Healthcare Inflation Slowing Down, USA

Despite newly insured people being added to the system, American healthcare inflation is expected to fall to 6.5% in 2014, says a new report by the Health Research Institute, part of PricewaterhouseCoopers LLP.

Healthcare inflation in 2014 will drop even lower than this year "Defying historical patterns", the authors wrote.

Continued downward pressure is expected for the health sector, mainly because of aggressive and creative steps taken by employers, elements of the ACA and new locations and models for delivering care.

Healthcare organizations have had to adapt to a more modest growth rate after being squeezed on reimbursements and going through the ravages of a recession hangover This trend will continue well into next year as healthcare organizations seek out cheaper locations for providing care and taking on less costly personnel.

The recession was followed by stops and starts and then a "tepid" recovery. People's personal wealth has either slowed down in growth or declined; all this has had a dampening effect on the demand for healthcare. The authors wrote "As we reported a year ago, the sluggish recovery has created a 'new normal' in healthcare spending patterns".

As patients have to bear more of the costs for their medical bills, procedures are being questioned, delayed or even cancelled, as are imaging and elective services. It is early days yet to confirm whether ACOs (accountable care organizations) can deliver significant savings.

Healthcare spending will be slowed down further by the ACO system as hospitals strive to keep down expensive readmissions or face penalties, and employers continue using their new powers to influence employee behavior, and either discontinue or increase premiums, which in some cases might shoot up by 50%.

While preparing this report, the Health Research Institute interviewed industry executives, health policy experts and health plan actuaries. The authors also analyzed data from PricewaterhouseCoopers' 2013 Touchstone Survey, which included over 1,000 employers from 35 different industries.
Four factors slow down medical cost trend for next year (2014):

•    Health care continues moving from expensive locations, i.e. hospitals, to more reasonably priced retail clinics and mobile health. Patients appreciate the lower costs and convenience. In some cases, medical bills can be two-thirds lower when compared to traditional healthcare sites.

•    Major employers are contracting with large health systems for complicated and more expensive procedures, such as spinal fusion or heart surgery. Even when taking into account travel costs (some "high performance networks" may be far away), these big-name health systems work out a lot cheaper.

•    There is an estimated "waste" of 30% in the health system, which drives up costs. In December 2011, Dr. Donald M. Berwick, head of Medicare and Medicaid said that up to 30% of spending on health is waste with absolutely no benefit to patients. The federal government's new readmission penalties punish wasteful health care facilities. According to government figures, in 2012 hospital readmissions went down by almost 70,000. The numbers should be even more impressive next year, the authors added, as hospitals concentrate on discharge planning, compliance and continuum of care.

•    According to PwC's (PricewaterhouseCooper's) 2013 Touchstone survey, 17% of employers offer only a high deductible health plan to employees today. Another 44% are considering doing the same. When employees have to pay more for their healthcare, they tend to become more cost-conscious.
What will inflate medical cost trend in 2014?

•    The recent adoption of generic drugs helped slow down overall medical inflation. However, there are many new expensive complex biologics that will push inflation up. The authors wrote "Approvals of new biologics now outpace traditional therapies, and that pattern will continue in 2014 as research efforts target complex cases such as cancer."

•    Since 2009, health industry consolidation has risen by over 50%. The authors expect this trend to continue into next year, which will result in rising prices in some markets. The report quotes a recent study which found that hospital mergers can lead to price rises of up to 20.3%. In markets with one dominant system, these price hikes are generally more pronounced.

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The Importance Of Having Medical Or Health Insurance

You may be young and healthy now but you could be diagnosed with a serious illness tomorrow. What then? Perhaps you've planned and saved well for your retirement and children's education, but in one clean sweep the money disappears. Treating serious medical ailments burns holes in our savings- thus the need for medical insurance is the only way to deal with huge medical bills.
 




"Even if you have a general understanding of terms, they could be defined differently under different contacts"


Differentiating policies

Health-related insurance covers a variety of policies. A critical illness cover pays you a lump sum when you are diagnosed with any of the stated dreaded diseases. Disability income plans usually provide you with an income in the event that you are incapacitated.

A hospitalization benefit plan will entitle you to some cash for the duration of your stay in the hospital, aiming to deflect the extra costs that you incur while hospitalized. Personal accident plans have a certain measure of coverage for hospital bills relating to your accident, while long-term care plans may include an allowance if you require prolonged care out of the hospital.

