Disability Insurance - Employer vs. Private Plan

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GO-UK
Posts: 31
Joined: Sun Sep 14, 2014 10:23 pm

Disability Insurance - Employer vs. Private Plan

Post by GO-UK » Wed Dec 23, 2015 11:09 pm

I'm evaluating long-term disability insurance options and have some specific questions below in bold. I included all the detail so those with intimate knowledge can have the background. Thanks for all the good information on this board - I have found DI to be one of the most involved personal finance decisions!

Background
• 31 year old male (32 for insurance purposes)
• Married to 29 year old wife who may become a stay-at-home-mother in a few months
• One child born this month
• Salary: him $250,000; her $50,000
• Occupation: Finance
• I evaluated plans through my employer, and used a broker to compare Guardian, Standard, MetLife, MassMutual, and Principal. On price and terms, I found Guardian and MassMutual most comparable and have therefore only discussed those options below.

Group Plan
• Provider: Prudential
• Benefit Options: 50% of income ($10,625/mo.), 60% ($12,750/mo.), or 70% ($14,875/mo.); I can decline to participate
• Max Benefit: $15,000/mo., less Social Security, workers’ compensation, unemployment income, salary continuation, and other income (does not get offset by individual disability plan benefits)
• Premium: $25.50/mo. (50% option); $39.23/mo. (60%); $35.31/mo. (70%)
• Contributions: Employee only on an after-tax basis
• Disability Definition: for the first 24 months: unable to perform the material and substantial duties of your regular occupation and you have a 20% or more earnings loss and you are under the regular care of a doctor; thereafter: any gainful occupation (60% or more of pre-disability earnings) and under the regular care of a doctor
• Policy Tenure: to age 65
• Elimination Period: 180 days
• Short-Term Disability: Employer pays 100% for 13 weeks and then 60% for the following 13 weeks

Individual Plan Options
Guardian ProVider Plus: Supplemental Option
• Premium: $301.02/mo. (level)
• Monthly Benefit: $6,980/mo.
• Risk Class: 5 (assumed by agent, have not been through underwriting)
• Policy Tenure: to age 65
• Elimination Period: 90 days
• COLA: 3%
• Riders: FIO ($13,020/mo. maximum; $34.61/mo. of premium); Residual Disability Benefit ($24.20/mo. of premium); 3% COLA ($26.93/mo. of premium); Catastrophic Disability Benefit ($5,100/mo. additional benefit; $15.51/mo. of premium); and Retirement Protection Plus ($3,880/mo. additional benefit; $63.02/mo. of premium)
• Riders Not Selected: Extended Benefits (Social Security integration); Unemployment Waiver of Premium; Lump Sum Disability Benefit; Graded Lifetime Indemnity for Total Disability; and Student Loan Protection

Guardian ProVider Plus: Standalone Option
• Decline participation in employer plan
• Premium: $417.39/mo. (level)
• Monthly Benefit: $11,480/mo.
• Riders: FIO ($8,520/mo. maximum; $22.65/mo. of premium); Residual Disability Benefit ($39.80/mo. of premium); 3% COLA ($44.29/mo. of premium); Catastrophic Disability Benefit ($8,000/mo. additional benefit; $24.33/mo. of premium); and Retirement Protection Plus ($3,880/mo. additional benefit; $63.02/mo. of premium)
• All other terms same as Supplemental Option above

MassMutual Radius: Standalone Option
• Premium: $331.86/mo. (level)
• Monthly Benefit: $11,350/mo.
• Risk Class: 5A (assumed by agent, have not been through underwriting)
• Policy Tenure: to age 65
• Elimination Period: 90 days
• COLA: 3%
• Riders: FIO ($8,550/mo. maximum; $11.86/mo. of premium); Extended Partial Disability Benefit ($54.00/mo. of premium); 3% COLA ($33.18/mo. of premium); Catastrophic Disability Benefit ($8,000/mo. additional benefit; $15.57/mo. of premium); RetireGuard ($2,900/mo. additional benefit; $39.83/mo. of premium); and Own Occupation ($12.57/mo. of premium)

