From the November 2007 issue of Investment Advisor • Subscribe!

The Swinging Pendulum

For a while disability insurance was tough to get, but it's loosening up

If you were a doctor or dentist, the decade from 1995-2005 was tough. Insurance companies didn't want to offer disability coverage to doctors and dentists. If they did, the "own occupation" definition was so broad as to keep many medical professionals from being able to collect if they were unable to perform their own specialties, or else the cost of premiums was prohibitive. Now, however, according to John Ryan of Ryan Insurance Consultants, Greenwood Village, Colorado, all that is changing, and the pendulum is swinging back the other way. Policy guarantees are improved, he says, and physicians and dentists, far from being shut out when insurance companies "circled the wagons," are able once again to get good benefits--"back to the pre-1995 era"--and pricing on coverage.

That may seem drastic, considering how draconian policies used to be for physicians and dentists, but things are loosening up in other areas within the disability industry, too--some of them quite surprising, and very welcome to those in search of coverage. Ryan points out that one relatively new development, a trend he says is about two years old within the disability insurance arena, is that other underwriting is becoming more liberal, particularly for people who are newly self-employed. "It used to be impossible for someone working for IBM to go out as a freelance consultant" and get coverage, Ryan explains. But now, he adds, underwriting has changed to the extent that if a self-employed person can show service agreements in place that will guarantee income for six months, she can get coverage.

In this age of telecommuting, another welcome trend within the disability industry is the willingness of companies to insure the ever-growing segment of the market that works from home. That's fortunate, because that part of the market is growing rapidly. According to a study by the Dieringer Research Group, from 2004 to 2006, the number of people working from home has virtually snowballed, increasing by 65%.

If that's not enough good news, another underwriting change is the willingness to offer coverage to people who have received counseling. Companies were basically saying, "no, not interested," says Ryan of potential clients who were on the receiving end of psychotherapy--whether marriage, situational, or some other sort of counseling. However, now he says that those people are being offered coverage.

Lifetime from lloyd's

One form of coverage that had pretty much gone away was the lifetime benefit. Early on, Ryan explains, disability insurance benefits ended at age 65. However, someone disabled at the age of 45 would not only be unable to fund a retirement, but also would lose any increases in Social Security benefits over those years he was unable to work; his family would suffer. In the 1980s insurance companies began to offer lifetime benefits to address this need.

Reinsurance companies, however, says Ryan, became uncomfortable in the 1990s with the idea of paying benefits to a "disabled 45-year-old who could live to the age of 95," and pretty soon the lifetime benefit went away--available only from a couple of companies as others dropped the option. Now, however, a new retirement disability protection plan is being offered by a few companies.

Last but far from least, Ryan cites Lloyd's of London as a company that "continues to offer coverage when domestic companies won't." Sometimes, he says, Lloyd's is the only alternative available till someone can prove herself as a newly self-employed person or can complete a course of psychotherapy. He adds that the British company is also willing to provide higher levels of coverage than domestic insurers will provide. For planners trying to find coverage for clients whose situations may be difficult to insure, he points out that Lloyd's offers professionals "another layer of coverage."


Marlene Y. Satter, a freelance business writer based in New Jersey, can be reached at harpwriter@verizon.net.

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