Help choosing DI policy

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Radman
Posts: 76
Joined: Tue Oct 25, 2011 5:42 pm

Help choosing DI policy

Post by Radman »

I am choosing between two disability insurance policies that differ in cost significantly and I am having difficulty making a decision so I thought I might turn to some bogleheads for help.

I am a 30 y/o radiology resident. I am deciding between policies from Guardian and Principal, both are own occupation policies. I have a minor health issue that the underwriters at MetLife and Standard want to write exclusions on the policies. Guardian and Principal do not require any exclusion riders.

The policies

Guardian: $5,000 month from Berkshire (Guardian), payable after 90 days, to age 65. Also included is a Residual Disability Rider, a 3% Cost Of Living Adjustment (COLA) Rider and a $12,000 Future Increase Option (FIO) Rider. The graded (annually increasing) monthly premium is $103.43. The level (fixed) monthly premium is $182.59.

Principal: $5,000 month from Principal, payable after 90 days, to age 65. Also included is a Residual Disability and Recovery Benefit, a 3% Cost Of Living Adjustment (COLA) Rider, a Future Benefit Increase (FBI) Rider, and a Benefit Update (BU) Rider. The level monthly premium is $121.86.

Now my issue is that Guardian is obviously much more in premium. The differences in the policies are:
- Guardian has a better Future increase option (up to 17,000 vs 15,000)
- Guardian covers mental health issues until 65, Principal is only 24 months (I feel this is the major difference between the policies)
- Guardian has a more generous COLA, 3% guaranteed vs Principals COLA indexed to the CPI up to 3%
- Guardian has a better residual benefit for partial disability that results in loss of income.
- Guardian after 5 years will reduce my occupational risk class after 5 years which will result in a ~25% drop in rates (although still more than Principal)

What would you do in my position? Go for the more comprehensive expensive plan? Or is Principal plan the better value with DI coverage that is good enough?

Thanks for the help.
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Don Christy
Posts: 391
Joined: Sun Oct 11, 2009 10:33 pm

Re: Help choosing DI policy

Post by Don Christy »

I would research a bit about prevalence of conditions which are limited under the Principal policy. Also, check to see if EmergDoc's blog (the white coat investor) has anything to say about this.

Saw this on WebMD,
Mental health problems. You might think of disability as physical, but mental health problems can make work difficult or impossible. Depression, bipolar disorder, and other conditions can be as disabling as any physical illness.

Mental health problems are the most common reason that people file for Social Security disability, Tassey says.
“Speak only if it improves upon the silence." Mahatma Gandhi
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Help choosing DI policy

Post by dhodson »

You actually seem to have a good understanding of the differences. It really would be personally decision and not that one is really a good or bad deal. Individual DI is expensive if its a decent policy and that's just the way it is.

If it were me id be fine with principal but that's bc I'm okay with mental illness limitations. I'm willing to take on that risk personally.

I find cola's to be of limited difference since the cola doesn't start until after you become disabled. Obviously the younger you become disabled, the more it makes a difference.
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Re: Help choosing DI policy

Post by BruDude »

Surprising that MetLife would exclude something and Guardian would not since they are so conservative on their underwriting. $60/month difference probably isn't going to make or break your life, and the Guardian policy IMO is significantly better than Principal's for a physician. The Principal policy does not have any Specialty definition of disability and requires the mental/nervous limitation while Guardian does have the Specialty definition and unlimited mental/nervous coverage (unless you are in CA or FL). You can get unlimited mental/nervous coverage with Principal by choosing the Transitional Own Occupation rider instead of the Regular Occupation rider.

Keep in mind that with Principal you can only increase your coverage based on income once every three years, while Guardian allows you to exercise the entire FIO in any year up to age 45. The price you pay for the benefit increases is based on the age at which you exercise the option, so having to do it every three years with Principal instead of having the chance every year could even out the price when all is said and done. Guardian also allows you to keep any COLA increases on the policy at no charge when you recover from a disability, while Principal gives you the option to buy the increased benefits after recovery. There are a number of differences between the policies which you seem to be pretty well-informed about. I'm not a physician, but did have the option to buy a cheaper Principal policy for myself and bought the Guardian policy anyway.

The Guardian occupation upgrade requires you to be in your occupation for 5 years, but it is not an automatic upgrade with corresponding premium decrease. You would have to apply for a new policy to get the better occ class, and at that time you will be 5 years older with a 15-25% higher premium than today based on age alone, and your health may change between now and then too.
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