Questions
1) Based on the disability definition in my group plan, should I elect not to participate?
a. There is a ~$1,000 annual premium difference in the standalone vs. supplemental option, but my concern is that the group policy is not as good, can be dropped or changed at any time and I may not be in good health when those changes occur.
b. I would prefer to own my policy also because I may not elect to stay with my current employer for a long career.
2) Do the riders that I have selected seem reasonable?
a. In particular, I was focused on the retirement riders as I thought it would be prudent to receive an increased benefit given I currently max my 401(k) each year.
3) The Guardian standalone policy premium is ~$1,000 per year higher, but are the policy benefits vs. MassMutual worth it?
a. The cost difference is partially driven by the Retirement Protection Plus Rider benefit difference.
b. I recognize there are certain benefits to the Guardian policy language (i.e., mental / nervous is not limited to 24 months, presumptive total disability does not have to be irrecoverable, residual disability definition slightly better, waiver of elimination period and premium).
Last edited by GO-UK on Mon Dec 28, 2015 6:07 pm, edited 1 time in total.

Topic Author
GO-UK
Posts: 31
Joined: Sun Sep 14, 2014 10:23 pm

Re: Disability Insurance - Employer vs. Private Plan

Post by GO-UK » Mon Dec 28, 2015 6:04 pm

Bump. Just wanted to see if any of the disability experts, such as bsteiner or bluemarlin, could offer a perspective.

SimonJester
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Re: Disability Insurance - Employer vs. Private Plan

Post by SimonJester » Mon Dec 28, 2015 6:47 pm

The group plan, is 1/10th the price of the private plans and provides a higher monthly payout.
What are the chances you will become disabled?
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

dpc
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Re: Disability Insurance - Employer vs. Private Plan

Post by dpc » Mon Dec 28, 2015 6:51 pm

One thing you might want to check - when I was looking into this about 10 years ago as a self-employed person, the CPA said to purchase a private plan because the benefits would not be taxable. If the plan is provided through the company, the benefits are taxable. Otherwise, I'm sure I have no idea what to advise you.

Dave
"Worrying is like paying interest on a debt that you might never owe" -- Will Rogers

Topic Author
GO-UK
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Re: Disability Insurance - Employer vs. Private Plan

Post by GO-UK » Mon Dec 28, 2015 7:11 pm

Dave, thanks for the suggestion. My current employer plan is an employee-only, after-tax contribution, therefore any benefits would not be taxable.

cmr79
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Re: Disability Insurance - Employer vs. Private Plan

Post by cmr79 » Mon Dec 28, 2015 8:23 pm

EmergDoc has some excellent physician-oriented posts on disability insurance that I think would translate well to your situation. Check out his site at whitecoatinvestor.com.

I recently went through this process myself and ended up with a policy from Principal with the riders recommended on EmergDoc's site. I strongly recommend an indecent policy for the concerns you already raised...a group policy through your job doesn't do much good if you acquire a chronic condition making you uninsurable and then you lose that job.

Topic Author
GO-UK
Posts: 31
Joined: Sun Sep 14, 2014 10:23 pm

Re: Disability Insurance - Employer vs. Private Plan

Post by GO-UK » Mon Dec 28, 2015 10:27 pm

Thanks cmr79 - I have read all the disability related posts on whitecoatinvestor and agree they are very helpful. I am certainly leaning toward an independent plan only (not just a supplement to the employer plan) after reading the entire insurance certificate / plan I received from my employer today.

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gardemanger
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Re: Disability Insurance - Employer vs. Private Plan

Post by gardemanger » Mon Dec 28, 2015 10:35 pm

There is another significant drawback to employer-provided ERISA plans: they can make it very difficult to win benefits, more difficult than with SSDI or private insurance. Specifically, you are limited in the type of evidence you can present to make your case, and you are limited in your ability to appeal an unfavorable decision.

http://www.nolo.com/legal-encyclopedia/ ... plans.html

Topic Author
GO-UK
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Re: Disability Insurance - Employer vs. Private Plan

Post by GO-UK » Tue Dec 29, 2015 12:41 pm

gardemanger, thanks for that helpful link. I had not reviewed the legal differences between the plans before, and found the differences to be eye-opening. Yet another reason to slide toward an individual plan only.

bsteiner
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Re: Disability Insurance - Employer vs. Private Plan

Post by bsteiner » Tue Dec 29, 2015 3:01 pm

GO-UK wrote:... Just wanted to see if any of the disability experts, such as bsteiner or bluemarlin, could offer a perspective.
Thanks for the kind words. However, I don't consider myself to be an expert on disability insurance. You'll have to decide whether you think the individual policies are sufficiently better to warrant the additional cost.

neuro84
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Re: Disability Insurance - Employer vs. Private Plan

Post by neuro84 » Tue Dec 29, 2015 3:40 pm

I just went through the process of getting DI. If your employer could change in the next 30 years, I think it's very prudent to go with a private plan.

