We have just completed the first key component to a disability policy, the true own occupation definition. We now come to the second key component which is an insurance term known as non-cancellable/guaranteed renewable. This is a must have policy feature because it provides all the guarantees you need to have a secure policy. Once you purchase your policy, it guarantees that the premium will never increase. The insurance company cannot restrict, change, or cancel benefits in your policy. However, you have all the rights, including the ability to cancel your policy if you wish. Only an individual policy has this second key component.

Third key component referred to as the residual benefit can be considered a partial benefit as a result of being able to work only part-time in your specialty. It is a must have policy feature since illnesses are primarily the cause of long-term disabilities and can be slowly degenerating. A medical diagnosis will not necessarily immediately cause you to be 100% disabled. Therefore, you need the partial benefit to supplement a partial loss of income in your specialty. Obviously, if you are totally disabled and you work outside your specialty, you receive your total benefits. This feature is ideal for doctors who want to stay in their specialty, but can only work part-time due to an illness or injury.

The fourth key component is especially important to residents and fellow physicians. It is referred to as a future purchase option rider or a future increase rider or a guaranteed purchase insurability rider. It is a must have policy feature because it locks in your future insurability. What insurability means from an insurance company’s perspective is that you are a healthy risk with minimal or no previous underlying medical history. The idea behind a future purchase option is to take advantage of your current health and be able to lock in the guaranteed right to increase coverage based on your health status today when you purchased your policy regardless of your health in the future. You have essentially guaranteed your ability to purchase additional coverage in the future without any health questions when you choose to. The only caveat is that you have to qualify financially.

So now we have covered the four key components which fall into two themes for a great disability policy, choices and guarantees. In terms of choices, the true own occupation provision gives you the choice to work outside your specialty, receive full benefits while receiving a full salary. And the residual feature gives you the choice to work part-time in your specialty and receive a partial income benefit. In terms of guarantees, the non-cancelable/guaranteed renewable feature gives you the peace of mind that the insurance company can never increase your premium or change your benefits. Why would you purchase this insurance? Why would you have it if it does not give you peace of mind? You, of course, can cancel your plan at any time without any ramifications. And the last key component, future insurability, guarantees you the right to increase your coverage in the future without medical questions or a blood test. No matter if a preexisting condition arises between the time you purchased your policy and when you are ready to increase it, you are still able to increase it when you need to.

We have just covered the four key components which make up the foundation of your income protection plan. In summary, that includes the true own occupation definition, non-cancelable/guaranteed renewable provision, residual benefits, and guaranteed future purchase options. There are optional riders which, in our professional opinion, should not be automatically included in your plan until you fully understand the benefits and the corresponding costs. The reason is because adding optional riders can inflate the premium to your disability policy significantly. And at some point, you have to ask the question, how much do I wanna pay for a policy I hope I never use? This is where we follow the golden rule. In your position, we would want the cost of optional riders to be unbundled and thoroughly explained. So let’s start with the most common provision we see added in proposals, the cost of living adjustment rider. What does the cost of living rider mean? Its purpose is to protect you from inflation while you’re out on a claim. What do we mean by inflation? Inflation refers to the increased costs of food, shelter, clothing, and utilities, et cetera, as time goes by. You can choose to purchase an inflation factor, which can range between 3 and 6%. And it can be either simple adjustment or compound increase to your monthly benefit. Bear in mind, this benefit increase only commences once your disability claim has been approved. The higher the percentage and whether it’s simple or compounded, the higher the premium. Understanding that you can own these policies for well over 30 years, the cost of this provision can really add up. This rider can be very expensive and you must ask yourself the question, do I really need it? You see, if your policy is a true own occupation policy, we contend that the ability to work and receive a full salary in some other occupation is an inherent adjustment to the cost of living, making this provision a personal choice. That is why we do not include it in one of our four key components. We also recommend that you ask the question, would my premium dollars be better served in some other manner, paying down student loans, purchasing life insurance, saving for your children’s college, et cetera? These are the questions we suggest you ask before you commit.

Other optional riders, which are typically included in disability proposals, are the catastrophic benefit rider, and more recently, the student loan rider. The catastrophic benefit can be considered a long-term care provision since it has the same definition of a long-term care policy, the inability to perform two out of the six activities of daily living: dressing, toileting, transferring, continence, eating, bathing, or separately the diagnosis of severe cognitive function. The student loan rider has recently developed as the result of the growing burden of student loan debt physicians now face. In summary, when reviewing a disability insurance proposal, we urge you to request the breakout of each optional rider. Have the provisions explained to you and be shown the costs with and without the specific features. The purpose of the exercise is to help you customize what works best for you without being pressured into purchasing a policy that may have an inflated premium which may put a strain on your budget.