One of the hardest parts of buying disability insurance is comparing different policies to find the right coverage and features at the lowest possible cost.
Comparing disability insurance is not as straightforward as, say, term life insurance, where you can find the lowest price policy for your age and health.
While some basic elements of disability insurance, like elimination periods and benefits periods, are fairly standard, some of the most important features have varying structures based on the carrier.
One company’s policy may have a more favorable occupational rating than another, but it’s residual rider may have a lower payout in certain circumstances.
Here are the policy features that are the most challenging to compare between carriers.
Insurers that specialize in disability insurance for physicians will separate different medical specialties into occupational classes based on the perceived risk of that specific specialty. Generally, the higher the occupational classification assigned to your profession, the lower the premium rate.
The challenge of comparing policies is that different insurance companies may assign different classes to the same profession or specialty.
For example, one company may classify oncologists in their 4M class, while a competing company may designate them as a 5M. In some cases, the discrepancy between insurers for certain specialties may vary by two class numbers.
For physicians, defining disability takes on added complexity because many specialize. An orthopedic surgeon who develops severe arthritis can no longer work in that field, but could potentially work as a general practitioner. So depending on the policy, this surgeon could receive full disability benefits for not being able to work as a surgeon, partial benefits or no benefits at all.
Most carriers that offer physicians coverage will use an own-occupation definition, which will cover physicians who can no longer perform the duties of their chosen speciality.
Others used a modified own-occupation definition. This means you will only receive benefits if you can’t work in your speciality and you don’t work another job. Any employment you take following your disability will impact your benefits.
Even own-occupation provisions can differ by carrier. Plus, some policies explicitly prevent some specialists from obtaining an “own-occupation” provision, including neurosurgeons and anesthesiologists.
Residual disability provisions are important for physicians to have included in their disability policies because many injuries and illnesses only partially affect one’s ability to practice their medical speciality.
A residual disability option or rider covers you in the event you become disabled but are still able to work in a limited capacity. A policy with this feature will pay a benefit based on how much less you earn because of those limitations.
But carriers’ differences in both the definitions of residual disability and the payouts make it challenging to compare policies.
Most insurers specializing in physicians disability coverage have two different versions of residual disability rider or partial disability benefit. Northwestern Mutual actually includes the benefit automatically based on the insured’s occupation class and financial underwriting standards.
Some policies require at least a 15 percent decline in earnings from a disability while others make it 20 percent. And the amount of benefits you receive will vary based on how much of your income you lost.
Other common features that can vary greatly by carrier include:
Exclusions and limitations. Each carrier has its own system for underwriting. Whereas one company may exclude a pre-existing condition or an activity, another may grant you full coverage in spite of those factors. A few companies also have no limitations on benefits for disabilities arising from mental disorders.
Future increase option. This provides you the opportunity to increase your coverage if your income increases. But the availability may differ by insurer; some offer it on an annual basis to age 55, others annually to age 60, and others only every three years.
When comparing companies and features, everything is not always apples to apples. You will need to do more than just compare cost.
Keep in mind that even if you can find two similar policies with similar features, the premium rates can vary by more than 30 percent.
You should obtain multiple quotes from different carriers. You can compare by getting quotes from any number of websites, or by enlisting an agent who represents multiple insurers.
Joel Palmer is a writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.