Compared to other lines of life and health insurance, the number of companies that offer individual Disability Income insurance is rather small. Life Insurance Selling conducted a survey of companies that offer these plans and found only 19 – at least that is all that was willing to participate in their survey. Most of the companies offer more than one type of Disability Income insurance policies (the LIS survey discussed 21 policies from these 19 companies), but generally have one type that is the most popular. The following information on these products are based primarily on the results of the above-mentioned survey, however, the names of the companies are not shown as the purpose of this discussion is to indicate what is being offered to the public in 2002.
With only one exception, the states in which these plans are offered range from “all states,” to 33 states. The one exception is a fraternal company who historically operates only in few states.
Fourteen companies allow their plan to be available through payroll deduction. Oddly, only one company admitted having a separate policy form for payroll deduction, which usually is issued with smaller benefits, shorter waiting period, and with a different premium structure. From experience, one can assume that not all companies admitted to having separate payroll deduction plans.
Most of the companies (8) offer only plan, with 6 offering 3, 5 offering 5 plans, others offering 2 or 7 plans. The company offering the most plans (7) is the result of a merger of three companies, all of who were offering Disability Income insurance and therefore, it would be expected that they would offer several plans.
The most popular rider is the “Cost of Living Adjustment Rider,” followed by “Own Occupation Protection Rider,” Future Purchase Option,” “Supplemental Social Insurance Benefit,” “Partial Disability” or “Total Disability.” Several companies offer “Return of Premium Rider”, and at least one company considers it as their most popular Rider.
Other Riders available on the market are:
“Residual Benefit Rider”
“Group Disability Replacement Rider”
“Transplant”
“Business Overhead Expense”
“High Limit Benefits” (interestingly, this is offered by a representative of Lloyds of London – remember previous discussion of restricted number of companies offering high limits.)
“Long Term Care Eligibility”
“Non-cancellable;” “Guaranteed Renewable;” or “Conditionally Renewable”
“Residual Disability Benefit” (one policy uses a “Non-cancellable/partial Disability Income Rider” as the Residual Disability Benefit.
“ADL Rider” (Activities of Daily Living)
“Presumptive and Cognitive Impairment Based Catastrophic Rider” (offered by the same company as offers the ADL Rider)
Most policies are Guaranteed Renewable, but nearly as many are Non-cancellable. Some are Guaranteed Renewable, Non-cancellable or (very few) Conditionally Renewable and are not occupation-explicit.
One policy (with occupational ratings as high as AAAAAA – (or “6A”) offers Non-cancellable for classes 6A to 2A (AA), Guaranteed Renewable for classes 6A to B, and Conditionally Renewable all over age 65.
One other policy offers Non-cancellable, but Guaranteed Renewable for classes 4A, 3A and 2A classes.
The only other policy surveyed that breaks down renewability by occupation offers Guaranteed Renewable 2A, 3A, 4A, 5A and A or B.
Minimum issue age is 18 among all policies. Maximum issue age is overwhelmingly 60, with a few at age 59, and one at age 61, and 2 at age 65.
The issue amounts jump all over the map, particularly in the maximum amounts. Minimum amount ranges from $200 per month (4 policies) to $750 (1 policy), with 6 policies offering $500 and one at $511. Once company has a minimum of $2,000 in California only, and the Lloyd’s company has $3,000 (with a maximum of $50 million in the aggregate).
The maximum amount ranges from $4,000 to $5,000 (2) to $6,000 (2) to $8,000(1). The most popular maximum amount is $15,000 offered by 9 plans, 2 offers $12,000 and 2 offers $10,000. One company indicated that California requires $2,000 as a minimum and $10,000 in California and Florida and possibly other states.
If issue amounts become a problem when writing individual Disability Income insurance, it would appear that coverage from $500 per month to $15,000 a month is readily available. Of course the maximums are subject to strict underwriting requirements.
Target ratios (the maximum percentage of income that can be replaced by the Disability Income insurance policy) is generally broken into three income categories, except for two policies that use the same percentage for all income categories (68% for one and 60% for the other). The number of policies if more than one, using the indicated percentage is shown in parenthesis following the percentage number.