However, if it's dealing with hospital bills its hospitalization and surgical (H&S) plan that you require. The H&S, as evidenced by its name, takes care of the costs of hospitalization and surgery.

When choosing an insurer, remember that there is no point in being insured for a large sum when you have to fork out cash first and you don't have the money.

What to do when buying a policy

Always make sure you read and understand the terms of a policy you purchase. Even if you do go through it, weaving through the various terms and attempting to compare benefits between policies can be difficult. Even if you have a general understanding of terms, they could be defined differently under different contacts.

To aid policyholders better, Health Insurance has directed a move towards standardization of terms used in policies. The life insurance and general insurance associations of Malaysia, LIAM and PIAM are drawing up a common underwriting guide, which will have common definition of contract wording and minimum standards, especially for terms like pre-existing illnesses, co-insurance and excess. Although some say that this will hinder free competition, standardization will reduce confusion among policyholders.

It is important for you to know what kind of policy you need or else it could fail to support you when you need it the most. It is recommended that an individual obtain 3 kinds of medical insurance:

a. hospitalization and surgical (H&S), which covers reimbursement for medical expenses

b. critical illness plan which provides a lump sum for replacement of lost income

c. disability income benefit for the duration of disability or until the age of 65 or 70

If you travel overseas frequently and your policy does not cover treatment there, it is important that you get a travel insurance policy that covers the higher costs of medical care. When comparing policies, it is always human nature to just look at the first line, which is usually coverage on room and board. But one has to note that that particular item may not necessarily comply with the rest of the policy.

The amount of insurance taken into consideration should not just be for room and board, but benefit amount for items such as surgical expenses, in-hospital expenses, and pre-hospitalization diagnosis, post-hospitalization treatment, major organ transplant, outpatient cancer treatment and outpatient kidney treatment. Every insurer may issue the same room and board amount, but have totally different amounts for all the other items.

On top of that, you would need to look out for areas such as:

   

•     definitions and limitations to payment of benefits

   

•     how a disability define

•     how soon after a claim can one claim again

•     special provisions (succeeding policy holder after the first policyholder dies to avoid the hassle of  declaring their health again)

•     does the policy have guaranteed renewability- to ensure protection is available throughout and premiums are maintain despite recent diagnosis of illness

What if you are already covered?

These days, many companies cover their employees under group medical insurance. Does this mean that you don't need a separate policy for yourself?

Note that one cannot make double claims with H&S policies- so make sure that your needs are covered. If it isn't, you can claim the balance from your other policy, depending on how the multiple insurers work things out.

Find out the cover provided by your employers and then you can proceed to top up the difference to improve your coverage. If the cover is sufficient, then there should be no reason to add on.

Depending on your own needs and wants, you may want to take on your own policy with a higher limit of benefits. (e.g. instead of a shared hospital room, you may choose to have a private room).

However, if you rely on your employer for your medical insurance needs, you will have to know that once you leave your place of employment, the coverage ceases. Therefore, you will need to make provisions before leaving the company by picking up a policy a year before you retiring or resigning as most policies have a one-year waiting period for certain illnesses.

Generally, it is wrong to think that picking up a policy later will cost you more. Generally the premiums you pay are related to the age band you fall into (e.g. 21-25 years, 26-30 years) and will increase as you grow older although rates for children can be higher than young adults. The premiums you pay will increase as you enter the age band, regardless whether you are renewing a policy or picking up a new one.

The definite good thing about picking up a policy when you are younger is that you are usually healthier. Age is a barrier, with most insurers limiting entry age at 60, with renewals up to 70 years. Once you are diagnosed with an illness or deemed high-risk, you may no longer be insurable. Most policies do not cover pre-existing conditions, or if there is a waiting period before they are covered. If the insurer does accept you, there may be exclusions and in some cases, pay more in terms of a load.

Making your decision

The only way of to keep healthcare costs down for the average person is preventive care by having regular medical check-ups and taking the proper medication early on.

Concerns rise as healthcare costs increase day by day. Better technology and new equipment and techniques translate into higher costs. Drug companies, seeking to recoup their high research and investment costs as well as make some profit for their shareholders, price their drugs accordingly.

Whether you are male or female, an athlete, white-collar worker or millionaire, healthcare is something we need to think about. Ensuring sufficient funds for medical costs is an essential part of financial planning.

