Successes and Failures in the Land of Disability
[PoF: Today’s post is a collection of stories of successes and failures when it comes to disability insurance. I’ve noticed a number of forum questions regarding how much is enough or whether it’s needed at all. The White Coat Investor answered 10 common questions on the subject in this post the other day.
For the record, I no longer carry disability insurance, as I am financially independent and therefore self-insured, but I considered it an important piece of my financial plan for a good ten years. The authors below are current or past site sponsors.]
First up is Jamie K. Fleischner, CLU, ChFC, President of Set for Life Insurance
When people think about disability insurance, they always think of someone else suffering but never think it will happen to them. After working in the disability insurance industry for more than two decades, I’ve come across my share of success stories of people who benefitted from purchasing disability insurance. I’ve also come across situations where people chose not to purchase or accept a policy that had severely negative consequences.
Two such stories come to mind.
The Brand New Attending
The first story is about an orthopedic surgery resident. I met him when he was still in training and he purchased a disability policy to protect his future income. When he finished his training, he contacted me to increase his benefits.
His new job started on August 1st. We increased the policy with no problem to correspond with his new income. On August 8th, I received a phone call from his wife. I assured her that we received his premium payment and that the increase had taken place. She said, “That’s not why I’m calling. My husband was in a horrific accident and is in the hospital. I want to make sure he has insurance.” They had just purchased a new house and hadn’t even paid their first mortgage payment.
My client was driving on the highway on the way to a conference on his first day working as an attending when a 14-wheeler slammed into his car igniting the car into flames. An ambulance worker happened to be several feet away attending to another accident and came right over.
They airlifted him to the University Hospital where his colleagues attended to him without even knowing it was him as he was unrecognizable. More than 75% of his body was burned. Fortunately, the ambulance driver that rescued him had the wherewithal to cover his hands from the fire to protect him, without knowing he was a surgeon.
Needless to say, he was unable to work not only as a physician but in any capacity. He had several extensive surgeries and was incapacitated for over a year. After a year, he gradually started until he was back working full time over three years after the accident. During that time, the University allowed him to conduct some research to stay connected and involved.
As a result of purchasing his disability insurance policy, he was able to maintain his mortgage and student loan payments (as well as his other bills), collect his disability benefits and retain all of the earnings from his research position. He is forever grateful that he not only purchased the policy when he did but also immediately increased it to coincide with his new job and financial responsibilities.
The Athlete and the Motorcycle
The second story relates to a tragic situation but in a different way. I had a high profile person in the sports world contact me for a disability policy. He had just signed a multi-million dollar contract and needed to insure his income. His monthly expenses exceeded $150k/month. He was approved for his policy but it came back with an exclusion on his neck as he was receiving injections for pain relief at the time of the application. The language on the policy had an “except fracture” clause that meant it would pay benefits in the event of an accident. He was angry about the exclusion and decided not to take any policy with an exclusion.
Less than two weeks after declining the policy, I was watching the national news in the morning and saw my client, with a neck brace, on the news after being involved in a motorcycle accident. He broke his neck and could no longer work and was being fired from his high profile position. Subsequently, he not only lost his job but his home, too. He had two kids in college and two in high school and they needed to make some significant changes to accommodate. The stress took a toll on his marriage and his wife left him.
These are true stories that stick with me. They happened to real people and had real consequences. When each of these clients initial went through the process, they were like everyone else. Disabilities seemingly always happen to someone else.
Up next, we have stories from Joe Capone, ChFC, LUTCF and Rick Warren, MBA of Insuring Income
Success in disability insurance comes in a number of forms, but for the purposes of our article it can be distilled down to one major theme – secure the best, most robust policy for the client from an own occupation carrier at the best price. Always look for Unisex, multi-life, resident/fellow discounts, etc.
We have altered the names of the insuringincome.com clients of course and the carrier names have been redacted, but here are the stories:
Jim and His Lousy Disability Policy
During our initial discussions Jim mentioned that he was, “all set” for disability insurance but agreed to let us review his policy. As it turns out, his disability policy had two exclusions; one for the lumbar spine and one for the urinary tract. It also had a very limited pool of future increase options.
