Your Comprehensive Guide to Understanding Your Disability Insurance Policy
Understanding your disability insurance policy is very important. There is a lot of technical information on this website. To be concise, a term or concept might not always be defined. This series of comprehensive posts will define all terms and moving parts in a disability insurance policy. It is broken up into three parts: Policy design, disability insurance underwriting, and disability insurance companies (this post). Alternatively, you can start here.
Part 3: Disability Insurance Companies
Unlike many other types of insurance, there are few disability insurance companies. Due to several factors, what used to be dozens and dozens of disability insurance companies (also known as carriers) offering insurance policies to individuals trying to protect their income has dwindled to barely double digits. This is simultaneously positive and negative for anyone looking to purchase individual long-term disability insurance.
The downside is that limited competition doesn’t foster innovation. While new policies periodically become available, the disability insurance company universe is not exactly known for its creativity.
The good news is the policies that exist today are more than adequate to protect even high-income earners. From liberal claims-making abilities to reasonable premiums, the disability insurance companies who still offer individual policies are the best. Several carriers are household names, but even the ones that aren’t offer exceptional policies.
Where to Start?
Not with the disability insurance company…
Regardless whether you purchase disability insurance online or in a face to face environment, the process is the same. At www.highincomeprotection.com, we follow the K.E.E.P. process.
K.E.E.P. is an acronym for how we believe people should purchase disability insurance. It stands for knowledge, evaluation, e-application, and placement. We define our process, so the consumer knows every step of securing disability insurance, and there aren’t any surprises.
Carrier Differences
Now that we know not to start with the carrier in mind, what determines which disability insurance company you should purchase?
For starters, not all disability insurance policies are created equal. Most of the time, disability insurance companies focus their efforts on certain occupations or income levels, meaning when you purchase a policy, your agent should know a carrier’s strengths and weaknesses. The main characteristics that define whether a carrier is appropriate for a particular insured are underwriting advantages, pricing, and ratings.
Underwriting Advantages
So, this is really the starting point for us when reducing the number of carriers we’re evaluating for our future discussion (and another reason it is important to understand your goals beforehand).
There are several different types of underwriting advantages offered by the disability insurance companies, but they all boil down to three major categories: underwriting programs, occupational upgrades, health circumstances.
Underwriting Advantages
From simplified issue to multi-life discounts, we use underwriting programs to facilitate purchasing a policy, reduce premiums, or allow more benefit amount.
Simplified Issue
Some people don’t need a huge disability insurance policy. Maybe their standard of living is very frugal, or they’re just getting started and aren’t making the same money as a high-income earner. In those instances, going through full underwriting is an arduous and unnecessary process.
Full underwriting from disability insurance companies normally involves a medical exam, disclosure of financial statements, such as tax returns, and a review of doctor/medical records.
For smaller benefit amounts, this process can largely be avoided. Simplified issue programs are offered by most disability insurance companies. Most of these programs allow the insured to skip their medical exam and not provide any financial documentation to substantiate income.
The benefits are limited for these programs, however; not everyone needs or even qualifies for a large benefit amount.
This is one example where carrier selection is very important.
Take the case of Ann:
Ann is looking for a relatively low benefit amount from a long-term disability insurance policy. She is fairly young at age 48 and makes a modest salary of 120K. She believes she needs about 5k per month of coverage, payable to age 65.
If pricing is similar (this is important since we never apply for simplified issue when a fully underwritten plan yields a substantial price difference), then choosing the right carrier may allow us to speed up the application to approval process drastically. Some carriers have a monthly benefit limit as low as 3k per month for this age category, while others would allow Ann to skip the exam and financial documentation portions of the underwriting process. She could even apply for more benefit if she so desired.
When used correctly, making sure the carrier selection process includes a thorough review of simplified underwriting programs is important, assuming everything else is relatively equal.
Reducing Premiums
There are several programs various carriers offer that allow for a reduction in premium costs. Programs that do this are obviously sought after and need to be seriously evaluated when choosing a disability insurance company. They take two forms: direct premium reductions and occupational upgrades.