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Tips On Buying The Right Motor Insurance Policy

IN the event of a minor road accident, the first thing drivers tend to do is to get out of their cars and start playing the 'blame game'. It doesn't matter if the accident was clearly caused by one party, everyone involved will insist that they are free of blame for fear of losing their no-claim-discount (NCD).

"Owners who enjoy tinkering with their car engines and modifying the power or performance need to disclose this information to the insurance company"

But there are more honest and less stressful ways of handling an accident, and the first thing to do is to be an informed driver. While it is not possible to diminish the damages to your vehicle once the accident has occurred, it is possible to curtail the damage to your finances. It all depends on the motor insurance policy that was purchased. Unfortunately, many drivers do not take the time to understand their policy or the related jargon such as "average clause" and "disclosure" until they are frantically trying to make a claim after an accident. Drivers should bear in mind that there are a number of details that should be taken into account when applying for a motor insurance policy. Firstly, as soon as a car is purchased the owner must buy an insurance cover. If a used car is purchased, the new owner needs to know that the cover of the previous owner is null and void. This is true even if legal ownership transfer has not yet occurred at the Road Transport Department (RTD). The insured value - or sum insured - depends on the market value of a vehicle. Under-insurance or over-insurance can occur when this value is not determined properly. If the sum insured is less than the market value (under-insurance) the owner will only be partially compensated. If the sum insured is higher (over-insurance) the insurance company will only pay out the market value. The average clause comes into play when a damaged car has been under-insured. The owner's insurance claim can sometimes be drastically reduced because the claim will be reduced proportionately to the amount that is uninsured. Owners who enjoy tinkering with their car engines and modifying the power or performance need to disclose this information to the insurance company. Failure to provide material facts about the car, including previous accidents, can result in the insurance company refusing any claims made. If this happens, the owner will be liable. There is a 'reward' for the driver who has somehow managed to maintain an accident-free car. This is known as the no-claim-discount (NCD). The premium for the insurance will be reduced if no claim is made against the policy during the preceding 12 months. NCD entitlements depend on the class of the vehicle and the number of years of continuous driving experience without any claims made against the policy.

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Why Canadians Need a Life Insurance

One of the most bandied about terms in the insurance industry is the ever mutable concept of "risk". Risk assessment is a core component of how insurance brokers determine coverage and premiums for their clients, understanding the client's history, expectations of coverage, and liabilities in providing an insurance package while still remaining profitable.

However on the consumer side of the insurance industry, risk has been transposed to mean an aversion or distrust of insurance. The most common phrases you'll hear when people decide not to purchase insurance is "Oh, it's not for me", "That will never happen to me", and the myopic "I'll think about when I'm older".

The late Andy Rooney said it best when he called death "... a distant rumor to the young."

The 2013 RBC Insurance Poll indicated a rather startling trend in Canadians today, particularly on fathers. It's estimated that up to 30% of Canadian fathers do not own any form of life insurance, and do not seek a quote on such. The reasons? 44% of the uninsured believe they have enough investments and other resources to provide for their family. While personal savings can go a long way in securing your family's future when you die, the same poll reported that two out of the five participants had no idea how much their families would actually need when they're gone.

Overall, it's estimated that one in three Canadians adults have no form of life insurance, and are less likely to seek a quote to find what life insurance can offer them. The greatest risk being adults 18-29 and seniors over the age of 59. The reality of the rationalization of the uninsured stems from two major beliefs: that insurance isn't worth the financial risk, or that this risk does not apply to them.

And understandably, with a population so grossly undereducated about insurance policies, life insurance has come be seen as akin to homeowner's, disability, or auto insurance: "Nice to have if it happens, but what if it doesn't happen?" Life insurance, in reality, is conversely risk-free. No one in the world proposes to live forever, so why has life insurance been seen as a risky decision? Interestingly, 22% of Canadians without life insurance have responded that they admit they should have a policy, yet don't evaluate their options or quote their costs.

Short-sighted planning is one cause, particularly among younger demographics. With a cultural presence and ethos increasingly centered in the "now", Canadians feel that planning for the future simply isn't worth the time, effort, and money. Life insurance through an employer is one solution, but this insurance isn't portable and won't protect you if you're laid off or terminated from your job. Furthermore, long-term planning for life insurance guarantees younger adults can obtain lower premiums and greater protection when they start a family or purchase a home. With a market saturated with product options, and ready access to life insurance quotes, this lack of initiative is to blame on the consumer. Life insurance companies want to sell, but consumers are hesitant to buy.