The FIO riders are important, if you expect your income to increase in the future. And I would be sure to get a strict "own-occupation" definition.

Regarding some of the riders you selected - I chose not to get the catastrophic rider. The vast majority of disabilities are temporary and partial. I think most things that would leave me "catastrophically" disabled would also leave me with a significantly reduced life expectancy. So I opted not to pick it up.

Regarding many of the other riders, the decisions about these are highly specific to your situation, and just like with asset allocations, you need to decide what your risk tolerance is for various scenarios. For example, with the retirement plan contribution riders - how much is this worth to you? If you were receiving DI, would you be able to make retirement savings contributions out of the base benefit, or would you need the extra benefit? These were tough questions for me to answer for myself. I ended up being sort of a cheapskate on many of the riders.

Topic Author
GO-UK
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Re: Disability Insurance - Employer vs. Private Plan

Post by GO-UK » Tue Dec 29, 2015 5:34 pm

bsteiner- sorry I had you confused for BruDude!

neuro84 - thanks for you perspective on the riders in particular. I do expect income increases in the near term so I agree the FIO rider is critical. Also, I am only considering individual plans that have a true own occupation definition in the base policy or rider. I'm going to review the catastrophic rider again based on your thoughts.

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gardemanger
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Re: Disability Insurance - Employer vs. Private Plan

Post by gardemanger » Thu Dec 31, 2015 7:02 am

neuro84 wrote: Regarding some of the riders you selected - I chose not to get the catastrophic rider. The vast majority of disabilities are temporary and partial. I think most things that would leave me "catastrophically" disabled would also leave me with a significantly reduced life expectancy. So I opted not to pick it up.
Don't be so sure about that. While I'm not sure how the policies you're looking at define "catastrophic," the condition that disabled me is permanent but has no effect on life expectancy. Many disabling diseases and/or injuries will NOT solve your financial planning by shortening your life! Medicine at this moment in history has gotten quite good at saving your life but in many instances the life that is preserved becomes much more expensive and difficult thereafter, so ask yourself hard questions about whether you're preparing for the right "worst case" scenario.

neuro84
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Re: Disability Insurance - Employer vs. Private Plan

Post by neuro84 » Thu Dec 31, 2015 4:42 pm

I don't know if there is an industry-wide standard for "catastrophic," but the two policies I was comparing phrased it this way:

MetLife:
A catastrophic disability means that due to injury or sickness, the insured has complete, irrecoverable and irreparable loss of: (i) the use of both hands, or both feet, or one hand and one foot; the sight in both eyes; speech; or hearing in both ears; or (ii) are totally disabled due to Alzheimer’s disease or other irreversible form of senility or dementia; or (iii) are totally disabled and have aphasia; hemiparesis; paraplegia; or quadriplegia.
Guardian:
- A cognitive impairment that requires substantial supervision
- The loss of two or more Activities of Daily Living (ADL)- bathing, continence, dressing, eating/feeding, toileting and transferring
- A total, complete and irrevocable loss of sight in both eyes, hearing in both ears, speech, or the entire use of both hands, both feet or one hand and one foot
From these companies' definitions, it seems a catastrophic disability is something that leaves you mainly bedbound, or (in the "less catastrophic catastrophes") confined to a wheelchair. As a neurologist, I take care of patients with these conditions. They can live for many years or decades, but their life expectancy is almost never what it was before they developed the condition. In my experience, people who are immobilized tend to develop infections that eventually overwhelm them. This may not happen for several years, but it usually occurs before a "ripe old age."

I agree that life gets much more expensive after such an event. 24-7 nursing care is not cheap. The catastrophic rider would help pay for these things.

Once again, it all comes down to your risk tolerance. I personally decided not to insure against every possible scenario. My chief purpose in purchasing disability insurance is to protect my income in the event that I become disabled for a short time as a result of illness or injury. I think I am most likely to need the insurance for an event of this kind. If something far worse happens, I will not be optimally insured, but neither will I be completely without means - I'll have my savings to draw on, and I'll still have the regular DI benefit (just without the added "catastrophic" bonus). Given the relatively lower likelihood of such an event, I think this is good enough for me.

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