Direct premium reductions can be attained in a handful of ways. If you’re a member of an association that a carrier has an agreement with, you might be eligible for a discount. Purchasing more than one policy from the same carrier (like term insurance and disability insurance) can also qualify you for a discount. Forgoing certain benefits, such as unlimited mental/nervous disorder coverage, will also net you a premium reduction.
Also, one of the largest premium reduction opportunities is a multi-life discount, where three or more people from the same employer purchase policies simultaneously. While many programs in the preceding paragraph reduce your premiums by 5-10%, multi-life programs not only offer 15-20% discounts but also quote gender neutral or unisex rates. This is especially important for women who typically pay a lot more for disability insurance than men.
A multi-life long term disability insurance policy on three women can reduce their premiums by over 40% versus buying the policies individually.
Looking at every carrier’s premium reduction programs can save you substantial premium dollars over the long run. This is another reason it is so important to communicate your entire situation and goals to your agent. There might just be a large discount available at one disability carrier that isn’t available with the rest.
Occupational Upgrades
Occupational upgrades technically reduce your premiums, but mainly because better occupational classes offer more benefits for less money.
These programs are typically available in a variety of situations.
An individual may qualify for an upgrade based on occupation alone. If you work in a “select occupation”, such as a Certified Public Accountant, Attorney, or Engineer, you could be entitled to an occupational class upgrade (which would reduce your premium) or a direct premium discount.
Some disability insurance companies will take other occupations, like being self-employed, and apply an occupational class upgrade. Other companies will allow self-employed individuals to increase their earnings by a certain percentage, allowing them to apply for more benefit than they otherwise could.
This is another reason someone who is self-employed and applying to buy disability insurance might choose one carrier or another. They may be more concerned with getting a maximum benefit amount, rather than the absolute least expensive policy. Should that be the case, the business owner would opt for the earnings increase over the occupational upgrade (unless the occupational upgrade allows them to apply for more coverage also).
Health Conditions
Our goal, once we’ve defined your goals, evaluated your options, and applied with our chosen carrier, is to be “approved as applied for.” That means the premium and benefits match the illustration or disability quote we initially agreed upon.
Sometimes, we get an AOTA. AOTA stands for “approved other than applied”, and it normally isn’t a positive thing. Approvals of this nature may have higher premiums, fewer benefits, exclusions, or a combination of all three.
Our objective is to pre-underwrite the case sufficiently, so we can expect what our approval will look like. Often, we’ll know going in that we will have an exclusion (typically for mental/nervous disorders or musculoskeletal issues) before we even apply, which is O.K.
When an exclusion is added to your disability insurance policy, the defined medical condition won’t be covered by any claims. The policy will still cover the myriad of illnesses or accidents that can prevent you from working outside the exclusion.
Another cause of AOTA is a rating. Ratings increase your premium 25% or more and are typically applied with larger builds (height/weight) or health conditions that aren’t excludable but not cause for decline.
Last, the disability carrier may pose a benefit amount or length limit. We may have applied for 10k per month with a 10-year benefit period. After underwriting, the carrier determines it can offer a policy of 5k per month with a 5-year benefit period. The cost would reduce commensurate with the benefit length/amount; however, this is still an unfortunate development, since it is a reduction of the desired coverage.
While we strive to “know before we go”, meaning we have a good idea of what the underwriting decision is likely to be, sometimes, a rating or benefit reduction occurs.
When this happens, we can take your exam to another carrier or accept the offer. If the original carrier’s offer is fair, based on the underwriter’s findings, we may still opt to accept the policy.
However, if another carrier is likely to accept the same risk with less punitive conditions, then we will move the case to the new company.
This is one of the benefits of being independent. Although there aren’t many individual disability insurance companies, we still have several we can move a case to should the need arise. This allows www.highincomeprotection.com to secure the best policy with the most competitive rates for your needs.
Pricing
The pricing of your disability insurance policy is predetermined by your occupation class, chosen benefits and riders, financials, and health.
Your premiums can be reduced by any of the previously mentioned underwriting programs, such as multi-life discounts or occupational upgrades.
They can also be increased due to health or risky occupations.