The other issue is simply knowledge, and this affects all demographics equally, though in different ways. Someone in poor health, a senior, or someone who's been spurned or denied by insurance companies in the past may not even realize the options available to them. No medical or guaranteed issue insurance may not always offer the grand cash benefit that everyone wants, but reasonable coverage can always be offered to help you settle your affairs and guarantee tax free benefits to your dependants and family. After all, seniors and those with medical issues are still a market demographic for insurance companies, and these companies are increasingly making efforts to be competitive in that environment.

Knowledge is priceless, and a pint of sweat can save a gallon of blood, so to speak. Your passing will always incur financial costs, your estate will always face taxes, your assets will always be distributed, and your family will always benefit from financial aid. Planning early, and planning smartly by researching your life insurance options, obtaining quotes, and researching the market can provide you with peace of mind, and protection for your family. Anything less is just risk taking behavior.

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My Claims Management Has Changed

In the last decade there have been many important changes in Insurance Claim Management that have improved predictability, the integration of data and added the convenience of mobility to increase processing speed. In fact, the industry has experienced far too many changes to attempt to enumerate them in a single post. Four of the most significant transformations include:

1. The optimization of processes achieved through integrated systems makes claims management more intelligent, predictive and proactive. Fragmented customer benefits, claims and transactional data are thankfully a thing of the past. The benefits of an integrated system are tangible. Loss predictability is more refined. Claim file information is entered once and shared in accordance with established rules, helping to eliminate the chance of duplication in data entry and thus reducing costs.

2. Enhanced customer service and reduced claims costs are not only possible but very achievable due to the upgraded ability to identify risks, which can lead to improved fact-based decision making and an increased business understanding of the risk of exposure and the value of case load capacity. This information can be used to improve processes, helping to achieve claim resolution more quickly by eliminating administrative delays and reducing errors. Quicker claims resolution and more accurate settlements can also lead to higher revenues as a result of positive brand equity.

3. More Information is available today than ever before. The explosion of Information available from web pages, social media, content repositories and document sharing file systems is remarkable. Clearly, there is a rapidly growing variety of digital content, including digitized voice, pictures, video, as well as adjuster notes, reports from investigators or first responders and even claim forms. Accessing this wealth of information, analyzing its relevance and integrating pertinent data into a single database has become much more sophisticated.

4. Mobile applications provide immediate accessibility to information as well as the ability to interact with collaborators on a wherever, whenever basis. Claims management is no longer restricted by time and geographic distance. Increasingly, insurance claim content is digital or existing content is almost immediately digitized including hard copy documents and telephone call reports from an insured with first notice of loss. Once the information is digitized, it flows to and from claims stakeholders' through web-enabled mobile communication devices achieving increased interaction speed and more intelligent collaboration.

Claims expenditure represents nearly 70% of premium for most insurers. Thus, one cannot overestimate the value of these four improvements to the claim management process. Increases in the use of available information, the integration of systems and new tools have enhanced our ability to communicate and collaborate with more speed and accuracy. The result is a streamlined claims management process that simultaneously improves the experience for claimants and the claims management professionals involved in deciding and resolving the loss events.

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Ask the Expert: Disability Insurance Q&A

Ask the Expert: Disability Insurance Q&A with Industry Expert Steve Crawford

I recently spoke with Steve Crawford, President of Guardian Disability Insurance Brokerage based in Rockville, MD. He has been one of Guardian’s leading disability insurance producers nationwide for over a decade. Our discussion ranged over specialized topics I thought my readers would find interesting. In particular, we discussed how diabetics can get the best disability insurance policies, since many of my readers have diabetes and Steve is a diabetic himself.

Richard O’Boyle: When considering the long-term care insurance conversion options of some disability insurance policies, what should a consumer consider? Does it make sense to consider a separate long-term care plan altogether?

Steve Crawford: There are not many individual disability insurance policies on the market that have a long-term care insurance conversion option from the top tier disability insurance carriers. Some of the lesser companies and less comprehensive contracts offer this option, but it is not very common in the industry in terms of percentage of individual disability insurance policies sold. My recommendation to consumers is to own their own individual disability insurance policy during their working years, and sometime in their 50’s to also purchase their own individual long-term care policy. Usually there is about a 10 year period where somebody owns both, but they really protect against two different things.

