Comparing Insurance- Part 1

Comparing Insurance – Part One

By Kate Sellers, JD, CLU

We frequently speak with customers who are comparing various insurance policies to determine which one to purchase.  Comparing proposals for different policies can be more difficult than meets the eye, as I discuss in this two-part series of articles.

Personal disability income policies can be challenging to compare because of the many variables involved. Among other things, the following major parts of the policy may vary: (1) the monthly benefit amount that you would be paid if disabled, (2) the elimination or waiting period (the amount of time after you become disabled before benefits become payable), and (3) the benefit period, or length of time for which a benefit is potentially payable. All of these variables affect the premium and, more importantly, how that benefit would actually be paid if you became disabled. 

For example, I worked with a surgeon who was comparing the disability policy I proposed with another policy. When we met and he showed me the other proposal, I saw that it proposed benefits payable to age 65. My proposal was for benefits payable to age 67. Because the policy benefit amounts were about $10,000/month, there was the potential for $240,000 more in benefits with the policy I was proposing. While this may sound basic, there were so many factors being considered, this difference was easy to overlook.

We also offer Group Long Term Disability insurance, which can cover the physicians and/or employees in a practice. Comparisons of those policies offer additional challenges. As with a personal Disability Income policy, the first step is to make sure the benefit levels are the same (benefit amount, elimination period, and benefit payment period). You also need to compare whether the same individuals in the practice are being insured, and at the same levels. We have seen practices that are evaluating proposals for this coverage compare premiums without first making sure that the basic benefits offered were comparable.

Life insurance can also be tricky to compare. I had a physician customer tell me that he found a less expensive term life insurance option than the proposal I had presented. It turned out that the seemingly lower-cost option did not include a disability waiver of premium benefit.  This allows you to stop paying premiums if you become disabled for a certain length of time. (We strongly recommend this benefit to make sure you never need to let life insurance coverage lapse because you can’t afford the payment when disabled).  The proposal he was looking at did not specify that waiver of premium was not included, but when the physician asked the broker who had provided him with the quote, it turned out that it did not. Once the physician had proposals that provided similar benefits, the premiums were comparable.

In the second article in this series (“Comparing Insurance – Part Two”), I’ll discuss the challenges of comparing package insurance policies, using a trusted agent to help you compare policies, and making sure that value as well as premium guides your insurance decision-making.