The one thing that doesn’t change your pricing is from who or where you purchase your policy. Whether you buy from an agent you meet at his or her office or buy your disability insurance online from a digital agency such as ours, we all offer the same pricing for the same risk (if everything else is equal as well). Even if you could purchase your policy directly from the carrier, the premium cost doesn’t change.
Disability insurance companies don’t favor one distribution channel over another; they just want people to purchase their policies.
That is why it is crucial you find and agent or an agency that helps you secure the best policy based on their understanding of your needs and their expertise in the disability insurance space. The actual conduit to placing your policy is a level playing field.
We are independent and unbiased. That means we will shop all the major disability insurance companies for the right product for you. Balancing reasonable premiums with desired coverage takes a lot of time and experience, but you will likely own this policy for the rest of your working life.
Buying the right policy the first time is important.
Ratings
If all else is equal, go to the carrier with the higher rating.
If not, then don’t (as long as the other company also has good ratings).
While meant to be somewhat tongue in cheek, the above statements are not inaccurate.
Every major insurance company will have a rating assigned to it. Disability insurance companies normally tout their A.M. Best ratings. A.M. Best is a rating agency that evaluates the carriers’ claims-paying abilities. Tracing their roots to 1899, they are the oldest and most recognized provider of these ratings and focus mainly on the insurance industry.
Best has ratings that range from A++ to F (they also have a suspended and not rated category) that go in order of financial strength and claims-paying ability.
A+ and A++ Assigned to insurance companies they believe to have a superior ability to meet their ongoing insurance obligations.
A and A- Assigned to insurance companies they believe to have an excellent ability to meet their ongoing insurance obligations.
B+ and B++ Assigned to insurance companies they believe to have a good ability to meet their ongoing insurance obligations.
B and B- Assigned to insurance companies they believe to have a fair ability to meet their ongoing insurance obligations.
C+ and C++ Assigned to insurance companies they believe to have a marginal ability to meet their ongoing insurance obligations.
C and C- Assigned to insurance companies they believe to have a weak ability to meet their ongoing insurance obligations.
D Assigned to insurance companies they believe to have a poor ability to meet their ongoing insurance obligations.
E Assigned to insurance companies publicly placed under a significant form of regulatory supervision, control, restraint. An impaired insurer.
F Assigned to insurance companies publicly placed under a significant form of regulatory supervision, control, restraint. An impaired insurer.
So, why don’t we start with the disability insurance companies’ ratings and go from there?
Mainly because there are almost no companies offering individual disability insurance that don’t have at least an “Excellent” rating or better.
If we have the choice between an A+ and an A- rated company and everything else is equal (benefit amount/length, pricing, riders, etc.), then we will absolutely look to the more highly rated carrier first. However, if an A rated company is 20% less expensive for the same basic policy as the A++ rated carrier, then we default to the higher savings.
Companies Offering Individual Disability Insurance
This list is not meant to be comprehensive; however, it highlights the majority of the disability insurance companies in the individual market. It is a small list, but the majority have been in this space for a long time and offer income protection for nearly all professions.
So, whether you’re a CEO of a fast-growing startup or you own a thriving hair salon and are on your feet all day, one of the companies below will have a policy to help you protect your paycheck. Most of the time, carriers will specialize in white, gray, or blue-collar markets, but some of the larger carriers have created separate products to address all of them.
What companies offer individual disability insurance?
Ameritas
Knights of Columbus
Northwestern Mutual
Thrivent
Unum
This list comprises nearly all the disability insurance companies offering coverage to individuals. As I mentioned earlier, it is a small universe but one with excellent carriers.
Summary
While there aren’t a lot of disability insurance companies, there are a lot of intricacies in designing an individual long-term disability insurance policy.
If you’d like to learn more on your own, then check out Your Complete Guide To Buying Disability Insurance. If you’re ready to have us guide you, then contact us today for a complimentary consultation to identify your needs and options.
We are here to help.
Our agency provides expert, unbiased advice to help you purchase a policy tailored specifically to your needs, both in benefit and in price.
Fill out the quote form to the left or contact us to start the discussion.