Richard O’Boyle: When filing a disability insurance claim with your insurer, what should a consumer keep in mind and what are some reasonable expectations about the length of time to get the claim processed?

Steve Crawford: Most disability insurance claims are actually simple to process. When somebody has become blind, or suffers from ALS, or some other type of claim that is pretty cut and dry it is simply a matter of filling out the claim form and getting paid. When a claim is something a little more out of the ordinary, that’s when it may take some time to get paid. Usually the company is going to have a physician fill out the claims form to attest to the disability. A consumer should always remember that disability policies are all about “The Duties Associated with Your Occupation,” not about job titles. As a consumer fills out a claim form they should provide details about why the sickness or injury is preventing them from performing specific duties associated with their occupation, not about the inability to perform a job title. There are many qualified disability insurance claims consultants in the industry, and most of them can be located in the Claims Advice category of http://www.disabilityinsuranceforums.com/, they also tend to offer a lot of free advice on that message board.

Richard O’Boyle: If your disability insurance claim is denied, what avenues of recourse does a policy holder have?

Steve Crawford: You can work with a claims consultant, or an attorney specializing in disability claims to try to overcome a rejected claim. Obviously you can also file complaints with state insurance departments.

Richard O’Boyle: Individuals with diabetes are at increased risk for a host of health complications. How does that impact underwriting for disability insurance? What are some steps individuals can take when applying for disability insurance to improve their chances of getting a standard policy?

Steve Crawford: Diabetics have a very difficult, but not impossible road to obtaining a personal disability insurance policy. The insurance company is going to want to see excellent control of the disease, and that’s not something every diabetic can show. Diabetics who have had health complications, or don’t have perfect control will most likely have to take a graded risk policy from Assurity or Illinois Mutual. Diabetics who have excellent control, who are in good health, and don’t have a history of complications can apply with the top tier policies. They will most likely get a rated policy with a shorter benefit period if they are accepted at all. I recommend every diabetic who applies for disability insurance to work with a specialist in the area. It is not an easy road to get a policy as a diabetic, but it’s a road that is vital for every diabetic to travel.

Richard O’Boyle: If you are considering a private disability insurance policy, how realistic is it to assume that federal Social Security Disability Income will be available to you, and should that form a strong basis for taking a two-year benefit period?

Steve Crawford: Quite frankly that’s a horrible plan. SSDI is extremely difficult to qualify for. You have to be totally and completely disabled with no hope of recovery for a period of at least a year, and expected to last much longer. They deny an overwhelming number of their claim applicants. Any diabetic should get the maximum level of disability insurance protection they can get, and relying on SSDI for coverage is playing Russian Roulette with five bullets in the gun. SSDI is not a program any person should rely on for their family’s income protection.

à If you are in New York and would like to schedule a confidential, no-obligation consultation, please contact me directly. If you are not in New York and would like to speak with a licensed disability specialist in your area, please complete this information request form…

à If you are currently exploring your need for disability insurance, you are welcome to download our free Disability Insurance Worksheet to help you better assess how much coverage you might need.

(c) 2012-2015 Prism Innovations, Inc. All Rights Reserved. http://www.prism-innovations.com/

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Disability Insurance: The Basics

Disability Insurance: The Basics
by Richard F. O’Boyle, Jr. LUTCF, MBA

Disability insurance, also called “disability income protection” or “disability income insurance,” is designed to pay you a monthly income in the event that you can’t work due to physical or mental incapacity.

Disability insurance can be one of the most difficult policies to understand, which makes it especially aggravating since most people who need it the most can be turned off by its perceived complexity. It’s advisable to thoroughly understand your disability insurance policy prior to receiving it, so that if you were to become ill or get into an accident, you will know exactly what is and is not covered. For those who find themselves overwhelmed, start by understanding just the basics. Any more intricate questions should always be discussed with a licensed insurance representative.

à If you are in New York and would like to schedule a confidential, no-obligation consultation, please contact me directly. If you are not in New York and would like to speak with a licensed disability specialist in your area, please complete this information request form…

à If you are currently exploring your need for disability insurance, you are welcome to download our free Disability Insurance Worksheet to help you better assess how much coverage you might need.

