Doctors and dentists had a tough time of it for a while when looking for disability insurance. The advent of managed care was followed by a groundswell of medical personnel leaving the field through disability, to such an extent that insurance companies instituted severe policy restrictions on coverage for doctors and dentists. The restrictions were so stringent that, if they could find policies at all, premiums were so high, underwriting requirements so strict, or conditions under which benefits could be collected so limited that many despaired of finding decent coverage.
Things began to loosen up around 2005, when companies’ underwriting began to relax. When disability insurance sales fell between 30% and 35% in the general market during the recession, insurers began to look at ways to boost sales to the portion of the population that had always reliably bought coverage: physicians and dentists. (See “Coverage Options Expand,” Investment Advisor, October 2009)
However, even though coverage could once again be had, that didn’t mean that insureds were completely happy with their policies. One bugaboo in medical/dental coverage has been the definition of total disability.
There are three different classifications of disability: the sought-after “own occupation,” which says that an insured will be considered disabled and will be paid benefits if unable to perform the material and substantial duties of her occupation; the “modified own occupation,” which says the insured will be considered disabled and paid benefits if unable to perform the material and substantial duties of her occupation and is not working; and “any occupation,” which says the insured will be considered disabled and paid benefits if unable to work at any occupation for which she is reasonably suited by education, training and experience.
The first definition—the “gold standard” that doctors and dentists look for when buying coverage—was very difficult to find or very expensive. The second was the most common. That last, however, was a very high bar to jump, since it meant any job at all was considered a viable substitute to a medical or dental practice.
Under the first two, physicians and dentists who also taught, or who did other work such as consulting or administration as part of their practices, might not have been considered disabled if they were still able to perform those other tasks, even though they might not bring in anywhere near the income that the actual practice of medicine or dentistry would—and might not make up very much of their practices, either.
Enter Northwestern Mutual and its definition of “own occupation.” According to Ken Latus, director of disability insurance product development at Northwestern Mutual, “In 2008 we conducted a bunch of market research around the medical/dental professions and the misconceptions about coverage available at the time.” The company wanted to “get educated … and develop a new product that would fill those gaps [left by misconceptions regarding coverage].” And they found plenty of misconceptions by insureds about the kinds of coverage they thought they had.
Research led them to devise a new definition of “own occupation” tailored specifically for physicians and dentists. Northwestern Mutual’s medical occupation definition allows options, particularly for partial disability. Individuals are covered under the definition in two instances not common in other policies: first, when unable to perform the principal duties of their regular occupation, although choosing to work in a different occupation; and second, if they are partially and not wholly disabled.
Most disability policies will not pay benefits if a physician or dentist becomes unable to care for patients but can still teach, administrate, or consult—or, at best, will provide only a partial benefit. Under Northwestern Mutual’s definition, however, the policy will pay—either a proportional benefit, should the insured continue to work at administration, teaching or consulting, or a full benefit, should the insured opt to no longer work at all rather than perform those peripheral duties.
The company has even set up a resource center for advisors and their physician or dentist clients to use to determine how to consider the options available in managing the risk of disability under this coverage. The resource center is online at www.di-checkup.com.
According to Latus, “the reality is that products out there don’t [cover insureds] to the extent that insureds expect them to. [Coverage is d]riven by the total disability to perform all your duties.” He points out that the duties that make up a medical or dental practice can fluctuate over time, too; a doctor or dentist may do more or less teaching, or do more or fewer invasive procedures, and the scope of the practice may change. With this definition, that is irrelevant; the only thing that matters is how the practice is constituted at the time of the disability.
Now, says Latus, Northwestern Mutual has to educate the marketplace on “what [our definition] is and what it provides—flexibility at time of claim, in a scenario where you are deemed partially disabled but can do some duties, although maybe not the most important. You can keep working, and get a proportional benefit, or opt out of working and opt into the total disability benefit.”
Latus adds that the company has a patent pending on the product. “There’s no other coverage like this—as far as I know, the ability to cover that most important duty and have another way to get total disability coverage with an otherwise partial scenario is unique. …Other products that have specialty language around own-occ definitions try to limit the scope of things, but it all comes down to the definition of total disability—what you are doing at the time of claim. The definition is unique in that it creates a subset of those duties that drive a substantial part of the practice, and that means [the insured is] considered totally disabled.”
The market has responded well to the new definition. Despite the fact that the coverage may run between 5% and 10% more than Northwestern Mutual’s own modified own-occ definition—and that depends, says Latus, on too many factors to definitely quantify, since as a mutual company Northwestern pays “substantial dividends to our policyholders”—within the last year, the company has seen double-digit returns on the definition: “in the teens, as far as percentage of growth in that market.” Since overall the market in 2010 was flat to negative for disability insurance premiums, Northwestern appears to have found a way to reverse the trend.