Need advice about private disability insurance
September 12, 2010 4:24 PM Subscribe
I'm a Canadian who recently moved to the United States, and my financial advisor is strongly recommending that I get disability insurance. I've done all the prep work and been offered a policy. Now I need to decide whether to take it. Please advise me!
The basics: I'm in my mid-forties; I make 200K a year; I am unmarried with no kids; my net worth is fairly low, and I am healthy, law-abiding and lead a low-risk lifestyle, with no pre-existing medical conditions. The policy I've been offered would cost me $4200/year and would pay out 60K/year tax-free until I turn 65 or become no longer disabled. Payments would kick in after one year: for the first year of disability I'd be dependent on my own savings. The company is RiverSource.
My advisor tells me I need the policy, because I'm completely dependent on my own salary. He says the policy is bulletproof: it's non-cancellable to age 65, it only requires examination by my doctor not theirs, and it offers five-year Own Occupation benefits.
I was raised in a country with a terrific social safety net, and only moved to the U.S. a few years ago, so I don't feel like I'm a great judge of what I need to do here to protect myself from catastrophe. I sort-of trust my financial advisor, but I also assume he's got a bunch of biases and attitudes I might not share. So here are my questions:
It seems to me that my financial advisor is correct and I'm exactly the kind of person who should get private disability insurance -- is that true?
This policy feels breathtakingly expensive to me, but is it actually reasonable?
Are there any red flags or things I should check into?
Does RiverSource have any particular reputation for this stuff?
One more thing. I've heard horror stories about people being denied benefits based on technicalities – mostly related to pre-existing conditions or misstated medical histories. And, I found that the experience of having my medical history gathered for this policy felt kind of sloppy (a couple of phone interviews and one in-person blood-taking), and seems sloppily documented in the policy itself. Which worries me. So, a few more questions:
1) Let's say I have a heart attack and become disabled. And let's say the medical history section of my policy contains information that is completely inaccurate, but also completely irrelevant to the disability – such as, it wrongly states that I have not received a moving violation in the past five years, whereas in fact I did. Could that be a problem?
2) Let's say I develop lung cancer and become disabled. And let's say the medical history section of my policy contains information that is slightly but probably not provably inaccurate, and is relevant to the disability. Such as, it states I smoked five cigarettes a day until 1995, whereas in fact let's say I sometimes smoked 10 cigarettes a day. Could that be a problem?
3) To get the policy, I needed to give blood. If it's possible that information from my blood test contradicted information in the medical history, what's the likelihood of that coming back to haunt me? Would the insurance company have an analysis of the blood that is kept on file and not shared with me? How long would they keep the blood itself?
4) Let's say I answered no to the question about whether I'd ever used marijuana. And let's say I had used it, frequently, a long time ago. Could that ever come back to haunt me, and if so, how?
Sorry for the super-specific questions. But the medical history section of the policy contains a number of errors/misstatements, all of them seeming to me to be either very minor or unlikely to ever be relevant, and I am trying to figure out the pros and cons of trying to get them corrected. (I am assuming getting them corrected would be really annoying, would take forever, and might result in the insurance company changing the terms of the policy or even cancelling it.)
Thanks for reading this very long post. I've read this question and this one --- they were both helpful: I am just looking for some more specifics. Please feel free to also point me towards any good general resources like this, from the Motley Fool.
Many many thanks to anyone who wades through all this and replies.
The basics: I'm in my mid-forties; I make 200K a year; I am unmarried with no kids; my net worth is fairly low, and I am healthy, law-abiding and lead a low-risk lifestyle, with no pre-existing medical conditions. The policy I've been offered would cost me $4200/year and would pay out 60K/year tax-free until I turn 65 or become no longer disabled. Payments would kick in after one year: for the first year of disability I'd be dependent on my own savings. The company is RiverSource.
My advisor tells me I need the policy, because I'm completely dependent on my own salary. He says the policy is bulletproof: it's non-cancellable to age 65, it only requires examination by my doctor not theirs, and it offers five-year Own Occupation benefits.
I was raised in a country with a terrific social safety net, and only moved to the U.S. a few years ago, so I don't feel like I'm a great judge of what I need to do here to protect myself from catastrophe. I sort-of trust my financial advisor, but I also assume he's got a bunch of biases and attitudes I might not share. So here are my questions:
It seems to me that my financial advisor is correct and I'm exactly the kind of person who should get private disability insurance -- is that true?