Definitions of Disability

How “disability” is defined is really the crux of why this type of coverage is so valuable to individuals and their families. It is also what creates a lot of distrust on the part of individuals and insurers alike. It’s crucial to discuss the actual definition of “disability” with your advisor at the time of application and again when your policy has been approved. Don’t wait until you are sick or injured. There are three possible definitions for disability:

1. Own Occupation Definition: The priciest of the bunch, the own occupation definition is usually only held by professionals and many jobs do not qualify for such a coverage plan. What the system basically dictates is that when someone has an own occupation definition, they can still receive disability benefits even if they have found a job elsewhere. What the insurance is based upon is the inability to complete tasks at a particular job, regardless of whether you have another profession you may continue with. The own occupation standard may change if you are still disabled after two years, and you might be required to work at an occupation that provides you with a percentage of your previous income.

2. Regular Occupation Definition: With the regular occupation or “modified own occupation” definition, you can’t be coerced or pressured into finding a different field to work in. If you can’t carry out your job responsibilities for your current occupation, then you should expect to receive total disability nonetheless. This is the most popular out of the disability insurance options, and allows people who have become sick or injured to still live out their dreams rather than just grasping for a job or money for the disability insurance anywhere they can look.

3. Any Occupation Definition: Finally, the strictest of the three policies is the any occupation definition. This is a rigidly issued policy because it deals with the idea that an individual is unable to successfully work in any occupation any longer. This happens often with older people, though people of any age may qualify. Situations that may warrant an any occupation definition include a serious accident, terminal or chronic sickness or severe mental illness.

Short Term Disability Insurance

There are two different types of disability insurance – short term and long term. Just as their names suggest, short term disability coverage provides a benefit that starts soon after you get sick or hurt, but is limited in duration. A long term disability policy may only kick in if your condition is more severe, but it carries the recipient further down the road.

Short term disability is usually processed within two weeks once an injury or illness has been reported. The benefit period typically lasts between 13 and 26 weeks, while this can vary depending upon the individual plan in question. Depending upon whom you work for at the time of your need for disability insurance benefits, your employer may authorize 100% salary replacement. It completely depends on the state you live in and who you work for.

In many instances, short term disability costs are covered by the employer, and then the benefits are taxable to the employee. Short term disability is great to have if you find yourself in a sudden accident or overcoming an unexpected serious illness. Most businesses will offer short term disability as part of the job, and you may receive a packet of information on it during your first day visit to human resources. Some companies sponsor private plans such as AFLAC through the jobsite which allow the employee to pay for the coverage themselves.

Long Term Disability Insurance

Since disability in the long term sense is more complex and open to risks like fraud, the process is lengthier. It usually takes between 60 and 180 days before you can receive a payment, with the most common time frame being around 90 days. Your employer may pay your premium of up to 70% of your pre-tax income, but some premiums must be paid by the employee. Most long-term disability insurance plans are privately paid for.

Group Disability Insurance

Group plans are cheaper for everyone involved, and usually do not require a medical exam. The company is always the policy owner in the instance of a group plan, and the individual may lose the policy if they lose their job. With an individual plan, there is more flexibility since you are the owner of the policy. Many companies offer some form of short term and long term disability insurance. It is sometimes the most cost effective way to ensure you will have appropriate financial support in the event of accident or illness. Keep in mind that if the employer is paying your insurance premiums, the benefit paid to you will probably be taxable as income, reducing its value.

How to Choose an Individual Disability Insurance Policy

Buying private disability insurance generally will give you more freedom to customize the plans features and enhance the income payment amount. Begin by selecting an insurance agent who has experience with disability insurance. The agent can help you “run the numbers” to see how much coverage is appropriate and which companies offer the most competitive plans. Keep in mind that when selecting a company, the lowest monthly premium is only part of the choice: find a company with a solid financial background and claims paying history. Always look for a policy that is guaranteed renewable and non-cancelable.

Choose a Monthly Benefit Amount: Use the Disability Income Insurance Worksheet to find an approximate range of monthly benefit that you should insure yourself for. Generally, an insurance company will allow a maximum amount of coverage of up to 60% of your recent earned income. Earned income for most professionals is income reported on your tax return from W-2 or 1099 sources.

Choose an Elimination or Waiting Period: Your monthly benefit payment usually does not kick in right away. Assess your “rainy day” savings to see how long you can cover your own expenses before you need the insurance company to start paying you. The longer the waiting period, the lower the monthly premium payment. Typical waiting periods are 60, 90, 180 and 360 days.

