If you seeking a new policy or are reviewing a current one (see our last post explaining 5 questions you should ask during a physician disability policy review), you may be trying to decipher between an individual plan and one from a medical association. Many Medical Associations offer a long term doctor disability plan as a member “benefit”. Some of these associations include, but are not limited to, The American Academy of Family Physicians (AAFP), American College of Radiology (ACR), American College of Obstetrics and Gynecology (ACOG), American College of Surgeons (ACS), American Academy of Pediatrics (AAP), American Medical Association (AMA), and The American Academy of Ophthalmology (AAO).
While there are many differences between an association plan and a private disability insurance plan (premium structure, policy definitions and features, claims processes etc.), today we would like to solely focus on the premium structure differences between the two types.
Private Disability Insurance Premiums
After agreeing upon your custom doctor disability coverage type & definitions, your benefit amount and supplemental riders, we arrive at your physician’s disability insurance premium. That is the premium you will pay for the life of your policy. That’s it. This class of policy is called non-cancelable because the carrier can neither cancel the policy nor increase premiums until age 65. Yes, these policies are typically more expensive then their association counterpart.
Medical Association Disability Insurance Premiums
With a medical association plan, as you get into your 50s and beyond, the premiums could become cost prohibitive!
Most medical association plans provide a very low initial premium when you are entering into the plan. But with any “cheap” alternative, the devil is usually in the details.
Did you know that every medical association plan has increasing premiums? A typical medical association plan’s premiums will increase when you turn 30, 35, 40, 45, 50, 55 and so on. The longer you stay in the plan, the higher the premiums become. In fact as you get into your 50s and beyond, the premiums can become cost prohibitive. So pay close attention to the medical association marketing brochure. If you look carefully, you will notice buried language that reads “your premium will be determined upon your age as you enter a new age range”.
More worrisome than the scheduled guaranteed premium increases every five years is the carefully placed language in the marketing material. It states, “the carrier reserves the right to increase the plans premiums, over and above the scheduled planned premium increases, at any time with a 30 day written notice.” To be fair, please know that the carrier can’t isolate you out for a premium increase. They get to do it to everyone that is entering the new age range in a given state.
So Isn’t Cheaper Better?
A more appropriate question is, “How can the Medical Association disability insurance premium structure potentially harm you as a physician?”
Here’s an example: You are now 53 years old, with a recent type 2 well controlled diabetic diagnosis. Even though the disease is well controlled, you have now likely become uninsurable from a private carrier or another medical association plan. You are stuck with your current association plan, which you noticed is becoming much more expensive than you remember it being. Now you turn 55. Happy Birthday, except you just get your birthday premium notice for your new age (gulp): a 65% – 80% premium increase. You might like to shop around for a more competitive plan, but your health now precludes you from being able to go that route.
So what are your options? Either keep the medical association disability plan and deal with the rate hikes, or cancel the policy altogether since it is no longer cost effective. The insurance carrier hopes you choose the latter, so that once you reach the age when you will most likely need the plan benefits, you no longer have the coverage and they are “off the hook”.
This works out well for the insurance carrier, but not so well for you and your family. Without the coverage in your later practicing years (because you can no longer afford it), should you be rendered unable to perform the duties of your medical specialty any longer, unfortunate things are likely to happen. Usually, a physician who has dedicated over 30 years building their practice and nest egg will be forced to begin liquidating their IRA’s, Pension Plans, their children’s 529 college funds, selling their retirement home, etc, just to get by. This happens all too often, and doesn’t need to.
So How do I Know Which is Better for Me?
Everyone’s situation is unique and requires a custom solution. When you compare your relatively cheap medical association plan to a private disability plan, you might want to consider looking closely at the value of the private plan’s fixed, guaranteed level premium all the way to age 65. Typically, when you look at the life of your disability insurance, purchasing a private disability is more expensive at first, but, running the numbers through the life of the policy can easily show a savings of tens of thousands of dollars.
For example: A 35 year old surgeon in Florida covered under a disability insurance plan from The American College of Surgeons would pay an initial quarterly premium of $340 for a $10,000 monthly benefit. That same 35 year old surgeon, with the same benefit amount, would pay $878 /quarter under a private, non-cancellable and guaranteed renewable disability insurance plan, with fixed premiums, to age 65.
As time goes on, that 35 year old surgeon, under the ACS plan, would proceed to pay $860.00/quarter at age 45 (slightly lower than the private counterpart) and $2744/quarter at age 55 (more than triple the private premium!). The actual cost for the “cheaper” alternative, including increasing rate hikes at least every 5 years, is over $173,000 over the next 30 years. Compare this to the private carrier’s cost of $105,000 over the same time period. This is a savings of over $65,000 during the 30 year time frame. And this association plan doesn’t even provide the true own occupation definition of disability (for a later conversation or learn more here).
Beyond savings, there are pertinent intangible benefits. You can count on this fixed premium, you can budget for it, it is predictable, but most important, you won’t be forced to cancel it at the exact time when you and your family need it the most. You’re paying for stability, you’re paying for security, and in the long run, you’re paying less.
There are other factors to consider when deciding between the two plans because, again, everyone’s situation is unique. Let’s talk about a custom solution for you. Feel free to leave a comment or contact us today.