Jim was not aware that exclusions are reviewable and he had been told by his “financial advisor” (really was a contracted insurance agent with a large mutual insurance company) that, “a policy from this carrier [name redacted] with exclusions is still much better than any other company”.
About 6 weeks later, Jim replaced that policy with a new policy from an own occupation carrier, with zero exclusions, the largest pool of future, and the same contract definitions (specialty language, etc). Zero magic went into this as we simply discussed his profile and medical history with all the carriers in the marketplace. It took about 72 hours and a couple phone calls to have two carriers for him to choose from.
Success lesson: Do not accept exclusions and limitations on a disability policy until you know that every stone has been turned over in the marketplace. Your agent should be reviewing your case with other own occupation carriers to see if there is better offer out there. Beware of any agent who only shows you one carrier.
Julie and the Move to California
Finishing her fellowship in North Carolina, Julie had locked in a great contract with a large healthcare organization in California and was looking forward to starting with them. She was firm on purchasing a particular carrier due to their unlimited mental/nervous (anxiety, depression) contract language and their name recognition within the marketplace.
Considering she was covered under her GME disability coverage, she figured she would wait until she was settled in California before locking down a disability contract. What Julie was not aware of was that this particular carrier’s pricing is higher for California residents.
We helped her secure her coverage while still in North Carolina which afforded her; a lower premium cost on her base policy and reduced future costs when exercising options from her future increase option pool (she will be able to add all coverage under the increase rider as North Carolina rates).
Success lesson: It is better to get started sooner rather than later. This allows a client and their agent to develop a game plan and to have a thorough understanding when it comes to a disability contract. Get your coverage early.
Jessica and Unisex Pricing
Just after starting at a new facility as an attending, Jessica decided to look into protecting more of her income than her group long term disability would cover (it capped at $10,000 per month). Jessica did some research and requested disability quotes from a couple of insurance agencies, including from us.
A couple of days after reviewing the quotes, she sent us a very simple email, “Why do a couple of your quotes use a unisex price structure instead of female pricing and also include a “multi-life” discount? The quotes from the other brokers for the same carriers do not?” We explained the how and why and Jessica moved forward with us to secure a policy.
Success lesson: There is never a promise of a discount, but your agent should be exploring every possibility that is out there so you don’t spend one extra penny on disability insurance.
Jake the Military Man
Jake was/is an Army physician who wanted to secure additional disability coverage but had thrown his hands up to the whole process because he was told, “no one will give you a policy as long as you are in the military”. Originally in the market for laddered term life, Jake decided to also pursue disability insurance with insuringincome.com.
During underwriting ,he mentioned his frustration that he couldn’t protect as much of his income as he wanted to because there were no disability insurance options for him. He was rather surprised to learn that there is a carrier that will accept active duty military physicians (as long as stationed in the US) and more than one carrier that will accept medical residents that owe the military 4 years of service when they graduate.
Jake entered into underwriting and placed his policy with us just before Thanksgiving. He will have high quality own occupation DI as long as he is in the military (not deployed), and beyond.
Success lesson: The disability options for our respected members of the military are a bit limited, but there are high quality options. The plan that these military physicians can get end up being issued with the same riders that civilian physicians can obtain (specialty protection, residual, COLA, FIO, etc.) A little additional upfront discussion can remove a ton of frustration with finding the right carrier for any occupation/employer.
We consider these to be success stories about our clients, not about us as agents. We work for our clients, not insurance companies.
Finally, a couple stories from Scott Nelson-Archer, CLU, ChFC of MD Disability Quotes
A client of mine worked for a large group that had ‘good group disability coverage’, so he thought he was protected. Of course, ‘he’ was not going to be the one who gets disabled, but he agreed that an extra $2,500 per month would be good. Well, fast forward about 10 years to 2013 and he finds himself with failing lungs to point where he was put on the lung transplant list and finally received 2 new lungs October of 2014.
