Updates In The Disability Insurance Marketplace Part 3

Larry Keller

[Editor's Note:  Like most industries, the disability insurance market has frequent changes.  In this guest post, Lawrence B. Keller, CLU, ChFC, CFP® updates us on some recent changes with MetLife and MassMutual, two of the "Big Six" companies offering specialty-specific individual disability insurance.  We still have no financial relationship.]

Since my original guest post and my last update MetLife has made additional changes to their first year resident and starting practice limits and MassMutual has made enhancements to their policy by using a combination of techniques including occupational class upgrades and rider enhancements.

MetLife increases benefits

MetLife increased the monthly benefit available to first year residents from $3,500 to $5,000.  Additionally, all physicians in their last six months of training through their first year in practice now automatically qualify to purchase up to $7,500 month.  However, while this is true regardless of employer provided group LTD for residents and fellows, first-year physicians that have other group disability insurance in force will be subtracted from these limits.

MassMutual introduces new occupational class upgrades for non-invasive physicians


Twenty medical specialties have been upgraded from occupation class 4P to occupation class 5P.  This results in a rate reduction of 12%.  In addition, five medical specialties have been upgraded from occupation class 3S to the new 5P occupation class, resulting in a 20% rate reduction.  They are neurologists, pulmonologists, hospitalists, nephrologists and occupational medicine physicians.

MassMutual upgrades occupational class for 2P physicians

While this upgrade took place last March, this one now allows MassMutual to be more competitive.  Those specialists in the 2P occupation class (anesthesiologists, emergency medicine physicians, neurosurgeons, orthopedic surgeon and thoracic surgeons) have been upgraded to occupation class 3P, resulting in a rate reduction of  approximately 35%. Additionally, this upgrade also allows them to purchase the “Own-Occupation” Rider (not available in California)and to qualify for enhanced issue & participation limits.  MassMutual will now issue these specialists up to $15,000 month (up from $10,000) and participate with another carrier up to $20,000 month. Now let’s look at some of the policy enhancements that were just introduced (November 19, 2012). 

MassMutual enhances extended partial disability benefits

The loss of income requirement has been reduced from 20% to 15%, which now matches Berkshire’s (Guardian) ProVider Plus and Ameritas’ (Union Central) policies. It is now easier to trigger the rider and can be done in one of three ways.  During the first 6 months (including the elimination period), the insured must be working and due to sickness or injury must:

  1. Be unable to do one or more of the main duties of his/her usual occupation; or
  2. Suffer a loss of time of at least 15% from his/her normal work schedule of main duties; or
  3. Has a reduced capacity to perform his/her usual occupation that results in at least a 15% loss of earned income.

There are also three ways to calculate the benefit amount for the first 12 months of partial disability:

  1. A guaranteed minimum of 50% of the extended partial disability benefit (this is standard with most companies).
  2. The insured would be reimbursed based upon actual loss of income (dollar for dollar) up to their full partial disability benefit (like Guardian’s ProVider Plus “flagship” policy).
  3. If the insured has a greater than a 75% loss of income, then 100% of the partial disability benefit would be payable.

MassMutual introduces a graded premium rate

A graded (annually increasing) premium structure has been introduced.  This is similar to Guardian’s graded premium structure and MetLife’s term premium structure.  It is designed to allow young professionals to reduce their initial premium outlay.  However, it is only available to those insureds age 35 or younger and must be converted to a level premium by age 40.  Otherwise, the premium will continue to increase annually until age 50 when the premium automatically becomes level for the duration of the policy.  [Editor's Note:  I've written about graded premiums before.]

MassMutual has a new guaranteed insurability option for permanent life insurance As part of the base policy, the GIO for life insurance guarantees the insured the right to purchase a new permanent life insurance or add additional coverage to an existing permanent life insurance policy, without having to do an exam, blood or urine test, or answer any medical questions (as long as they are not disabled) at specified dates in the future.


