DISABILITY INSURANCE – BEFORE A DISABILITY

First off, I would like to thank Michael Taylor, Director of Brokerage, of Hunter McCorquodale Inc., for suggesting this approach. Any blame for the content lies with me, and credit and praise for the idea go to Michael.

Disability Insurance is COMPLICATED!

No, it is just DIFFERENT! In life, you have had to learn ideas, words, and concepts, etc.  You did not know all these things when you started out, you learned them as you went along, to the point where they have become second nature.

On the other hand, I do not know how to drive, so everything to do with a car is complicated for me, and I do not want to even think about a standard shift. For the majority of the population, however, operating a car is probably as simple as breathing. My objective here is to make Disability Insurance even simpler to understand than driving your car.

Before beginning with the terminology, let’s take a look at the most basic element of all: the types of contracts available. Our industry is infamous for making things difficult, so I will strive to make it easy.

There are 3 types of contract:

1. Non-cancellable and Guaranteed Renewable: A complicated way of saying that “Everything (wording, prices, EVERYTHING) is guaranteed.”
2. Guaranteed Renewable: A complicated way of saying that “EVERYTHING is guaranteed EXCEPT the price.”
3. Optionally Renewable: A complicated way of saying that “NOTHING is guaranteed.”

Now what do these three concepts mean to you – the consumer?

I am going to use the analogy of a mortgage. Those of us in our 60s remember when we could buy a home and the mortgage rate and conditions were guaranteed for the entire period of the mortgage, that is to say, for 20 or 25 years. Our parents would buy the house knowing that whatever the monthly mortgage payment was, it would NEVER change unless, of course, they remortgaged. This is contract option #1. You buy the plan today and regardless of any change in job, health, income, country of residence (ANYTHING) nothing will ever change.

Contract option #2 is today’s mortgage. You buy the house today and the payments are guaranteed for a limited period of time (for example 5 years). You know the house belongs to you, but you also know that the monthly payment can periodically change.

Contract option #3 would be like living in a motel. The daily rate can change, you can be asked to move, you never really know what the future will bring. You know what you have TODAY; you know what it costs TODAY, as for tomorrow? Who knows?

Let’s bring it back to disability insurance. Under Options #1 and #2, I can tell you the conditions of the policy, the amount you will collect. The only difference is that, for Option #1, I can also tell you the price you will pay for protection for the entire period of the policy; and, for Option #2, I can tell you that the price is subject to change but I cannot project the timing or the amount of those price changes.

For Option #3, I can tell you the rules as they apply today, but tomorrow they may change. There is no way I can predict the future.

By the way, Option #3 is any group plan, any association plan. There is nothing significantly wrong with Option #2. Option #1 is certainly superior but insurers are VERY reluctant to increase prices for “in force” policies as they know that this creates tremendous motivation for healthy clients to look elsewhere – leaving them with mostly unhealthy clients – and even worse claims experience. Frankly, I would avoid Option #3 if at all possible. I hate to play a game which has no rules. Actually, there ARE rules; it is just that they can be changed mid-game, and sometimes, even mid-play.

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance