Over the course of the last two decades, the disability income marketplace has been forced to reinvent itself.
This is due in large part to the rise in fraudulent claims that took place throughout the 1990s as a result of policies written with fairly liberal definitions. To offset the losses, insurance carriers in the U.S. have steadily reduced limits and benefit amounts.
Consequently, the requirements surrounding qualifying for coverage and ultimately receiving benefits have become far more stringent. Yet according to the American Council of Life Insurers, Washington, 8% of working-age Americans were unable to perform their jobs in 2005 due to some sort of chronic condition or short-term disability–making it clear that the need for quality disability insurance remains very real.
To meet that need, many insurance companies today are adding to their existing product offerings in order to provide working Americans with the far-reaching coverage that was once available to them. And while the policies of the early 1990s with their under-priced premiums, loose definitions and lifetime benefits are a thing of the past, insurance carriers are once again taking steps to change the landscape of disability income insurance to provide the quality and scope of protection necessary for individuals to safeguard their incomes without jeopardizing their own bottom lines.
The current landscape
Today, the most prevalent type of disability income coverage is group long-term disability coverage offered via an employer. While these policies do offer some protection, those of us in the financial services industry know their downsides.
For one thing, group policies generally have very strict definitions that insureds must meet before they can qualify for benefits. In addition, the group policies often reverse discriminate against highly compensated employees, because monthly benefits cover 60% of an individual’s salary and are typically capped at $10,000 to $15,000 a month. For highly compensated people in particular, supplemental coverage can be absolutely essential–whether purchased through stand-alone policies or offered as an added benefit through employers.
Unfortunately, the shift that has taken place in the industry has left consumers with the general misconception that it is virtually impossible to qualify for disability income insurance at all and, if they do qualify for coverage, that benefits will not get paid. As a result, many people question the need and even the wisdom of purchasing a policy that, to their minds, is not likely to offer any benefit in the long run.
The good news is that recent developments in the industry have made it easier for advisors to overcome their clients’ misconceptions. With a handful of new policies and riders available from select carriers, we are now in the position to effectively help our clients secure the quality coverage they need to protect against both short- and long-term disability.
Own-occupation contract revamped
In the early 1990s, many insurance carriers stopped offering own-occupation contracts altogether because they were too broad and, therefore, the risk for claims too high. Generally speaking, this type of policy paid insureds in the event that they were unable to perform their normal job duties even if they were employed in another role or field.
This type of coverage, however, is making a return in the form of the own-occupation rider. Especially valuable for doctors and other medical professionals, as well as litigators, the best contracts include a residual disability rider that protects a client’s most important asset–his or her standard of living. As a result, newer policies give individuals the choice of added coverage that will pay if they cannot work in their own occupation but work in another.