• Definition of Disability
• Noncancelable
• Future Purchase Option (FPO)
• Partial Disability
• Cost Of Living Adjustment (COLA)
• Review
The three different definitions of total disability are typically defined as:
Any-Occupation (least favorable) - the insured will be considered disabled only if he/she is unable to perform the duties of any occupation for which he/she is qualified for based on education, training or experience.
Example: A urologist who can no longer perform the duties of a urologist, but is capable of working as an internist (or any other gainful employment), may not be eligible for benefits.
Modified Own-Occupation - the insured is considered totally disabled if he/she cannot perform the substantial and material duties of his/her regular specialty, and are not working in a different occupation/specialty.
Example: A urologist, who can no longer perform the duties of a urologist, may collect their full monthly benefit only if they do not return to work in any other capacity. If he/she returns to work in a new specialty/occupation, benefits may be reduced or stopped altogether.
Own-Occupation/Specialty-Specific (most favorable) - the insured is considered totally disabled if he/she cannot perform the substantial and material duties of his/her regular occupation, even if the insured chooses to continue working in a new occupation.
Example: A urologist, who can no longer perform the duties of a urologist, may continue to collect their full monthly benefit even if they continue working in a new occupation/specialty. Full disability benefits will be collected in addition to any other earned income from returning to work in a new specialty/occupation.
The own-occupation definition is the most favorable for a physician. You have spent many years in school, along with many more years as you go through training. If you became unable to practice within your specialty, you should not be punished because you are capable of working in another occupation/specialty. You spent all those years working towards your future career. The own-occupation definition will protect your entire investment of working towards a career within your specific specialty.
A noncancelable policy guarantees three things.
• Future premiums cannot be increased until age 65 or 67. If you continue working after age 65 or 67, the policy becomes guaranteed renewable. This means that you are guaranteed the ability to renew the policy each year; however, your premiums will increase based on your age.
• The insurance company cannot cancel your policy for any reason, other than failure to pay the premium.
• The insurance company cannot change any of the policy provisions unless it is to your benefit.
Generally with group coverage, the insurance company reserves the right to raise premiums or cancel the policy for the entire group. This cannot happen with a noncancelable policy.
Future Purchase Option
Example: You purchased a policy today with a monthly benefit of $5,000. This policy also has a Future Purchase Option (FPO) of $10,000. Two years from now, if something were to happen to your health (i.e. back problems, diabetes, etc.), you may still increase your monthly benefit up to a total of $15,000 regardless of your current health status.
Not all of the FPO has to be exercised at the same time. As your income begins to increase, you may increase your monthly benefit by accessing only a portion of the FPO (i.e. $500, $1,000, $5,000, etc.) each year until the FPO amount is depleted. As mentioned before, no medical underwriting is required. The only requirement is that you provide proof of income showing that you qualify for the amount of benefit you choose to increase to.
If the FPO is not included, and you wish to increase your monthly benefit, you would be subject to full medical underwriting and issued a new policy. Full medical underwriting includes:
• Medical exam
• Blood tests
• Release of all medical records to the insurance company
• Personal History Interview (PHI)
If there have been any changes in your health, you may not qualify for any additional coverage in the future. By adding the Future Purchase Option, it guarantees you the ability to increase your monthly benefit regardless of your health status.
Residual/Partial Disability
Example: You hurt your back and can now only work part time, resulting in a 50% loss of income. This benefit will pay you 50% of your monthly benefit. (With some policies, your benefit may equal your lost income dollar-for-dollar the first year of a partial disability, and then switch to a proportionate percentage. Your broker should be aware of the differences within each policy).
Example: After one year of collecting disability benefits, your monthly benefit will increase. If the CPI is 5%, your benefit increases by 5%. If the CPI is 2%, your benefit increase by 2%. Benefits will continue to increase on a compounding basis for as long as you remain disabled and are collecting benefits.
For a young physician, your disability benefits will have much less buying power 5, 10, and especially 20 years from now. By adding the COLA rider to your policy, your monthly benefit has the opportunity to keep pace with inflation.
• Noncancelable - Guarantees future premium payments will not be increased and your policy cannot be canceled for any reason other than not paying the premium.
• Future Purchase Option (FPO) - With this option, you may purchase additional coverage in the future (usually as your income increases) without having to requalify medically.
• Residual/partial disability - Pays a proportionate percentage if you have a partial loss of income due to a disability. (Example: You hurt your back and can now only work part time resulting in a 50% loss of income. This benefit will pay you 50% of your monthly benefit).
• Cost Of Living Adjustment (COLA) - After the first year of a disability, monthly benefits would increase each year to keep up with inflation. There are several different options for COLA depending on the insurance company you choose.
