Policy Enhancements:
Why They Aren’t Necessarily As Good As They Sound

In prior posts, we’ve talked before about the different types of disability insurance, including group disability insurance.  Group policies are a subset of disability policies that are often made available to members of professional organizations. With group policies, the organization is the policy owner and the coverage amount and policy features are ultimately determined by the organization, not its members. Because the policy is owned by the organization, this also means that policy terms can change or be updated without your input.  When this occurs, these changes may be presented to you as a “policy enhancement.”

While “policy enhancements” sound like they’ll be an upgrade to a policy, sometimes they are quite the opposite. Policy enhancements can be beneficial to the policy holder. For example, the organization might decide that it wants to increase the policy’s maximum benefit period from age 65 to age 67.

Unfortunately, not all changes to group policies benefit the insured.  While most organizations don’t want to put their members in a worse off position, many organizations receive some degree of pressure from their members to reduce the premium costs of the policies they offer. Knowing this, disability insurers frame changes to the policy as a way to “cut costs” and, as a result, an organization might agree to allow the insurance company to add a more stringent care provision, add a mental/nervous disorder limitation, or insert a no-work provision in an effort to save reduce premium costs for its members. Additionally, policy language (especially the provisions found in newer policies) is often unduly complex and crafted so that it is difficult for a layperson to understand. Consequently, even a well-meaning organization may be misled into making policy changes without understanding the full impact a “policy enhancement” may have on disability coverage.

If you are a member of a group plan, it is important that you remain aware of any changes to the group policy and know its current terms.  Because policy enhancements change the terms of a policy, you should receive a notification in the mail if any changes are made. If you throw this notice away or place it in a drawer without reviewing it, you won’t know how the adopted change affects you (including whether can still rely on the policy for adequate coverage and, by extension, whether you want to continue paying premiums to keep the coverage in place).

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Disability Insurance: What Residents Need to Know – Part 2

In our previous post, we looked at how important it is for residents to have a plan to protect themselves financially in the unfortunate event they become disabled.  In this post we will address some critical terms to look for when comparing potential disability policies.

Perhaps the most important provision in your disability insurance policy is the definition of “Total Disability.”  For physicians, dentists, and other highly specialized professionals who have invested both years and hundreds of thousands of dollars in their careers, a policy that defines “Total Disability” in terms of your inability to perform the specific duties of your “own occupation” (as opposed to “any occupation”) is critical.  If your policy defines “Total Disability” as being unable to work in “any occupation,” it will be much more difficult to establish that you are entitled to benefits, in the event you suffer from a disabling condition.

In addition to knowing and understanding your policy’s definition of “total disability,” it is also crucial to know how working in another profession is treated by your disability insurance policy.   For instance, if you happened to be an oral surgeon with an essential tremor, you may no longer be able to operate safely on patients, but you may still be able (and want) to teach. Alternatively, if you happened to be a physician who did not take steps to increase your disability coverage to match your increases in earnings, working in another capacity may be the only way to maintain your lifestyle in the event of disability.  Consequently, it is also important to know if your policy will allow you to work in another capacity and still collect disability benefits.  Along those lines, here are a few other provisions you will want to watch out for:

No Work Provisions

These provisions mandate that 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 financial needs.

Work Provisions

These types of provisions require you to work in another occupation.  This, of course, can make it impossible to collect on your disability benefits if your disability prevents you from working.

In our next post we will look at how you can select a plan that grows with you over time, as both your financial obligations and income change.

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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:

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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.

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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:

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Total disability means solely due to injury or sickness,

  1. You are unable to perform the substantial and material duties of your occupation; and
  2. You are not working.

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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:

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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.

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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.

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