This guest post is from Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, 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.He is a sponsor of this site.
The AMA’s DisabilityPro Own-Specialty Disability Insurance®: What You Need to Know Before You Buy
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF
As an insurance agent that specializes in disability insurance for physicians I am often asked to review and comment on the AMA’s DisabilityPro policy, which is available to physicians under age 60 and actively engaged full-time in the duties of their profession. Membership in the American Medical Association is not required.
Unfortunately, there are many potential problems/issues associated with this policy, as well as, similar offerings from other professional associations. For now, let’s focus on the specifics of this policy, which is underwritten by The United States Life Insurance Company in the City of New York.
- It is not Non-Cancelable and Guaranteed Renewable. “As long as you are a physician actively at work, under the age of 75 (not retired), pay your premiums when due, the group policy remains in force, and the AMA continues to sponsor this plan, your coverage can be renewed”.
A policy that is Non-Cancelable and Guaranteed Renewable provides the greatest degree of protection to you as a consumer. Meaning, as long as required premiums are paid, the policy can’t be cancelled, premiums increased, or coverage terms changed until the policy expiration date (typically age 65).
- The Premium Rates Are Not Guaranteed. While “You also cannot be singled out for a rate increase, regardless of how many claims you have made or the changing status of your health, rates may be adjusted for the entire group”. Rate increases occur as you move from one age bracket to the next. Depending on plan experience, rates and rate reductions may change on the plan anniversary date (September 1) or your annual renewal date, whichever is later.
- It Does Not Have an “Own-Occupation” Definition of Total Disability (but the brief description and program name suggest it does). “Unlike some other disability plans, this plan contains a preferred definition of disability. If you are unable to perform the duties of “your own medical specialty, benefits can be payable for up to age 65”. It then states that “you can receive a residual benefit if you return to work on a part-time basis in your own specialty or any other specialty or occupation if your monthly income is reduced by at least 20 percent, and you first receive benefits for total disability”.
At this time of this writing, depending upon your state of residence and medical specialty, there are only six companies that potentially offer this definition to physicians – Berkshire Life (a Guardian Company), Standard, MassMutual, Principal, Ameritas and Ohio National.
- The Number of Days Required to Meet the Elimination Period Must be Consecutive. The waiting period is defined as the period of time from the start of total disability during which no benefits are payable. The waiting period is only satisfied if you are not working in any occupation. In order to meet the Elimination Period (also known as a “Waiting Period”), the policy requires a “period of consecutive days of Total Disability for which no benefit is payable”. Individual policies do not require this and, for example, might specifically state that “You must be Disabled before benefits begin to accrue and starts on the first day that You are Disabled. The days within this period need not be consecutive but they must occur within the Accumulation Period. Benefits will not accrue or be payable during the Elimination Period”.
- You Must Be Totally Disabled Before You Can Collect Residual Disability Benefits. “This plan allows you to make a gradual transition back to full-time employment following a covered total disability“.
In his article “What to Look for in Disability Income policies”, the late Peter C. Katt, CFP®, a fee-only insurance adviser located in West Bloomfield, Michigan, stated “Do not buy a disability income policy that has a qualification period. There are too many diseases that are progressive and have no total disability at the beginning. Under such circumstances, a qualification period of, say, 30 days would prevent the insured from receiving any residual benefits”. Ideally, your disability insurance policy should not require that you be totally disabled prior to collecting Residual Disability benefits.
A good example of this might be a physician that has not been feeling great and, as a result, has been working sporadic hours. They have their good days and their bad days. Due to their symptoms, they have and continue to consult with various medical specialists in hope of getting a differential diagnosis. This goes on for years and, as a result, they are working fewer days per week, fewer hours per day, seeing fewer patients and/or performing fewer procedures – causing a (potentially substantial) loss of income.
Finally, they are diagnosed with Multiple Sclerosis and told they can no longer work in their medical specialty. Only at this point, after the waiting period is satisfied and they meet the definition of total disability in the policy, can they potentially qualify for Residual benefits under the AMA’s policy.
- There is no Recovery Benefit. While any policy you purchase must include a Residual or Partial Disability Rider, what happens if you have physically recovered and returned to work on a full-time basis but continue to experience a loss of income?
A Recovery Benefit is designed to do more to assist with your financial recovery following a disability – especially if your practice has been built on referrals from existing patients and/or other physicians. Should you continue to suffer a loss of income of 15-20 percent or more, compared to your pre-disability income, and there’s a demonstrable relationship between your current loss of income and your prior disability, some companies will continue to pay benefits to the age of 65 or longer.