Choose the Benefit Period: The benefit period is the duration that the insurance company will pay you. You may select a period of 2, 3, 4 or 5 years; or else a benefit period up to age 65 or 67. The longer the benefit period, the higher the monthly premium payment. Some clients tie their benefit period to an expectation that they will qualify for federal Social Security Disability Income payments after two years. Lengthier benefit periods cover catastrophic conditions.

Choose Optional Riders and Supplemental Benefits: Private disability insurance allows you to enhance your policy with additional benefits. Most companies offer each of these riders in some form. Specifics will vary greatly from company to company.
- Waiver of Premium Rider: While you are on claim, you will not have to pay the monthly premium
- Cost of Living Adjustment Rider: Each year that you are on claim, the monthly benefit amount will increase
- Catastrophic Disability Rider: Your monthly benefit is increased dramatically if you become permanently and profoundly disabled.
- Future Increase Rider: Each year you can increase your monthly benefit amount (with a corresponding increase in the monthly premium) without a medical exam.
- Residual Disability Rider: If you are able to return to work following a disability claim, but are not functioning at 100% of your capacity, you will continue to receive a portion of your benefit payment.
- Retirement Income Protection Rider: A trust is established and the insurance company funds it with cash to serve as a supplemental retirement account, assuming that you had an active retirement plan at the time the policy is approved.
- Long-Term Care Insurance Conversion: When you reach age 65 or 67 you can convert your disability insurance plan (which would normally expire) into a Long-Term Care Insurance plan without a medical exam.

Underwriting Guidelines for Disability Insurance

Qualifying for a disability insurance policy requires a somewhat different application process compared to life insurance or long-term care insurance. In addition to standard medical underwriting, underwriters will ask questions about your occupation and financial history. Not all riders are available to all applicants.

Medical Underwriting: Disability insurance providers are looking for the likelihood not that you will die (mortality), so much as the likelihood that you will become incapacitated (morbidity). While a condition like arthritis might not impact your life insurance application, it would likely impact your chances of getting a cost-effective disability plan. Medical underwriting includes asking detailed medical questions, collecting copies of doctor records and running new blood. After analyzing your medical state, the insurer may offer you a policy, but exclude coverage for certain preexisting medical conditions, tag on an extra premium for a period of time or limit the inclusion of certain riders.

Financial Underwriting: Your “insurable income” may not be what you consider to be your actual income since the insurance company focuses on what you are actually “earning” in a given year. “Earned income” is your compensation. “Unearned income” is generally cash flow that would continue whether or not you were working, such as rental income, royalties, pensions, dividends and alimony. You will be required to submit your most recent tax filings as part of the overall application to justify the maximum benefit amount.

Occupational Underwriting: Jobs are ranked and rated according to how hazardous they are. The occupational rating also includes the actual duties performed in the job, size of the organization, level of education, moral hazard, time spent traveling, and other factors. For most policies, a minimum of 30 hours per week are required to be considered full-time. Home-based businesses generally are also acceptable occupational classes.

Making a Claim to Receive Disability Insurance Payments

Ultimately receiving disability insurance benefit payments from the insurance company hinges on which definition of disability is specified in your policy. This is where most people get turned off by insurance companies, in my opinion and experience. It is absolutely crucial to have a frank discussion with your agent at the time you are applying for the policy so that you understand what “disability” actually means. If you do meet the criteria and are working with a reputable company, the payments can mean the difference between financial stability and ruin for you and your family.

Remember that some disability payments to you may be taxable, depending on who paid the premiums: if your employer paid for part of your group coverage, then that portion will be considered taxable income. If you paid for the premiums out of your own pocket, then you can expect the benefit payments will not be taxable. This is a tricky area and often misunderstood, so please consult your advisor.

If your disability is not presumed to be permanent, the insurance company will expect you to have regular check-ups with an approved doctor, and perhaps even receive specific treatments or surgery to improve your condition. The company may also give you financial incentives to ease back to work part-time. In the event that you are seriously disabled and qualify for federal Social Security Disability Income payments, the insurer may reduce their payment to you according to the terms of your policy.

à If you are in New York and would like to schedule a confidential, no-obligation consultation, please contact me directly. If you are not in New York and would like to speak with a licensed disability specialist in your area, please complete this information request form…

à If you are currently exploring your need for disability insurance, you are welcome to download our free disability insurance worksheet to help you better assess how much coverage you might need.

