Most people insure their material possessions — their homes and cars. But many people fail to recognize what is probably the most valuable asset: their ability to earn an income. If someone gets sick or injured and can’t work, will they be able to pay their bills and maintain the same or similar standard of living?
What are the chances of becoming disabled? It’s a strange question. It depends on what you read and what someone considers a disability. But understanding the all-encompassing nature of a client’s particular occupation—what needs to happen for them to fully earn a living—can diminish their focus on odds in favor of simply recognizing the power to protect themselves. Let’s say it’s a much bigger concern for high earners.
Young professionals, and especially law students, learned early in their adult lives that their most valuable asset was their ability to earn a living.
When they chose to go to school, they made commitments to invest in their careers, incurred large debts, or entered into certain working relationships to ensure that they would be able to fulfill their financial obligations. They have become comfortable with a particular way of life, perhaps have families, acquire assets, and undertake educational obligations. So they started winning.
Most have learned to seek out and purchase disability insurance to protect their income from disruption. That was probably true then, and it still is today. However, much has changed in the area of client protection through disability insurance.
Here’s a quick look at the DI scene, looking back and forward.
Individual Disability Insurance
Years ago, professionals had many choices when it came to purchasing a disability insurance policy. There were plenty of choices to choose from and the contracts were broad in nature and specific in their definitions to be eligible for benefits, and had a host of consumer-centric endorsements that enhanced the policies. Riders included things like a cost of living adjustment that kept benefits growing, a return of premium benefit that may have refunded some or all of the premiums, and even a non-catastrophic injury benefit paid. cash. They almost always included a residual or proportional income rider, or both.
More importantly, individual health insurance policies had a “Own-OCC” or “Own-Occupation” definition of disability. A typical non-cancellable individual DI policy defined total disability as follows: “Solely by reason of sickness or injury, you are unable to perform the material duties of your regular occupation – even if you are in able to work in another profession!” Your occupation meant “the occupation or occupations (if there are more than one) in which you are gainfully employed for the majority of your time, at the time you become ill or disabled”.
Carriers have refined the definition of your profession into a single specialty. The contracts recognized this specialty and paid benefits based on the insured’s inability to practice this specialty. Your client could conceivably be a litigator, suffer an injury preventing them from going to court, earn a comparable income doing office work, and receive full benefits.
It was something powerful!
Even more compelling, the carriers also offered residual and/or proportional benefits – which provided that if an injury or illness disrupted your income (but did not necessarily result in a reduction in time lost from work), as long as you suffered a loss of income – you would also receive a certain percentage of benefits.
In the mid-1990s, insurance companies began to see a dramatic increase in claims. Some health insurance policies have made it just too easy to substantiate claims, and in many cases people have taken advantage of the carrier’s favorable wording. Additionally, when many physicians became dissatisfied with how managed healthcare changed their practices, they quickly recognized that their DI policies could hasten their retirement, so they began filing claims in record numbers. . Carriers were not prepared for this increase in the number of complaints.
This posed a challenge for insurance companies, and many acknowledged that they had issued policies that were simply too generous and made it too easy to substantiate a claim. Individual disability underwriting has become more stringent, new policy costs have increased, underwriting has tightened, and the industry has faced litigation lawsuits.
In the early 2000s, a class action lawsuit against one of AI’s major individual carriers resulted in uniform changes to contract language, easing the burden on plaintiffs’ ability to recover. But policies became more difficult to acquire, there were limits on claims for back/neck and mental/nervous disorders, and individual ID carriers realized they could no longer compete. The availability of non-cancelable DI options for lawyers has become limited.
The combination of a booming economy, a dramatic increase in income, and the lack of evolution in AI products meant that most professionals were woefully underinsured.
Group disability insurance
Many underinsured professionals have looked for ways to increase their coverage. If a professional had staff, they could purchase group disability insurance from the employer or association and add a second layer of coverage to their individual plan.
These group contracts were very different from large individual plans. These plans are integrated with government benefits and limited claims for conditions such as spinal and mental health issues. Nonetheless, they added coverage – giving the insurer more discretion over when it would be obligated to pay out a claim.
When designed well, this group coverage would pay in addition to what any individual coverage would pay. Furthermore, a proper design, with premiums passed on as income, would ensure that benefits would be received tax-free, just like benefits from individual DI policies. However, group coverage was limited to 60% of the insured’s income. Even though the additional benefit was $10,000 or $15,000 per month, many were and still are grossly underinsured relative to their expenses and lifestyle.
Additional Redemption ID
The limitations of older individual DI plans, even when combined with a group DI plan, still left many professionals underinsured. Lifestyles and incomes had simply overtaken the disabled market. Insurers were reluctant to provide anyone with enough disability benefits to give them peace of mind that they could meet their financial obligations. People were simply spending more than they could protect and still depended on their health to earn a living.
Insurance markets reacted by offering additional buy-back coverage. These policies can offer simplified issue or, with three or more participants, even guaranteed issue. These are also contracts specific to the profession, allowing professionals to take out insurance and obtain reimbursement of up to 70% of their income in the event of illness or accident.
Thanks to this offer, many professionals can now take out cover that complements both their individual and collective cover.
A host of newer policies address areas of disability that can further protect lifestyles. A new evolution of disability insurance can now add an extra layer of cover for professionals to insure their lifestyle in the form of a lump sum benefit.
With so many pressures on our income and so many complex issues that all hinge on our income, it’s no wonder that AI is of critical importance to professionals. Taking into account the additional drains on income due to divorce situations (alimony and alimony), the financing of studies, real estate, various commercial promises (leases, salaries, etc.) and medical expenses, l AI is an essential part of any financial plan.
Unless your client has a very wealthy relative, it’s very unlikely that he has anyone to turn to for help paying his bills if he becomes disabled.