There may be situations in which you can have better and/or more affordable long-term disability insurance coverage by owning more than one insurance policy.
Owning multiple separate disability insurance policies is often referred to as a combination plan, or “stacking.” The goal of stacking is to create the best possible disability coverage with multiple policies.
Another use for stacking is to obtain coverage with a larger monthly benefit than what you would be able to get with a single disability insurance policy.
Disability insurers have maximum benefit amounts they will issue to physicians, regardless of what you earn. A single policy may limit you to a $15,000 monthly benefit, even if you currently earn $35,000 a month in income. Buying more than one policy is a way to avoid being limited by those maximums.
Insurers also state in their contracts that a policyholder can collect a total maximum monthly benefit from all the disability insurance policies they own.
For example, if you own a policy from The Standard and one or more individual policies from other carriers, The Standard will allow the insured a total maximum monthly benefit of $30,000 from all policies owned. If your second policy is group coverage, you can receive a maximum monthly benefit of $35,000 from all policies.
That means if you collect a monthly benefit of $15,000 from an individual policy with another carrier, The Standard will pay a maximum monthly benefit of $15,000.
Ohio National and Principal have similar provisions. Ohio National will allow a maximum of $30,000 total monthly benefit if your non-Ohio National policy is either an individual or group policy. Principal allows a $35,000 maximum monthly benefit for its policies that are supplemented with either an individual or group policy.
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One of the most common uses of stacking is to supplement a policy bought years before without completely replacing it.
For example, say you purchased disability insurance as a resident or early in your practice with a monthly benefit of $5,000. Ten years later, you’re probably making significantly more money, but your old policy will only replace a small fraction of your higher income.
You and your insurance agent determine it would be best if you have a base monthly benefit of $15,000 a month. Instead of canceling the policy that pays a $5,000 benefit, you can elect to keep it and buy a second disability policy with a $10,000 benefit.
Why? Because you purchased the $5,000 policy when you were younger, it likely costs a small amount of premium. A single replacement policy with a $15,000 benefit purchased at an older age will likely cost you more in this scenario than the combination of an older $5,000 policy with a new $10,000 one.
The ideal disability insurance policy may not exist for your situation or needs.
However, you can build something closer to the perfect coverage by combining two or more policies.
For example, one policy may have a better residual disability rider while a competing policy may offer a superior future increase option. Instead of choosing which feature is more important, you can split your coverage between the two policies.
Another way to use stacking is to buy two policies with different benefit periods and elimination periods.
For example, say you want coverage from a carrier that includes a 90-day elimination period and guaranteed benefits to age 65. But the premium amount is a bit pricey.
You may be able to save by stacking that policy with another. For the second supplemental policy, choose the 90-day elimination period with a 5-year benefit period. That means it will only pay benefits for five years maximum, regardless of how long you’re disabled.
Then for the original policy you wanted, choose a benefit period to age 65 but opt for the longest elimination period offered. This will lower the cost of that policy. But you’ll have the supplemental policy to provide benefits until the elimination period on the main policy kicks in.
The main objective of stacking is to obtain the most comprehensive coverage for the lowest possible cost. If it’s costing you more money or minimizing your benefits, then stacking isn’t worth doing.
Stacking policies is a common strategy used by doctors. If your agent proposes a stacking strategy, ask for comparisons on the costs and benefits of a single policy to ensure you’re getting the best deal.
Ready to dig deeper? Keep reading with:
The Ultimate Guide to Physician Disability Insurance in 2021
Colin is the CEO & Co-founder of LeverageRx, a personal finance company exclusively for healthcare professionals. A former investment banker turned entrepreneur, Colin has well over a decade of experience in the financial services industry and is also a licensed life and health insurance agent. He was named Midlands Business Journal’s 2019 Entrepreneur of the Year and his work has been featured in Forbes, Council for Disability Awareness, Medical Economics, Dental Products Report, HCP Live, and more.