Disability insurance - amount, private policy, riders

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SeattleLaw
Posts: 157
Joined: Sun Jan 01, 2023 8:11 am

Disability insurance - amount, private policy, riders

Post by SeattleLaw »

My income has been going up over time. My law firm has a decent "own occupation" group disability policy that covers 60% of our income, but has a maximum benefit of $15,000 a month, regardless of how much you actually make. My income has been significantly more than $15,000 a month for the last couple of years, and I am the primary earner in our household.

We live well within our means, and $15,000 a month would cover our basic living expenses, but it would be a drastic change in the amount we bring home. I have shopped around for private disability insurance. The sweet spot on price seems to be $10-15k in private coverage for an own occupation policy with Mass Mutual or Principal. It would have partial disability and catastrophic disability riders, but not cost of living. I could get that for about $3k a year, and the benefits would be tax free since it's a private policy.

Here are my questions:
1. Should I think of DI as "catastrophic insurance" where I buy the bare minimum to meet my living expenses? (i.e. stick with my group policy?)

2. I'm not sure that I'll be with my current law firm forever, so would it be worth locking in a lot of coverage as a 30-something in the preferred plus health category?

3. I am a partner at this firm, so my income is not guaranteed. If there were some "black swan" event where we had a really bad year and then I needed to use my DI the next year, the group policy would look back at the previous years' earnings to calculate my benefit, whereas the private policy would pay me my contracted rate. Is that something worth considering in my decision?

4. Are Mass Mutual and Principal good policies? Any differences I should be aware of? (Guardian was way more expensive and would only offer me an additional $5k in coverage. Even their broker told me to look for other policies).

5. It's confusing how the group policy and the private policy would interplay. Our group DI broker has no idea, and the policy language is very unclear. I'm concerned that if I needed the insurance, my group policy would automatically reduce itself because I have this private policy paying me as well.
Chotch
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Re: Disability insurance - amount, private policy, riders

Post by Chotch »

What did you end up deciding?

I am an associate at a large law firm which has the same LTD group benefit. I’m considering getting supplemental disability insurance in the hope of “locking in” a low premium at a young age.
BruDude
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Location: Las Vegas

Re: Disability insurance - amount, private policy, riders

Post by BruDude »

SeattleLaw wrote: Thu Jan 26, 2023 8:03 am
Here are my questions:
1. Should I think of DI as "catastrophic insurance" where I buy the bare minimum to meet my living expenses? (i.e. stick with my group policy?)

2. I'm not sure that I'll be with my current law firm forever, so would it be worth locking in a lot of coverage as a 30-something in the preferred plus health category?

3. I am a partner at this firm, so my income is not guaranteed. If there were some "black swan" event where we had a really bad year and then I needed to use my DI the next year, the group policy would look back at the previous years' earnings to calculate my benefit, whereas the private policy would pay me my contracted rate. Is that something worth considering in my decision?

4. Are Mass Mutual and Principal good policies? Any differences I should be aware of? (Guardian was way more expensive and would only offer me an additional $5k in coverage. Even their broker told me to look for other policies).

5. It's confusing how the group policy and the private policy would interplay. Our group DI broker has no idea, and the policy language is very unclear. I'm concerned that if I needed the insurance, my group policy would automatically reduce itself because I have this private policy paying me as well.
1. No, and each DI policy has different terms and conditions which can impact your decision too. Your group policy will go away if you leave the practice, or even if you have the option to convert it to individual coverage it would likely be more limited and pretty expensive. The individual policy can be kept with any future employer and the coverage is much more comprehensive. Your group LTD probably does not even cover partial disabilities, or may have very limited coverage for that of 6-12 months instead of to age 65.

2. The younger you are when you buy the coverage, the cheaper it will be every year through age 65. DI premiums don't increase and are based on the age at which you purchase the coverage, so waiting to increase will only cost you more every year in the future. You can include the Future Increase Option or Benefit Purchase Option type riders to guarantee the ability of increasing coverage in the future regardless of any changes to your health. The Principal policy's future increase benefit works a bit differently, I'd suggest reading the Maximize Your Benefit section of the quote for details on what qualifies for an increase. The Future Increase Option is an extra-cost rider and is more flexible, while the Benefit Purchase Option still guarantees future coverage but is less flexible and has no additional charge. You'll need to purchase at least 75% of the amount you're eligible to buy to get the Benefit Purchase rider included (ex: If you're eligible for $10k/month max you'd need to buy a minimum of $7500/month to have the BPR included).

