From the October 2009 issue of Investment Advisor • Subscribe!

October 1, 2009

Insurance Update: Coverage Options Expand

An effort to write new business makes it easier to buy disability insurance

In the midst of all the troubling news about insurance and insurance companies, there's a ray of sunshine: disability insurance is no longer playing hard to get. Of course, that's because sales are down substantially in most categories, according to John Ryan of Ryan Insurance Strategy Consultants in Greenwood Village, Colorado. "In the physician and dental markets, things are status quo, but in all other areas sales are down significantly: 30% to 35%," Ryan says.

Such a drastic drop in sales has led to a concerted effort within the disability niche to write new business. This has led to easier underwriting, a drop in price, and more benefits for less money. "Except for the economy," says Ryan, "things are looking great--all the disability companies are making enhancements now," probably because sales have been down so much. The second half of 2008, all of 2009, and even projections for 2010 have led to strong efforts to promote new business in the field.

Underwriting has been relaxing gradually since 2005, Ryan explains, and now with higher benefit limits as a percentage of earnings, "good times are back in the disability area."

Companies offer two basic types of policies: one with a guaranteed price and one that's guaranteed renewable. Guaranteed renewable policies, which can't be canceled but don't carry a price guarantee, run about 35% cheaper for those who don't worry about future rate increases, or who are willing to bet against them. Women, Ryan points out, pay 30% more than men for policies, so a guaranteed renewable policy is usually good for them. Guaranteed renewable would also be good for older clients, he explains, because it's less likely that a rate increase would have as much of an impact on someone who's 50 as on someone who's 30." Guaranteed renewable policies present a way to get quality coverage at a deep discount. Not many companies offer them, he says, adding that Standard Insurance of Oregon offers "the best guaranteed renewable product in the business right now."

Good News, Bad News

Other currently popular types of disability protection include retirement protection, for which the disability policy insures retirement plan contributions. That's a frequent choice, Ryan says, particularly among medical professionals. Another is overhead expense disability insurance, useful for both medical professionals and business owners. The policy covers both household expenses and the overhead of a business or practice. If an owner is not coming back, he needs a way to keep the business healthy until he can sell it. Even if he is, this coverage will keep things going till he's able to return.

The news isn't all good, of course. Ryan says that disability policies that offer a lifetime benefit payout, as opposed to one that stops at age 65 or 70, is far preferable. But he believes that option is on its way out. He explains that Guardian and its subsidiary Berkshire, as well as MetLife, have been the strongest remaining companies offering a lifetime benefit payout. Berkshire and Guardian have already had substantial rate increases--about 30%, Ryan says, for the lifetime extension--and MetLife "is in the process of doing the same." "People can still get a real value," he continues, from MetLife if they want lifetime benefits, "but they have to do it quick, because in about half the states the [increased] rates are already filed." The window, he adds, will be closed by January 1, if not sooner. "And it won't be long before both drop their lifetime feature," he warns. "I would say by 2012 it won't be available anymore."


Marlene Y. Satter, a freelance business writer who can be reached at harpwriter@verizon.net.
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