$50,000
60%, 64%, 65%, 66%, 67%, 68% (5), 69%, 69.6%, 70% (5), 72%
$100,000
49%, 55%, 56%, 57% (4), 58% (5), 59%, 60% (4), 68%
$200,000
30%, 36% (2), 43.8%, 45% (5), 46% (5), 48%, 50%, 60% (2), 68%
To generalize these statistics, for amounts up to $50,000, most policies use 65% to 70% of gross income. For amounts up to $100,000, 57% to 60% are the most frequently used. For amounts of $200,000 and up, there is a larger range, but generally speaking it runs between 45% and 60 %. If anything, this proves that every agent must thoroughly understand his company’s requirements specifically.
Only two of the policies are not renewable after age 65. Three renew until age 70 if working fulltime, one renews at age 74 if working fulltime, three at age 75, two at company option, and 10 will renew for life (except Florida has an age limitation of age 75 on one policy form).
“Working fulltime” is defined by most policies as at least 30 hours per week.
Although one company responded that they were going to have a Long Term Care conversion rider available later in the year (2002), only three policies allowed for an LTC conversion. One policy required no evidence of insurability between ages 50-60; another policy gave an option at ages 50, 55, 60 and 65; and a third policy simply allowed a conversion after age 60 with no evidence of insurability.
The greatest majority of the policies use the “Own occupation” definition. One policy extends it to any reasonable occupation after two years. Three companies use 5 years of employment, one company has 6 different definitions of disability, and one company has a rather elaborate definition based upon occupational class.
The majority of the policies do not have an “Own Occupation” provision on a specialty basis. Those that do all relate specifically to the medical or dental field or allow a 60-month extension for the highest occupational classes. One policy does it on a “case-by-case” basis.
Obviously loss of income is the principal basis. Typically 20% or 25% loss of income for 80% of the time with loss of time and income requirements waived if on total disability for 3 months. If there is actual disability, the insured must not be able to perform one or more of the material duties related to his occupation. Some policies specifically state that if there is a 75% loss of income, it will automatically be considered as total disability. One policy uses loss of one-half or more of time spent in usual performance of their duties. Another policy makes it dependent upon loss of 85% of income.
Another policy takes a little different definition and allows partial loss of earnings benefits are available if able to earn between 30% and 80% of previous average earnings. One policy has 50% benefits if 20% income loss for first 6 months.
These benefits are available generally by Rider (8 policies). Five are built into the policy, and two offer either built-in or Rider.
Nearly all policies offer automatic update feature prior to disability; future purchase option and cost of living increase after disability. Only one company did not offer at least the future purchase option.
Most of the policies have a 2-year lifetime limit on benefits for mental or nervous disability. Other exclusions are the typical war, committing a felony, self-inflicted injury, disability while incarcerated, (12 month) limitation on drug or alcohol abuse, disabilities covered by Workers Compensation, foreign travel, and some policies do not cover disability as the result of pregnancy.
Normal pregnancy is covered in only 7 policies, optional coverage in one policy and after 90 days in another. The rest do not cover disability as the result of normal pregnancy.
30, 60, 90, 365 and 730 days are universally offered but with 9 offering maximum 365 days, 8 offering 730 days maximum, 3 offering 180 days maximum only. Some states do not allow a 730-day elimination period.
Only four companies do not offer rehabilitation and those that do offer it, offer it on an optional basis, except for one company where rehabilitation is required.
Since companies use different occupational classifications for the same occupations, it is difficult to determine exactly which class is used. However, it is safe to say that the highest classification (4A with some, 5A with others, and even 3A with a couple of policies) is used with physicians. Two policy use the highest class, but reduce by one class if exposed to blood, or if performs invasive surgery.
All but 4 policies cover expenses of rehabilitation. Two of those who cover these expenses make rehabilitation a requirement, all others it is optional.
Most policies do not offer lifetime benefits, but four policies offer accident and sickness lifetime benefits.
All but 4 policies offer business overhead expense, all but one that does offer this option use a separate policy, the one that does not use a separate policy uses a rider.
Using a nonsmoker rate, male age 25, $2,000 a month benefit, 90-day elimination period, to age 65 benefit period, with own occupation protection, using residual benefits (unless otherwise noted).