More importantly, you want to lock in your insurability. DI policies don't have underwriting like life policies - with a life policy they can only charge you more money for the same coverage to offset the risk. With DI they can charge more money, limit the benefits they'll allow you to purchase (ex: only allow a 5-year benefit period instead of to age 65), place an exclusion rider on the policy saying it won't cover a specific condition or body part, or some combination of those.

3. Yes, the individual policy will always pay out the stated benefit amount if you qualify as totally disabled regardless of your actual income at the time of disability. Your group LTD is limited to $15k/month though so if you are making significantly more than that, it may be tough to dip below that anyway even in a bad year.

3. Both are good policies but I'd give the advantage to Mass Mutual. The MM policy is also eligible for dividends after 5 years while the Principal policy isn't, so that can make a difference in the overall cost too.

5. The individual DI policy is not impacted by group LTD payouts. The group LTD policy shouldn't be impacted by an individual DI policy payout either but you'd need to read the policy details to be sure. Look in the "other income" section and see if individual DI payments are listed there as an offset. They probably aren't.


I am curious why the Guardian policy was both more expensive and limited to $5k/month. Can you expand on that? Guardian's class 6 occupation for attorneys is almost always the least expensive coverage for attorneys (or very close to it), and they'd calculate your income and bonus in the same way that MM and Principal do so I'm not sure why that one would be limited to $5k/month if the others are at $10-15k/month max.
Last edited by BruDude on Wed Oct 18, 2023 12:50 pm, edited 2 times in total.
BruDude
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Re: Disability insurance - amount, private policy, riders

Post by BruDude »

Chotch wrote: Tue Oct 17, 2023 11:19 pm What did you end up deciding?

I am an associate at a large law firm which has the same LTD group benefit. I’m considering getting supplemental disability insurance in the hope of “locking in” a low premium at a young age.
Just realized the original post is from January but same info above might help
Topic Author
SeattleLaw
Posts: 157
Joined: Sun Jan 01, 2023 8:11 am

Re: Disability insurance - amount, private policy, riders

Post by SeattleLaw »

BruDude wrote: Wed Oct 18, 2023 12:48 pm
Chotch wrote: Tue Oct 17, 2023 11:19 pm What did you end up deciding?

I am an associate at a large law firm which has the same LTD group benefit. I’m considering getting supplemental disability insurance in the hope of “locking in” a low premium at a young age.
Just realized the original post is from January but same info above might help
I got a separate, private DI policy. My understanding is that the private policy and my group policy act sort of like "co-insurance." In other words, you can only insure a certain % of your income so the policies get reduced by "other benefits" (i.e. disability from the government or payment under another DI policy). But, the group policy's max is only a small part of my actual take home pay, which is why I got the private policy on top of it. It has a 90 day waiting period, is true "own occupation" and has some other bells and whistles. I think I pay around $3k a year. Well worth it in my opinion for the amount of coverage I have. I guess being a lawyer with a desk job isn't considered too high risk, which is why the coverage is cheap :D
Last edited by SeattleLaw on Sat Oct 21, 2023 8:50 am, edited 1 time in total.
Topic Author
SeattleLaw
Posts: 157
Joined: Sun Jan 01, 2023 8:11 am

Re: Disability insurance - amount, private policy, riders

Post by SeattleLaw »

BruDude wrote: Wed Oct 18, 2023 12:47 pm I am curious why the Guardian policy was both more expensive and limited to $5k/month. Can you expand on that? Guardian's class 6 occupation for attorneys is almost always the least expensive coverage for attorneys (or very close to it), and they'd calculate your income and bonus in the same way that MM and Principal do so I'm not sure why that one would be limited to $5k/month if the others are at $10-15k/month max.
I think Guardian had a harder time with my income since I am not a W2 employee and my very high income was relatively new. The salesperson was very nice and told me I'd be better off shopping around, which I appreciated. I ended up with Mass Mutual which seems to have a very similar policy.
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