Example of ways to reduce policy cost

Policy cost and features that might reduce your premium: It is possible that you could obtain a lower cost for a quality disability policy in comparison with the proposed disability policy in several ways.

With a policy from a company that pays premium-reducing dividends: A “mutual” company (one owned by its policyholders rather than by its shareholders) that pays a substantial dividend that offsets the policy premium may well, at least over time, provide a lower net cost than the policy that has been proposed.

With a “guaranteed renewable” policy rather than one which is also “non-cancellable”: A “non-cancellable” policy, such as you are considering, guarantees that the premium will not increase. A policy that is “guaranteed renewable,” but not also “non-cancellable,” could have its premiums increased, but only if premiums are increased for all policies of the same kind. With a good company with a consistent performance and one that has not increased its premiums on such policies in the past, it is probably unlikely that premiums on these “guaranteed renewable” only policies will increase in the future or that the premium would rise to the level of the non-cancellable policy. In such case, the 20% initial premium savings from forgoing the “non-cancellable” feature should more than offset the modest risk of a future premium increase.

With a different definition of disability: Your policy contains an “own occupation” of disability for two years followed by the policy’s basic definition thereafter. This means that you could collect the benefit even if you are working at some other occupation during the first two years of being disabled from performing your current job and, after that, if you remain disabled from working in your current occupation, that you could receive the benefit and not be required to work in any other capacity for which you might be qualified.

However, an “any occupation” definition of disability would save you 10%-15% of the cost of the premium on the proposed policy. Under this alternative, you would qualify for the benefit if disabled from your current occupation but would be required to work at another job for which you are suited by virtue of your education and training, if your condition would not prevent you from performing this other work. Given the nature of your work, if you were disabled from doing it, it is highly unlikely that you would be able to work in any other capacity. In that case, the “any occupation” definition of disability should be adequate for you and offers a meaningful premium savings.

With a longer waiting period after a disability before receiving the benefit: The policy illustration you have received shows a 90-day waiting (“elimination”) period after the beginning of a disability before you would begin to receive the benefit. Given your existing amount of savings, you may feel comfortable with a longer waiting period of 180 days or perhaps even one year. Because many disabilities are short-term in nature, a longer waiting period will lower your premium.

With an increasing premium beginning with a lower amount vs. level premium pricing: You might consider a policy or policy structure with a premium price that starts much lower and then increases over time. This might both be less expensive in total and better accommodate your budget if you expect consistently increasing earnings in coming years. The increasing premium can be selected for just a portion of the coverage, rather than all of it, if you would prefer a level premium for part of the policy and an increasing premium on the balance of it. The increasing premium will especially make sense if you anticipate the likelihood that you will drop some or all of your disability coverage well before age 65 as your increased retirement savings provide the financial security that the insurance gives you today. In that case, you would have the advantage of lower pricing in the early years while avoiding the cost of the higher premiums in the years before your retirement but after you have dropped the coverage.

With part of a benefit contingent on ineligibility for Social Security disability: If a portion of the benefit you receive is contingent upon your inability to qualify for Social Security disability under the stringent guidelines for it, you can lower your premium further. Let’s say that $1,500 of your total monthly benefit from the insurer would not be received if you are so severely disabled that you receive a Social Security disability benefit of at least this amount. Your total benefit paid by your insurer is therefore offset by the $1,500 amount you receive from the government. On the other hand, if you are disabled within the meaning of your policy but are not so disabled that you qualify for Social Security disability, the company will pay this additional $1,500 amount. Because the company only pays if you are disabled and yet not so disabled that you qualify for social security, the premium for this portion of the benefit is reduced substantially, but you are covered for this amount either way. So this policy feature is a way to reduce the cost of a policy for a given amount of insurance.

With a lower costs and premium discount with a group policy or multiple individual policies: Your description of your firm’s ownership in your questionnaire indicates that there may be a possibility, if you are interested, of either a group policy or separate individual policies. Either alternative would offer a substantial premium savings compared to the cost of each of you obtaining disability coverage on your own. If you are interested in disability insurance coverage for more than yourself, we should discuss these possibilities.

Financial Strength of Insurance Company: We have identified one or more insurance companies that offer the above-described potential cost-saving features on their disability policies while also having the highest financial strength ratings with the agencies – A.M. Best, Moody’s, Standard & Poor’s, and Fitch - that rank the financial strength of life insurance companies.

If you like, please call to discuss our findings and suggestions and the additional ways we can help you obtain the right coverage at a fair price.