This policy feels breathtakingly expensive to me, but is it actually reasonable?
Are there any red flags or things I should check into?
Does RiverSource have any particular reputation for this stuff?
One more thing. I've heard horror stories about people being denied benefits based on technicalities – mostly related to pre-existing conditions or misstated medical histories. And, I found that the experience of having my medical history gathered for this policy felt kind of sloppy (a couple of phone interviews and one in-person blood-taking), and seems sloppily documented in the policy itself. Which worries me. So, a few more questions:
1) Let's say I have a heart attack and become disabled. And let's say the medical history section of my policy contains information that is completely inaccurate, but also completely irrelevant to the disability – such as, it wrongly states that I have not received a moving violation in the past five years, whereas in fact I did. Could that be a problem?
2) Let's say I develop lung cancer and become disabled. And let's say the medical history section of my policy contains information that is slightly but probably not provably inaccurate, and is relevant to the disability. Such as, it states I smoked five cigarettes a day until 1995, whereas in fact let's say I sometimes smoked 10 cigarettes a day. Could that be a problem?
3) To get the policy, I needed to give blood. If it's possible that information from my blood test contradicted information in the medical history, what's the likelihood of that coming back to haunt me? Would the insurance company have an analysis of the blood that is kept on file and not shared with me? How long would they keep the blood itself?
4) Let's say I answered no to the question about whether I'd ever used marijuana. And let's say I had used it, frequently, a long time ago. Could that ever come back to haunt me, and if so, how?
Sorry for the super-specific questions. But the medical history section of the policy contains a number of errors/misstatements, all of them seeming to me to be either very minor or unlikely to ever be relevant, and I am trying to figure out the pros and cons of trying to get them corrected. (I am assuming getting them corrected would be really annoying, would take forever, and might result in the insurance company changing the terms of the policy or even cancelling it.)
Thanks for reading this very long post. I've read this question and this one --- they were both helpful: I am just looking for some more specifics. Please feel free to also point me towards any good general resources like this, from the Motley Fool.
Many many thanks to anyone who wades through all this and replies.
Note also that RiverSource is subsidiary of Ameriprise Financial (as a quick google search found), so if you fin adviser is from ameriprise he is talking his own book.
posted by dfriedman at 4:41 PM on September 12, 2010
posted by dfriedman at 4:41 PM on September 12, 2010
I'm thinking you meant 4,200 per month.
Most disability policies will pay up to 66% of your earnings, this one is falling short.
Generically, yes, disability insurance is a good thing. Most people undervalue it as a benefit, but it can be a life saver if you become disabled.
My advice, find an independent insurance agent that represents a number of disability companies, have him compare rates and benefits for you.
Do NOT purchase the first policy suggested to you without doing this.
Riversource is rated A+ by Best, this is a good rating, the company may be fine, but get other bids and compare.
posted by HuronBob at 4:42 PM on September 12, 2010
Most disability policies will pay up to 66% of your earnings, this one is falling short.
Generically, yes, disability insurance is a good thing. Most people undervalue it as a benefit, but it can be a life saver if you become disabled.
My advice, find an independent insurance agent that represents a number of disability companies, have him compare rates and benefits for you.
Do NOT purchase the first policy suggested to you without doing this.
Riversource is rated A+ by Best, this is a good rating, the company may be fine, but get other bids and compare.
posted by HuronBob at 4:42 PM on September 12, 2010
Surely it is $4,200 in premiums annually. Monthly would be ludicrously expensive. This is still pretty expensive to me as the group long-term disability insurance policy at my employer costs only 0.26 percent of one's salary for a 360-day waiting period. However, your benefits are better.
I would keep shopping. Also consider that there might be a benefit to having a policy with a lower payout but lower premiums. And start saving some money. Surely some of that $200K could go to increasing your net worth.
posted by grouse at 4:49 PM on September 12, 2010 [1 favorite]
I would keep shopping. Also consider that there might be a benefit to having a policy with a lower payout but lower premiums. And start saving some money. Surely some of that $200K could go to increasing your net worth.
posted by grouse at 4:49 PM on September 12, 2010 [1 favorite]
Grouse, in re-reading it, he does state that's an annual premium. I was thrown off track by dfriedman's comment.
carry on.
posted by HuronBob at 5:01 PM on September 12, 2010
carry on.
posted by HuronBob at 5:01 PM on September 12, 2010
My long-term disability insurance is with Cigna. It pays up to 60% of my monthly covered earnings (that is, base pay), to a maximum of $8000/month. It requires a disclosure of any pre-existing conditions for the 3 months prior to when I started the insurance plan.