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Book Review: Retirementology

“Retirementology: Rethinking the American Dream in a New Economy” by Gregory Salsbury, Ph.D.
Review by Richard F. O'Boyle, Jr., LUTCF, MBA

There are literally hundreds if not thousands of books that try to tell you the “what, when and how much” of retirement planning, but few can tell us the “why.” “Retirementology: Rethinking the American Dream in a New Economy” by Gregory Salsbury, Ph.D. introduces the reader to the up-and-coming field of “investor psychology” which helps to explain why we treat money the way we do.

We all make mistakes – and this book tries to help the reader to understand why we: don’t sell losing investments and cut our losses; spend differently with a credit card than we do with cash; feel richer when the housing market appreciates; and many more common misperceptions about money that work to sabotage our financial security. It’s easy to highlight common money mistakes because there are so many of them. But it’s hard to solve these deeply ingrained problems.

What makes Dr. Salsbury’s book so admirable is his methodical and detailed action steps designed to reorient the reader away from these psychological traps with practical suggestions.

Many of my clients want me to “run the numbers” and tell them how much to save and where to put it. I often run into resistance when I recommend they make changes that go against their long-held beliefs about money – sometimes strategies used by their Depression-era parents. Money is always an emotional topic because we work so hard for it and most people feel they don’t have enough, giving a deep sense of insecurity. When an advisor challenges the client to make changes outside their comfort zone, it breeds fear and suspicion.

“Retirementology” provides the reader with a useful and occasionally entertaining foray into the field of retirement planning. I can appreciate the attempts to convince the reader to understand himself better and to take the necessary actions that can avoid future pitfalls. I wish more pre-retirees in the general public would add this book to the stack of repetitive “how much” planning books and understand the “why” better.

(c) 2012 Prism Innovations, Inc. All Rights Reserved.

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Tricks of the Trade: How to Backdate a Life Insurance Application to Save Your Age

By Richard F. O’Boyle, Jr., LUTCF, MBA

Did you know that it’s possible to backdate a life insurance application to lock in a younger age? Most life insurance companies use what they call “insurance age” when calculating your initial monthly and annual premium. You get a year older six months before your actual birthday.

Each year you wait to buy insurance, the premium rises a little. But if you can lock in a slightly lower rate for 20+ years, that would save you money over time. Once your policy is issued, your rate is locked in for your whole life or the duration of your term. If you are older than 50 years of age, the monthly savings are even greater since costs rise faster for older people.

To illustrate, let’s look at an example:

I have a client who is a 33 year old female. Her birthday is September 1, 1977. We expect her health rating to be “Preferred” for a $1,000,000 Twenty-year Term Plan. My estimate is that the premium will be $720/year or $62/month.

But when we run the insurance illustration on June 1, 2011 (three months before her actual 34th birthday), the software says that she is 34 years old. That’s because according to the company, her “insurance age” went up six months before her actual chronological birthday. The premium for a 34 year old woman in this case is $780/year or $67/month – an increase of $60/year or $5/month.

We can backdate the application paperwork (by making a note in the appropriate section) and lock in her insurance age of 33 for the full duration of the term. That will save her $1200 over the life of the policy.

But there’s a cost to using this technique: You have to pay upfront all the monthly premiums back to the age change date. In this case if we write the application on June 1, 2011, we have to backdate it by three months to lock in her insurance age of 33. A back premium of $186 ($62 x 3) would be required at the time of application or at delivery. Basically you are paying $186 to save $1200. It will take about 37 months (at $5/month) to break even using this technique.

This technique works best with longer term life insurance plans, and especially Whole Life Insurance policies. With a Whole Life plan, the savings would be $ 34/month ($822 vs. $856) and the policy would be eligible for dividends three months sooner.


(c) 2012 Prism Innovations, Inc. All Rights Reserved.

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Retirement Plan Limits for 2012

by Richard F. O'Boyle, Jr., LUTCF, MBA

The Internal Revenue Service is boosting the maximum contribution that workers can make to their 401(k), 403(b) and most 457 retirement plans without paying upfront taxes. The limit will rise by $500 to $17,000 for 2012. Workers over 50 can add another $5,500 to that. Individuals may still contribute $5,000 to traditional IRAs or Roth IRAs, or $6,000 if older than 50.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

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