Other companies continue to pay for a limited period of time (typically 12, 24 or 36 months), which may or may not properly support your financial recovery. Therefore, if some or all of your compensation is tied to productivity, you should make certain that the policy you purchase contains a liberal recovery benefit.
- Limitations Exist for Claims Related to Mental and Nervous Disorders. “If you are disabled due to mental, nervous or emotional disorders before age 69, benefits under this plan are limited to 24 months. At age 69 and 70, benefits are limited to 18 and 12 months, respectively. (If such disability begins before age 63, benefits are payable up to age 65 if you are confined to a hospital at the end of 2 years and such confinement has been continuous for the immediately preceding 12 months.”).
While some carriers will cover claims for mental and nervous conditions in the same way as other disabilities, the majority of companies limit these claims to a maximum of 24 months (either per period of disability or over your lifetime). This limitation is invoked if the primary cause of disability was solely a psychiatric or substance abuse disorder or diagnosis including, but not limited to, post-traumatic stress syndrome, anxiety, depression and or alcohol abuse/addiction. Although many physicians will opt to purchase a policy with the least amount of restrictions, some willingly accept a policy with this limitation in order to take advantage of the cost savings associated with it. Others, like Anesthesiologists or Emergency Medicine Physicians, may simply have no choice.
- There is No Cost Of Living Adjustment (COLA) Rider Available. A COLA Rider is designed to help your benefits keep pace with inflation after your disability has lasted for 12 months. This adjustment can be a flat percentage or tied to the Consumer Price Index. Although costly, this rider can provide significant increases to your monthly benefit if you are disabled early in your career.
- There is a Limited Future Benefit Increase Option. “If you are under age 40, this option may allow you a future increase in benefits with no health questions or medical exams required if your income increases and you remain actively at work. This one-time option must be exercised within the first three years of your original effective date or before your 40th birthday, whichever comes first.
This rider allows an insured to apply for additional disability insurance coverage, regardless of their health, as their income rises. Essentially, you’re paying for the right to increase your policy’s monthly benefit without undergoing another exam, blood test, urine test, or answering any medical questions. This guarantees that any medical condition(s) that develop after the original policy’s purchase would be fully covered, and not subject to new medical underwriting. If you are purchasing a policy early in your career as a Resident or Fellow, you will likely no longer qualify to exercise the AMA’s policy as you may still be in training within the first three years of your policy’s original effective date. As a result, your future income may not be adequately protected.
- The Monthly Benefit May Not be Adequate. “You may apply for up to $15,000 in monthly benefits. Monthly benefits from this plan, when added to any other disability insurance in force or applied for, cannot exceed 66 2/3 % of your monthly pre-tax income or $20,000, whichever is less”.
Individual disability insurance companies will typically issue policies with monthly benefits from $15,000-$20,000 month. However, by combining companies, you can potentially reach a total of up to $30,000 month of individual disability insurance coverage (or up to $35,000 month with group LTD coverage). As a result, for high income specialties, I often combine two companies to allow them to potentially reach this higher amount, subject to their income and other disability insurance coverage inforce, if any.
- You Are Not the Policyowner. “The group policy is a contract between United States Life and the Policyholder. It may be changed or ended without notice to or consent of any insured person”. “The benefits described in this certificate are provided by group policy G-208,475, issued to the AMERICAN MEDICAL ASSOCIATION, the Policyholder. This certificate is a summary of the group policy provisions with affect your insurance. It is merely evidence of the insurance provided by such policy.
Although initially low in cost, association plans, such as the AMA’s DisabilityPro Own-Specialty Disability Insurance®, do not provide the customized benefits that can be achieved by purchasing a high-quality individual disability insurance policy. In my opinion, this offering is best summed up by the old adage “you get what you pay for”.
Keep in mind that many insurance companies make discounts available on individual disability insurance policies through hospital affiliation or professional associations. Agents that specialize in working with physicians should know of and have access to them. Otherwise, establishing one requires that 3-5 employees working for the same employer purchase policies from the same insurance company.
Ideally, you want to purchase your policy from an agent that represents several insurance carriers, provide you with illustrations of coverage from each and will review the differences between them with you in detail. You can then make a decision based upon the policy or policies that best meet your individual needs, goals and budget.
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF 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.
DisabilityPro Own-Specialty Disability Insurance®: is not available in Alaska, Maryland, New Hampshire, New Mexico, North Carolina or Oregon.
These are the personal views of the author and may not represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Avenue, 9th Floor, New York, N Y 10017-6603, 212-541-8800. Securities products and advisory services are offered through PAS, 1-516-677-6200. Financial Representative, The Guardian Life Insurance Company of America, New York, NY (Guardian). PAS is an indirect wholly owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member FINRA, SIPC
2018-53523 Exp. 12/19