What is with all this talk about discounts on disability insurance? Why are you hearing so much about it at this time of year? Does it really matter to get a discount on the insurance? What would happen if you waited to get it a later date?
The disability insurance companies have created an incentive for doctors to sign up at key times in order to maximize enrollment and at the same time offer significant savings for those who get their policy going earlier. We are talking about individual disability insurance here, not employer, group or association insurance. We are going to focus our attention on individual plans since more than 80% of doctors get their individually owned policies are obtained by doctors at the start of their careers according to the American Medical Association’s Physician Financial Preparedness Survey.
How much are we talking about in savings from the discount? At a minimum it is usually hundreds of dollars per year and in many cases it is thousands annually. Take for example a policy that would cost around $150/mo when taken during the discount period rather than $200/mo afterward. The additional $50/mo is $600 more per year and over 20 years amounts to more than $12k. These numbers are more like what you’d see for male physicians. Female physicians see a much more significant increase in cost by not taking the discount. It is usually 70-80% more expensive for them. This in turn creates a situation where they would have to spend over $20k more by missing the discount.
The reason why the discount exists is because doctors are signing up at the same time as others associated with the same employer and when the volume is significant enough, the insurance companies offer a reduced rate. In many cases, the larger the participation the greater the discounts for certain companies.
Each company has their own discount rate. The lowest start around 10% and the highest typically go up to 20% not taking into account the effect of how gender impacts rates. When gender neutral rates are utilized for certain companies, the discount increases up to about 50% for women.
There is a lot going on in the disability insurance industry right now. Companies are in stiff competition with each other, rates are changing, discount programs are not the same as the used to be and some companies have changed or are planning to change what they are offering, if they even plan to continue at all.
The best thing you can do is talk with an independent advisor who is not a captive agent to get the latest on what’s available and how to get the largest discount. When an agent is captive to one insurance company they have no financial incentive to share the attributes of all plans in a neutral manner. An independent advisor on the other hand is going to be more inclined to help you with all companies, well they should be and if they are not, they are not being independent enough. Make sure you find someone who will give you access to all of the true own occupation companies. If they only show you a few rather than all, keep searching for a better advisor.
One final note to keep in mind before you begin your research. There are two types of individual disability insurance policies. One that requires a simple physical exam and one that does not. The policy that does NOT require any health screening is 99% of the time going to be more expensive and will have reduced benefits as compared to the alternatives. In light of this, the plans that do not require health history are best for people who have health problems. If you’re better than average in your health chances are pretty good you’ll qualify for a better plan at a lower cost by doing the health evaluation. Plus you’ll have access to more options.
Since it can take 30-60 days to get the whole process finalized, we recommend getting the ball rolling at a minimum of two months before you finish at your current post otherwise if the first company you try doesn’t turn out the way you had hoped, you still have time to pursue other options without foregoing the discounted rate.
Talk with one of our advisors to get more details about what you may qualify for and how to go about getting the process started. Our advisory group is truly independent and does not have any kind of captive relationship with any insurance company. We are comprehensive financial planners and wealth advisors ready to serve you on an impartial basis.