drugs marketed to people suffering from disabling conditions, and many of these drugs promise breakthrough relief not offered by their competitors. Individuals suffering from chronic pain and mental health disorders such as anxiety, PTSD, depression and bipolar must often take potent drugs for prolonged periods of time to get relief from their symptoms. But the search for relief can be incredibly frustrating – every person responds differently to the same drugs, and oftentimes powerful side effects can overshadow any relief.
For an individual suffering from the chronic and disabling pain brought on by severe spinal stenosis, there are several forms of treatment available – many of which are non-invasive. If other non-invasive treatments are unsuccessful, suffering through the side effects of several drugs in search of relief can be demoralizing. Powerful opioids can cause severe nausea, vomiting, dizziness, and/or constipation in certain individuals. The compounding effects of trying several different drugs can have a significant effect on one’s physical and mental health.
Recently, however, a genetic testing company has developed a simple test that will help countless individuals avoid dealing with unwanted side effects while cycling through different medications in their quest for relief.
Genesight has developed breakthrough genetic tests for both narcotic analgesics (pain medications) and psychotropic medications (treating mental health disorders). By taking a simple cheek swab, the company is able to analyze your DNA and determine which medications are match for your specific genetic profile. A clinical study of Gensight’s testing and analysis showed that patients were twice as likely to respond to the recommended medication.
This testing will likely be welcome news among those for whom relief is elusive. For many individuals suffering from disabling conditions, medications are very rarely the magic bullet that brings complete relief. Symptoms may be so severe that no drug will ever be one hundred percent effective. More often, relief means alleviation of one’s symptoms just enough to get through the day without interminable pain or crippling anxiety while suffering only the more mild side effects. Genesight’s testing may offer hope for these individuals – people who will likely never be able to return to their previous career or their own occupation, but are in search of just enough relief from their symptoms to lead and enjoy a normal life.
Can You Sue Your Insurance Company for Invasion of Privacy?
We’ve talked before about how insurers often hire private investigators to follow and investigate claimants. While the purported goal is to find claimants who are “scamming the system” and faking a disability, investigators often employ invasive tactics in their attempts to gather videos and other information requested by insurers.
Unfortunately, all too often investigators go too far and claimants feel threatened or endangered by these investigators’ actions. The question then arises–at what point do insurance companies become legally liable for the actions of investigators that they hired? Can you sue your insurance company for invasion of privacy?
At least one court thinks so. In Dishman v. Unum Life Insurance Company of America, 269 F.3d 974 (9th Cir. 2001), the Court agreed with Dishman that he could sue Unum for tortious invasion of privacy committed by investigative firms hired by Unum. In this case, the investigative firms in question aggressively attempted to find out employment information on Dishman by (1) falsely claiming to be a bank loan officer; (2) telling neighbors and acquaintances that Dishman had volunteered to coach a basketball team and using that as a pretext to request background information about Dishman; (3) successfully obtaining personal credit card information and travel itineraries by impersonating Dishman; (4) falsely identifying themselves when they were caught photographing Dishman’s residence; and (5) repeatedly calling Dishman’s house and either hanging up or harassing the person who answered for information about Dishman.
Because the underlying Unum disability insurance policy was an ERISA policy, the Court assessed whether Dishman’s invasion of privacy claim (which was based on California law) was precluded by statutory language which states that ERISA “shall supersede any and all state laws insofar as they . . . relate to any employee benefit plan.” 29 U.S.C. Sec. 1144 (a). The Court, in its decision, went on to discuss a lack of consensus on this issue, but ultimately ruled that, in this particular instance, “[t]hough there is clearly some relationship between the conduct alleged and the administration of the plan, it is not enough of a relationship to warrant preemption” of state tort law, because Dishman’s “damages for invasion of privacy remain whether or not Unum ultimately pays his claim.” In other words, the Court explained, ERISA law does not provide Unum with blanket immunity for “garden variety tort[s] which only peripherally impact plan administration.”
It should be noted the Court in Dishman cautioned that there is no consensus regarding how far ERISA reaches, and not every disability is governed by ERISA, so not every court will necessarily reach the same conclusion as the Dishman court. This is a complicated area of the law, and whether or not you can sue your insurer for invasion of privacy will largely depend on the facts of the case, the type of policy you have, whether your jurisdiction recognizes an “invasion of privacy” cause of action, and the existing case law in your jurisdiction.
Information offered purely for general informational purposes and not intended to create an attorney-client relationship. Anyone reading this post should not act on any information contained herein without seeking professional counsel from an attorney.
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, disability 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 disability insurance policy.
Other provisions, like this medical examination provision from a Standard Insurance Company individual disability insurance policy, expressly condition the payment of disability 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 disability 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 disability insurance 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 disability insurance policy, contact an experienced disability insurance attorney.
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 disability benefits under your policy.
Oftentimes the maximum benefit period is more complicated than you may expect. For instance, most newer disability 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
As you can see, under this sort of provision, the maximum benefit period is reduced based upon how old you are when your disability begins.
It is important be aware that all of the relevant information for determining your maximum benefits period is not always located in the same part of your disability insurance policy. For example, your policy summary may contain an asterisk and then, in fine print at the bottom of the schedule state something like “*The Maximum Benefit Period may change due to your age at total disability. Please see Policy Schedule II.” Then, if you notice the fine print and turn to Schedule II, you see something similar to the MetLife schedule, above, that limits the benefit period based upon your age at the onset of disability.