AGE LOWEST PREM. HIGHEST PREM.
25 $247.08 $580.80
35 $304.68 $687.00
45 $430.68 $1,177.00
55 $691.80 $1,643.00
Note: One policy has premiums age 35 - $1,039.20; age 45 - $2,020.80; age 55 - $3,400.80
However, these premiums are based upon the policy with a 5-year Benefit Period, with no residual rider.
These premiums are all sex-distinct except for two unisex rates, and two companies offer either sex-distinct or unisex rates.
Five companies do not offer non-smoker discounts, although two companies have a surcharge for smokers (Logically, these two companies are offering non-smoker discounts as that would be their normal rate – semantics).
The surcharge for smokers range from 10% (2), (to) 12%, 15% (7), 17%, 20% (3), 21% and 25%.
The premiums for these policies have stayed level except 2 policies which reduced the premiums, and only one policy shows an increase (less than 10%)
The individual Disability Income insurance policies available for the most part, are very similar. However, there are enough differences so that there seems to be a broad swing in the premiums. A note of caution is in order here: this information is provided only so that knowledge can be obtained on these policies on an industry-wide basis. It would be unreasonable to attempt to determine the desirability of a particular policy based upon what the industry presents on each feature, and by premiums. A policy is the total of its parts and where it may be more generous in its benefits in one area; it can easily be more restrictive than other policies in other benefits. This is reflected by the swing in the minimum and maximum premiums.
STUDY QUESTIONS
1. The number of companies that offer Disability Income insurance is
A. rather small compared to other lines of insurance.
B. much higher than those that offer life insurance.
C. restricted only to 6 states, but totals over 35 companies.
D. about in line with other health insurers – approximately 55.
2. If a separate policy form is used for payroll deduction policies, typically
A. the policy would have much higher benefits.
B. would have smaller benefits, shorter waiting period and different premium structure.
C. is used only for those in the AAA or higher classification & with higher benefits.
D. would have exactly the same benefits, but the premiums would be lower.
3. The most popular Rider offered for Disability Income insurance policies, is
A. the Residual Partial and Total Disability Rider.
B. Cost of Living Adjustment Rider (COLA).
C. Experience Refund Rider.
D. Guaranteed Insurability Rider.
4. Renewability provisions for Disability Income insurance are usually
A. Renewable at the Discretion of the Company.
B. Guaranteed Renewable and/or Non-cancellable.
C. Guaranteed Issue.
D. Conditionally Renewable.
5. The maximum percentage of income that can be replaced by the Disability Income insurance policy, is called
A. the outside limit.
B. the income saturation point.
C. the target gross income replacement ratios.
D. a contingency replacement ratio.
6. Many persons considering Disability Income insurance policies, worry about what will happen when they turn 65 and they still want to keep working.
A. Most of the policies on the market are not renewable after age 64 so other arrangements will have to be made.
B. By law in most states, they cannot be insured by these plans after age 65.
C. They can receive Social Security Disability after age 65 which would give them about the same benefits as a Disability Income insurance policy.
D. Most of the policies on the market allow renewing until at least age 70 if still working.
7. The majority of the policies available use the definition of total disability as
A. own occupation.
B. any reasonable occupation.
C. any occupation.
D. not being able to work at any job for at least 5 years.
8. The principal basis on which residual or proportional disability benefits are available is
A. loss of income.
B. whether loss is due to sickness or injury.
C. length of elimination period.
D. how long the insured has had the policy.
9. With most of the Disability Income policies on the market today, rehabilitation
A. is offered on nearly all policies.
B. is not offered on any of the policies.
C. is offered by only a few companies, and only one or two make it mandatory.
D. is mandatory on the majority of the policies.
10. For Disability Income insurance policies on the market today, the difference between the lowest premiums available and the highest premiums available are substantial. This is due mostly to
A. whether the insurers are mutuals or stock companies.
B. whether the benefits are generous or restrictive in various areas.
C. commissions.
D. the states in which the policies are sold.
ANSWERS TO STUDY QUESTIONS
1A 2B 3B 4B 5C 6D 7A 8A 9C 10B