The elimination period (the time I must be disabled before it pays) is 180 days of continuous disability. Basically, it covers from the time my short-term disability ends and my social security (retirement) begins (roughly age 65). It also has a family survivor benefits, which pays to my estate if I do not have a spouse or children -- that happens if I collect disability for 3+ months, and pays covers basically 3 months' payout.
If my disability is caused by mental problems, or drug/alcohol abuse, it may have a limited payout. If my disability is caused by suicide attempt, war, riots, or committing a felony then it does not cover anything.
For every plan I've seen, the cost is measured in cents per dollars of monthly covered earnings. In my case, it costs $0.225 per $100 of monthly covered earnings. So, $60,000 coverage would be:
$60,000 is 600 hundreds
600*0.225 = $135 per year, which is $11.25 per month.
I find it extraordinary that they require a blood sample for disability, and would ask them follow-up questions about that -- maybe that's for something else? I've never given a blood sample for disability insurance.
posted by Houstonian at 5:12 PM on September 12, 2010
The elimination period (the time I must be disabled before it pays) is 180 days of continuous disability. Basically, it covers from the time my short-term disability ends and my social security (retirement) begins (roughly age 65). It also has a family survivor benefits, which pays to my estate if I do not have a spouse or children -- that happens if I collect disability for 3+ months, and pays covers basically 3 months' payout.
If my disability is caused by mental problems, or drug/alcohol abuse, it may have a limited payout. If my disability is caused by suicide attempt, war, riots, or committing a felony then it does not cover anything.
For every plan I've seen, the cost is measured in cents per dollars of monthly covered earnings. In my case, it costs $0.225 per $100 of monthly covered earnings. So, $60,000 coverage would be:
$60,000 is 600 hundreds
600*0.225 = $135 per year, which is $11.25 per month.
I find it extraordinary that they require a blood sample for disability, and would ask them follow-up questions about that -- maybe that's for something else? I've never given a blood sample for disability insurance.
posted by Houstonian at 5:12 PM on September 12, 2010
You do need something. My employer's short-term disability program pays out 81% for 26 weeks with a 15 day waiting period; long term is covered by our pension plan, so I'm not as familiar with it. But, I've read you should expect to pay over $200 a month for LTD plans.
You need to find a fee-only advisor if you don't already have one. You should also get at least three quotes - and look carefully at how each company defines disability. And you need a separate short-term disability insurance plan.
posted by SMPA at 5:18 PM on September 12, 2010
You need to find a fee-only advisor if you don't already have one. You should also get at least three quotes - and look carefully at how each company defines disability. And you need a separate short-term disability insurance plan.
posted by SMPA at 5:18 PM on September 12, 2010
Have you considered moving back to Canada as your disability option?
posted by blue_beetle at 5:18 PM on September 12, 2010 [2 favorites]
posted by blue_beetle at 5:18 PM on September 12, 2010 [2 favorites]
you need a separate short-term disability insurance plan.
Not necessarily, if you have enough savings to cover the waiting period. That doesn't seem like it should be too hard for someone on $200K to get together.
posted by grouse at 5:21 PM on September 12, 2010
Not necessarily, if you have enough savings to cover the waiting period. That doesn't seem like it should be too hard for someone on $200K to get together.
posted by grouse at 5:21 PM on September 12, 2010
Disability insurance is a great idea.
Your quote sounds quite expensive, unless you have a risky or unpleasant job. I was quoted $1100/yr for a similar policy from Lloyds of London. (I live in Canada, though, and have a safe, interesting job -- making me less likely to incur real or fake disability.)
Maybe you should talk to an independent insurance broker, who would compare plans from a few different insurers.
posted by blue grama at 8:25 PM on September 12, 2010
Your quote sounds quite expensive, unless you have a risky or unpleasant job. I was quoted $1100/yr for a similar policy from Lloyds of London. (I live in Canada, though, and have a safe, interesting job -- making me less likely to incur real or fake disability.)
Maybe you should talk to an independent insurance broker, who would compare plans from a few different insurers.
posted by blue grama at 8:25 PM on September 12, 2010
This thread is closed to new comments.
How does 4,200 per year pay out 65,000 per year?
Unless you've failed to give other details I say run. This doesn't make sense.
posted by dfriedman at 4:32 PM on September 12, 2010