DISABILITY INSURANCE “RIDERS” OR “BENEFITS” #2

I will be discussing these features in almost alphabetical order. As I discuss them, you will be given my opinion of their relative importance, but each client must assess them based on how important they are to THEM – not to me. I am making these “importance” comments simply to give you a professional base for establishing your own opinion.

1. Automatic Coverage Enhancement: This feature is a complement to the Guaranteed Insurability feature I discussed in the previous blog. There are certain differences:
1. There is no cost for this feature unless the increases are exercised.
2. The increases are automatic and have to be refused if you do not want them.
3. They are guaranteed for the first 3 years of the policy – with no proof of income required for those increases – but FUTURE increases require income justification every 3 years.
4. There is no proof of health required for the first 9 years, but every 9 years you must submit proof of good health in order to qualify for further increases.
5. The increases are an automatic percentage (3% or 5% compounded annually depending on the product).

OK – I have the Guaranteed Insurability rider – why would I use this one? I have the Automatic Coverage Enhancement feature – why do I need the Guaranteed Insurability Rider? Each has its own advantages – and disadvantages. The advantage of the Automatic Coverage Enhancement feature is its automatic nature. We have a tendency with all insurance products to put them in a drawer and only take them out when we need them – which may be many years in the future. We buy based on our needs and budget today – not in 5, 10, 15 or even 20 years down the road, when we submit the claim. The beauty of this feature lies in the fact that we have to refuse the increase. Since the increase in coverage – and cost – is small, we usually accept it. A further point to bring up here: When we purchase a policy, we do not really say “We need (say) $3,000/mth and we are prepared to spend (say) $150/mth to buy it.” We are actually saying “We need this percentage of our income protected and we are prepared to spend this percentage of that income in order to obtain that protection.” What we need to do is adjust the amounts of coverage and protection as time goes by in order to maintain those percentages. It is these features which allow us to freely do that.

The problems with the Automatic Coverage Enhancement feature are the limitations on the increases and the fact that we need to prove health every 9 years in order to continue these increases. What happens if our income goes up faster than this? What happens if our health deteriorates?

The problem with the Guaranteed Insurability feature is that we have to do something in order to benefit from it and it is human nature to “file and forget”. By combining both features, you have the best of both worlds plus you do not pay for increases under either feature unless you request them and there is no “up front” cost for the Automatic Coverage Enhancement feature.

Back soon with what should have been first – Accidental Death and Dismemberment as well as Catch up (not what you pour on food) and Cost of Living Rider

DISABILITY INSURANCE “RIDERS” OR “BENEFITS”

One of the points (Regular Occupation Period Extension – ROPE) which I am going to discuss here may well be part of some “Base” contracts and you may not have to add it and pay for it separately but the others are available as optional features.

I will divide the list into two groups: (1) Essential features and (2) Optional features; yes I know that riders are options which you may choose to add – or not – as you decide. However, there are two features that are so important that they really should not be considered optional. In this blog, I will look only at the two essential ones

1.      There are only two (and in some cases only one) of these as many base contracts include Regular Occupation to Age 65 as part of the basic contract and then you do not need to concern yourself with this. The reason why this is so important is that – if you do not include it – you run a very significant risk of no longer qualifying for payment of benefits once the initial period runs out. The worst part of this problem is the very people who are most vulnerable to that risk are those who may most need this protection. If you are highly paid and/or working in an occupation without significant physical requirements, such as surgery or dentistry, you are most likely to be told “I am sorry but you no longer qualify for payment”. Also remember that it is your ability to DO the job – not your ability to OBTAIN the job which will eliminate your eligibility for benefits. Further – note that a reasonable job under this requirement is one which – based on jurisprudence – gives you 50% of what you were earning prior to disability. Can you live and support yourself and your family on half your income? As a 43 year professional in this market, I will NEVER sell a policy which provides for a change in the definition of Regular Occupation.

2.      The second essential option is generically referred to as Guaranteed Insurability. We choose to buy today whatever our needs, budget and income allow. Over time, the amount we wish may increase (It RARELY decreases but if it does, that is never a problem – you can always ask the insurer to reduce your coverage and they will NEVER refuse). Over that “time”, things may change – our health may not be as good – we might change jobs or even move to some foreign country. Those changes might make it much more difficult or expensive to purchase additional coverage. They may even make it impossible. For example, if you become an insulin-dependent diabetic, you will almost certainly be totally unable to increase your coverage. However, if you purchase Guaranteed Insurability, your ability to purchase the coverage is guaranteed. People traditionally think of this guarantee applying to health problems – but it also guarantees you against refusal (or price increases) if you move out of the country or if you take a more hazardous occupation. The only issue is “Do you qualify based on your income?” The ridiculous – but accurate – example I use will make this TOTALLY clear. You purchase this protection as a physician in Montreal. You decide to move to Iraq and become a dancer – you get AIDS. If your income would allow it (based, perhaps, on some “outside” activities), they must issue the policy – at the price a Montreal physician would pay. Also, you would be considered totally disabled if you became unable to dance.

Back next time with the true “options” – or at least the start – as this discussion will continue over several issues of the blog.