His Disability plan kicked in and paid like clockwork, and all is good….until it was not. November 2016, he received a letter from the group insurance carrier stating that he had exhausted his Own Occupation period, and thus it was now determined that he could go to work in ‘something’ because his contract said ‘any reasonable’ occupation.
Being as though a reasonable occupation might be working at home, doing something regardless of actual employment, but due to the language of the contract, the carrier had the right to terminate benefits.
Now his physicians all say that he should not work due to the chance of upper respiratory infection but the terms of the policy say ‘after 24 months he is required to do anything reasonable’, so work at home in today’s work environment is reasonable. He has not been able to find an employer that would hire him to work at home.
The contract we put in for him to supplement this policy was small, only $2500 per month, ‘because it was not going to happen to him’, but because it has a true own specialty definition, it is still paying and will pay until he is age 67 regardless of what else he does and regardless of what amount of income he then goes and makes.
This situation is a real stressor to him and his family, but it underscores why you need to think about things, the language in your policy, and have the realization that bad things don’t always just happen to someone else.
How much is enough?
We often talk about how much coverage one needs versus how muchone wants and certainly those with the independent mind or DIY mindset typically opt for less coverage which is fine if you understand the pitfalls.
One set of my clients is a dual physician household both with about $350k of income and have a family budget of about $20k per month with everything included (house, cars, private college education for 2 kids and the such). Both have $10,000 of monthly benefit for disability since that is enough because the other can still work.
Well, I had a call a while back telling me that the husband had been involved in a pool accident while on vacation and had broken his neck. It turns out that as he fell into a pool he hit a concrete pool side bar stool (the ones that are submerged so you can sit in the pool at a bar) and as of yet (10 months later) has no feeling/use of his lower extremities.
We have a tendency to think abstractly about how a disability plays out in a clean and unemotional environment when discussing disability. The discussion typically goes something like this, “the non-injured spouse will work and all is fine with the disability payment of $X). Now that sometimes works and sometimes does not.
The reality in this situation is he has been out of work for some 10 months, and his wife is with him, not at work. This injury to one is causing both to be out of work. The reality today is now in month 10, with a 6-month waiting period, they have burned through what they thought was a ‘healthy’ emergency fund of $150,000 (6 months of $20k and now another 3 months of $10k per month of augmentation to his $10k of disability).
His wife is struggling with what to do, go back to work or spend time with her loved one? If she does the latter, she either needs to dramatically change the lifestyle and tell the kids they need to transfer schools, dig into their retirement accounts to augment their disability payment for their lifestyle (that is really punishing long term) or go back to work.
What is the right thing to do? Blow up the retirement account? Cut short the kids’ dreams that you have been telling them they can go to any college for the last 18 years, or leave your loved one in the care of a home health care attendant and head back to work?
There are always tough choices in life but when something happens to a loved one we don’t always say “good luck with your illness/injury” and drive off to work uninhibited. In addition, we rarely rollover in bed to find our spouse dead to then call the morgue on the way to work so that we don’t miss a beat financially. Think about these things, and some might be right for you, but others might want the option instead of the obligation to get back to work.
If we can help review your situation, you will get a fair and honest evaluation of how things would work at claim time, please let us know.
[PoF: There are a number of lessons to be gleaned from our panel of experts. First, an adequate, true own occupation / own specialty policy is unimportant until you become disabled. Then, it’s vital.
Second, it’s important to find a broker who will work with you to find the best policy for your specific situation. State of residence, career stage, military service, and exclusions all play a significant role in the policy that may be best for you.
Finally, becoming disabled can create enormous stress on you and your family, but it doesn’t have to create undue financial stress. I’ll admit I didn’t enjoy forking over about 1% of my salary to have solid disability coverage, but it was a small price to pay for that peace of mind. If you don’t want to cover that cost indefinitely, get on a fast track to financial indepence.]