For Disability Insurance Awareness Month, we're publishing a weekly roundup of DI FAQs. Follow Max on LinkedIn to get these in real-time!
Q: “Can I reduce my waiting period?"
A: Yes, potentially... but here’s a cool strategy to be aware of when customizing disability insurance plans, especially for waiting period reductions.
A simple change to an existing policy that enhances the benefit in any way will require underwriting approval. There is a hack, however, if someone is hoping to reduce their waiting period *and* they are due for an increase in coverage.
Principal Financial Group has an adjustable income benefit that allows a new applicant to maximize coverage during the existing policy’s waiting period. Real-world scenario: 2017, dentist, earning $130k, and buys $6,205/month payable to age 70 following a 90-day waiting period. 2023, same dentist, now earning $350k, wants to reduce the waiting period to 60 days. It’s going to require underwriting approval so let’s take a look at adjusting the existing waiting period and then look at what it would cost to supplement with a new policy. How much is he making now? $350k. That means he can apply for a max of $16,320 from day 60-90, and $10,115/month from day 91 to age 70. Crunching the numbers, we save him over $5000 per year in premium with this move. (Yes, we discussed self-insuring from day 60-90, which was the original intent but he was dead set on this change, one way or another. And having seen claims up close and personal I can understand the frustration of waiting for a solid 90 days before benefits are payable.)
Q (for you): Ever thought about where are your clients getting their information?
A: There’s a lot of chatter about Tik Tok financial scammers. For elder Millennials like me, we need to be on high alert for the Instagram “experts.” Last week an account I follow just recorded a monthly budget review and it was ...missing something. 3 kids. Age 35. Single income. IT professional. $110k annually. Notably absent was any form of income protection. I did what any DI professional would do and pointed this out, even suggesting a super basic framework that could easily fit into their budget. What was the response? “I don’t personally think those policies are worth buying in the US.” All the emotions shot through my central nervous system. What would happen to this family if Dad needed to check in at the Mayo Clinic? If Parkinson’s started expressing? A car accident, a lung transplant, untreated Lyme disease? If you are timid about approaching DI, just know this is where your clients are absorbing their information. Hilarious, maybe. But potentially damaging. We’ve got work to do, people.