In the last decade many highly paid individuals, physicians, dentists and self employed entrepreneurs purchased multiple disability policies in the hopes of having money while disabled. Planning for the financial future, is of course, a necessity, but stockpiling disability policies is not such a great idea.
While planning for any future disability is important, it is not always beneficial to purchase multiple policies of differing types, particularly Association policies. For example, doctors, dentists, accountants and many other occupational groups are eligible to participate in group Association Plans, which are always integrated (with offsets). And, while this might seem like a good idea at the time, a physician working for a “group” or “facility” will also have group STD/LTD Plans from employers. Sounds like great coverage, right? Not exactly.
Group policies “offset” each other. Therefore, claimants who receive SSDI will not benefit from multiple policies because the SSDI amount will reduce both benefits. Claimants actually PAY for the offset twice, including possible overpayments to both insurers. IDI policies for the most part are non-integrated (no offsets), but Employer Group and Association Plans have offset provisions.
Some insureds also buy IDI policies that DO contain offset provisions, mostly because they come with cheaper premium. Now look what’s happened.SSDI will offset all three policies for the same SSDI award amount. Each policy benefit will offset each other. Multiple polices did not result in more money, but less.
The idea of overinsurance is tempting, and there are some who buy multiple policies to “make a profit” during disability. However, it’s important to understand that insureds are only entitled to insure what they have “an insured interest” to buy. For example, a physician who earns $250,000/year can buy a disability policy from one insurer up to that amount, but not more. I’m pretty sure this is why highly paid professionals tend to buy multiple policies hoping to bring in more than $250,000/year if possible.
At one time Guardian’s policies actually penalized overinsurance by capping off benefits from the current policy when benefits were also received from other policies. This is why insurance companies ask you if you have other coverage because they want to find out if you are overinsured. Insurers, and regulators, frown on overinsurance, or more frankly, attempting to make a profit on becoming disabled.
My point though is that having multiple group Plans, or IDI integrated policies are NOT beneficial because each insurer will enforce the offset provisions when additional income is indicated, such as SSDI, worker’s comp, and even residual earnings. This can get rather messy when “working part-time” is offset on three different policies. What ultimately happens is that there are so many offsets, only minimum benefits are paid on each one, and the polices were not worth the premium paid.
Highly paid individuals working for other facilities are covered by company STD/LTD Plans that cap off benefits at $5,000, $10,000, or $15,000 per month. If the physician’s income is greater than this per month, purchasing an additional IDI policy makes sense to cover the remainder of annual income. This is normal practice for financial planning. Association or other group polices aren’t going to add to income because of the multiple provisions for offsets – STD/LTD+Association Plan. Do you really want to pay for that SSDI benefit more than once?
Self-employed physicians should always buy an IDI policy and a BOE policy (Business Overhead Expense), not more than one disability policy. Partnerships and Corporations often purchase Key Person Disability Insurance to cover the business if a “key person” is unable to work.
In any event, buying multiple Plans and policies does not provide better or more coverage, but because of offset provisions causes insureds to lose money. I do not recommend purchasing more than one group Plan. The only time Association Plans are helpful, is if insureds do NOT work for other employers who offer STD/LTD Plans, and therefore only 1 group Plan exists in addition to an IDI policy. Remember, not only is the SSDI an offset, but the actual benefit is an offset.
And what if you’re receiving Workers’ Compensation? Bottom line? The group Plans are worthless.
I really think prospective buyers should pay more attention to what group Plans actually say before handing over premium to buy another income source. It may not work out the way you think. Premium is wasted and the Plans wind up paying a minimum benefit of $100.