Other disability insurance 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:
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 six 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
If your policy contains a provision like this, you can use this calculator to determine your Normal Retirement Age, to determine exactly how long you are entitled to disability benefits.
Finally, it is important to note that many disability insurance policies have specific, limited benefit periods for certain conditions such as mental illness and substance abuse (and typically restrict coverage for these sorts of conditions to a short time frame—usually 1 or 2 years).
As you can see, 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 disability benefits. If you have any questions about your disability insurance policy, contact an experienced disability insurance attorney.
Policy Riders: A Guide to the Bells and Whistles of Individual Disability Insurance – Part 5
New and Unique Policy Riders
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 going through the hassle of the full underwriting process. In the parts three and four, we looked at important provisions that sometimes appear as policy terms and sometimes appear as riders, depending on the insurer.
In this final post, we’re going to take a look at some of the more recent and unique riders appearing in modern individual disability insurance policies.
Return of Premium Rider
This rider entitles you to receive a refund of all monthly premiums in the event you do not become disabled before the expiration of the policy term. For example, assume you purchased an individual disability insurance policy right of out dental school at age 28 with this rider and an annual premium of $5,500.00 per year. At age 65, if you have not become disabled under the terms of your policy, the insurer has to cut you a check for $203,500.00 (37 years x $5,500.00).
Initially this may seem like a very attractive option. At first glance, it appears that your disability insurance is essentially free if you don’t become disabled. However, the right to recover your premiums has significant costs.
First, this rider usually comes with a hefty premium increase, and the opportunity cost of using those additional funds on a rider with no guaranteed return may be difficult to justify. Sticking with the example above, if the rider costs an additional $1,000.00 per year and you chose to instead put that money in an investment portfolio with an 8% return, at age 65 your portfolio would be worth $203,070.32 – and that money is yours whether you become disabled or not.
Second, return-of-premium riders are often an all-or-nothing proposition: either you become disabled and collect benefits, or you get your premiums back. If you become disabled, you essentially overpaid for the same benefits you would have received without the rider – the extra money paid each month for the rider simply vanishes. Considering the fact that a majority of dentists will suffer from a musculoskeletal condition at some point in their career, this is not a small risk.
Some insurance companies offer return-of-premium riders that will still pay back part of your premiums even if you received disability benefits. However, the terms are typically even less favorable. With this version of the rider, any disability benefits paid to you during the term of your policy will be deducted from your premium return. Additionally, you will typically only receive a percentage of remaining balance (between 50% and 80%) rather than the full amount. Under these terms, if you receive disability benefits for any significant amount of time it will likely diminish most of the value of the rider.
Though the return of premium rider may initially seem enticing, its benefits are often far outweighed by its costs. Before purchasing this rider, consider meeting with a financial professional to determine if there is a more productive use of your money.
Student Loan Coverage Rider
Student loan debt in the United States has exploded over the last decade. Americans now owe approximately $1.3 trillion in student loan debt. Medical students and dental students are graduating with hundreds of thousands of dollars in debt, and in the event of a disability, the only debtors entitled to discharge of their federal student loans are those who meet the Social Security Administration’s stringent standard of “total and permanent disability.” To make matters worse, student loans cannot be discharged in bankruptcy.
Some disability insurance companies are creating policy riders specifically to address this growing crisis. For example, Guardian’s Student Loan Protection Rider allows an individual to insure their student loans for up to $2,000.00 per month on top of his or her disability benefits. With this rider, you can choose between a 10- and 15-year term, and no loan documentation is required until a disability claim is filed. As with your disability benefits, your insurance company must determine that you are totally disabled in order to be eligible for the benefits of this rider.
Doctors, dentists, and other professionals graduating with six-figure student loan debt should consider purchasing a rider of this nature to ensure that in the event of a disability their monthly benefits are not significantly eroded by their ongoing obligation to repay student debt.
Disfigurement Rider
Public figures, celebrities, models, and spokespeople occupy a unique place in the workforce: they are the only individuals in the economy for whom their likeness is the source of their livelihood. Disability insurance companies that insure high-income celebrities and entertainers often offer a disfigurement rider that will pay benefits to the insured if they are disfigured, even if they are not disabled. For many public figures disfigurement may completely deprive them of their ability to secure work, and have the same practical effect as total disability in many other fields.
Loss of Value Rider
Professional athletes also have a very unique place in the economy. Like most employees, their value is typically directly related to their performance. However, the demands on their bodies are so high that even a small decrease in performance brought on by an injury (or following recovery from an injury) can have a significant impact on their earning potential. Professional athletes often purchase this rider as a safety net to protect themselves from the loss of value they could potentially face due to a major but non-career-ending injury right before the expiration of a contract and free agency. More recently, elite college prospects are purchasing this rider to protect their value in an upcoming professional draft. If a major injury causes a college prospect to be drafted in a later round for less money, the rider is designed to fill the salary gap between their projected draft position and their actual draft position.
In recent years, the number of policy riders available for purchase with individual disability insurance policies has risen substantially as insurers create products to fit the unique needs of policyholders. Some riders are more beneficial than others, and some are simply not suited for certain individuals. Before you purchase any rider, look carefully at the fine print and make sure that it fits your financial needs.
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 disability 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 disability insurance 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 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 disability 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 medical and dental professionals, such as the student loan rider.
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 disability 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 disability insurance 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 disability insurance 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 disability insurance 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 disability insurance 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 disability insurance 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.