On set option dates, the policy owner may purchase $25,000 of permanent life insurance. The option dates occur every three years between the insured’s ages 25 and 46, on their policy’s anniversary. The insured can also accelerate an option after marriage or the birth or legal adoption of a child.

Since the amount available is small and the Waiver of Premium Rider is not available when using GIO to purchase a new permanent life insurance policy, while unique, I don’t see this providing much value to policyholders.  It is also only available to those insureds that purchase their policies at age 35 or younger.  [Learn more about the downsides of permanent life insurance.-ed]

Finally, remember that all these rider enhancements are subject to state availability.

Lawrence B. Keller, CLU, ChFC, CFP® is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians.  He can be reached at (516) 677-6211 or by email to Lkeller@physicianfinancialservices.com with comments or questions.

Are these types of posts helpful?  Do you like hearing about this much detail about these policies?  Comment below!

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Comments

Updates In The Disability Insurance Marketplace Part 3 — 18 Comments

  1. Would these changes aply to current MM policy holders. I have been paying the premiums since age 30 and every time I feel that it’s waste. A lower premium might be a motivation as it is the premiums are very steep.

    • Unfortunately, the changes will only apply to new policies that are purchased from MassMutual.

      Depending upon your current age and medical specialty, if your health is still good, it might pay for you to “shop” the marketplace to see if you can do better.

      There are many discounts available and, as mentioned in my prior updates, some companies have significantly lowered their premium rates.

  2. one of the problems i find is that the discounts are “hidden” since that typically comes out of the agent’s comission. ive never seen a list of the association discounts for instance. many will give you a one year multi policy reduction but that isnt much

  3. That is true. That is where working with an agent that specializes in this area (and physicians for that matter) goes a long way. Usually, we know of existing discounts and freely provide them to our clients. Yes, the premium is lower and we earn less as a result (and usually the percentage we are paid is also less) but the referrals more than make up for it.

    Although the rate decreases mentioned above have nothing to do with association and/or resident or hospital discounts. They were occupational classification changes. Any discounts would be in addition to the upgrads mentioned.

  4. Who are the “Big six”? Is union central one of them? Has anyone heard of them or have any experience with them?They have given me a pretty compelling offer.

    Thanks

    • The “Big Six” are Berkshire (Guardian), MetLife, Ameritas (Union Central), Principal, MassMutual and Standard Insurance Company, which is not available yet in New York State.

      While Ameritas can look good in terms of cost vs benefit, you should look at all of the companies so you can make a well-informed decision. Depending upon your medical specialty, gender, age and geographic location, some companies will be better for you than others.

      There are also discounts available for the majority of them via a hospital affiliation, medical or other professional association.

  5. First of all, thank you for all the helpful posts in the past year. I’m a final year pathology fellow subspecializing in hematopathology and I’m just starting the process of looking into disability insurance (as of about 2 hours ago when I found this website by accident). I’m based in California.

    The only information I’ve found specific to pathology so far is a reference to a 4P occupational class from Standard, but that was as of 2008. I haven’t found much in the way of recommendations for this particular subspecialty given the insurers that have been mentioned. As would be fairly obvious. my income will go up significantly once I start practicing and I’ve been told it’s in my best interests to get locked into a plan from now and increase my coverage once I’m no longer a trainee. I definitely need to get a very narrow definition of “own occupation” covering microscopic diagnostics, as one could argue that as a pathologist I could still be a laboratory administrator even if I lost every appendage and couldn’t sit still for more than 30 seconds. Loss/alteration of vision is a VERY real concern. At this point I’m just reading up on every policy I can find and starting the self-education process, so any advice would be much appreciated.

    Also, and this may be a question entirely compatible with my neophyte status in this area, is the AMA-endorsed DI through US Life Insurance Co simply dead on arrival? Nobody seems to be mentioning it anywhere (well aside from the AMA website). Seems fishy that they claim a large % reduction in premiums for AMA members, especially considering how cheap membership is relative to the cost of a half decent DI policy.

    Thanks in advance.

  6. Yes, the AMA group LTD plan is DOA for many reasons which will become clear to you as you continue to do your research regarding individual policies.

    Here are a few:

    1. The policy can be cancelled at any time by US Life or the AMA
    2. The rates increase every five years when your age ends in a “0″ or “5″
    3. The rates can increase annually based on the experience of the group plan
    4. The definition of total disability is NOT true “Own-Occupation”
    5. You must be totally disabled prior to collecting Residual Disability benefits

    In CA, you will want to look at Berkshire (Guardian), Standard and Principal. MetLife is also available but they do not make the Guaranteed Insurability Option (GIO) Rider available.

    Are you going to remain in California? In which hospital are you doing your fellowship? This is important as policies in CA are more expensive and less liberal compared to most other states. You may be able to take advantage of discounts that might be available via your hospital affiliation.

    With the answers to the above, you can best be advised.

      • That’s a good demonstration of how a good independent agent can help. Since you have to buy from an agent anyway (and indirectly pay their commission), you might as well get the best one you can and milk them for all the information you can get.

  7. Lawrence, thanks for answering my earlier questions. Recently I was looking at LTC policy and met an agent. He presented a new LTC policy to me and said its so good that i can get rid of my disability insurance! The agent went on saying that its underwritten by med america insurance company and 3 states have opted this for their state employees.

    the website is here: http://ltcash.com/comparison.html

    It has the following features:
    Plan may be purchased during the physicians high income years, and paid up at age 65
    This plan is deductible as a business expense.
    Physicians may include coverage for a spouse.
    Benefits up to $9,000 per month are totally tax free.*
    Inflation rider available, at compounding 5% x2, which can increase the maximum monthly benefit from $12,000 to $24,000 in 14 to 15 years.
    Worldwide coverage.
    Return of Premium (ROP) rider available, which allows all premiums to be returned to the estate/beneficiary upon death.

    It does make sense to replace diasbility insurance with LTC insurance. Is that true.

    I do understand that this is a long questions and possibly the answer could come as a new post!

    Thanks.

    • I also had a chance to review the link that you provided. I am less than impressed.

      The ratings for MedAmerica Insurance Company, MedAmerica Insurance Company of New York and MedAmerica Insurance Company of Florida are less than spectacular. They get a B++ (5th out of 15 ratings) from A.M. Best and an A- (7th out of 20 ratings) from Standard & Poors.

      They also have a Comdex rating of 50 (meaning half of the insurance companies are rated above them).

      If I were in your shoes, forgetting about replacing your DI coverage or not, I would take a pass on the company and go elesewhere if you have decided that you want to buy LTC coverage.

  8. How old are you? What is your net worth? What are your monthly expenses? How much longer do you plan on working and earning an income.

    While you may be able to deduct the premiums for Long-Term Care Insurance (see link below), you must be catastrophically disabled in order to due so (unable to perform 2/6 Activities of Daily Living (ADLs). Obviously, this is much more restrictive than your ability to work in your medical specialty.

    http://medicaleconomics.modernmedicine.com/news/shareholders-c-corporations-can-deduct-premiums-long-term-care-insurance

    If you are at the point that you have enough assets and are working because you love what you do (and not for the income that you generate) and those “lost” disability insurance benefits would not impact your lifestyle, you might consider dropping your disability insurance coverage.

    Also, keep in mind, that with an LTC policy that pays cash benefits, unless the expenses for your care exceed $320 day (the Per Diem amount for 2013), any payments above that amount may be treated as taxable income.

  9. I’d be cautious replacing disability insurance with LTC insurance. They most certainly are not the same. It may be reasonable to buy LTC insurance about the time you no longer need disability insurance, but they’re not interchangeable. IMHO, most docs need disability insurance and most docs (at least those who saved adequately during their careers) won’t need LTC insurance.

    You don’t currently need a C Corp to deduct LTC insurance premiums. If you’re self-employed you can deduct 100% of the premiums. It gets a little more complicated if you’re an employee.

    http://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php#individual

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