by Jim Biesterfelt
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When it comes to designing a personal insurance portfolio, "how to" information is everywhere – from promotional materials and Web sites to consumer magazines and even friends and family. Unfortunately, some of this information could be incorrect or not appropriate for your situation. Here are five common myths and misconceptions concerning life and disability insurance, along with some tips that may help you become a savvier insurance consumer:
Myth No. 1: If I have a health issue, I won't be able to get any life or disability insurance. That depends on the nature of the health issue and the insurance company's underwriting criteria. It is true that for most life and disability plans, an insurance company's underwriters will evaluate your medical history to determine if your situation falls within the company's parameters for an acceptable level of risk. However, in many instances, you can at least get some level of insurance protection even with an existing health condition. For example, life insurance underwriters often utilize various risk classes, such as "preferred," "standard," or "rated" to recognize differences in applicants' health status. Or, in the case of disability insurance, the company could offer modified coverage, which might exclude a particular health issue but provide regular coverage for all other disability causes. In addition, you may even be able to take advantage of "guaranteed issue" insurance under specific circumstances. As an example, members of the American Student Dental Association (ASDA) can get a certain amount of life and disability insurance through the ADA while in dental school with no medical underwriting required if they are under age 40.
Myth No. 2: Policy options are bad buys. Policy options (or riders) are an unnecessary expense if you don't need them, but often dentists do need them to customize or enhance their basic coverage. For example, an option that allows you to count days of partial disability toward meeting your waiting period can be very worthwhile for a dentist. This option could be particularly meaningful if you develop a condition, such as osteoarthritis, and have to cut back on your hours in the chair, yet never become totally disabled.
Myth No. 3: I don't have dependents, so I don't need life insurance. It's true that the most fundamental purpose of life insurance is to preserve wealth and protect those who depend on you financially. Typically, that means a spouse, domestic partner, or children. But life insurance has other uses, too. For example, you can use it to collateralize a practice loan or fund a buy-sell agreement.
Myth No. 4: Level premium term life insurance is less expensive than yearly renewable term life insurance. On the surface, this might seem to be correct because level premium term policies keep premiums constant for a stated period of time (such as 10 years), while yearly renewable term premiums start low and gradually increase as you get older. However, if you do a side-by-side comparison, you might find that you will actually pay less in total over 10 years with a yearly renewable policy than with an equivalent level premium term plan – and you can invest the savings from a yearly renewable policy in the early years rather than giving those savings to the insurance company to invest for itself. In addition, the premium often spikes dramatically under many level premium term plans after the initial term expires, which could make it cost prohibitive to continue coverage if you need coverage beyond the term you originally purchased.
Myth No. 5: All "own occupation" disability policies are the same. While it's generally correct that "own occupation" disability insurance policies provide much better coverage than those that only pay if you are unable to work in "any occupation," not all own occupation policies are the same. The ADA recommends buying true own occupation coverage that provides full disability benefits to age 65 as long as you are unable to practice your dental specialty, even if you decide to pursue another career. Some own occupation policies can reduce your benefits commensurate with any other earnings. Also know that there are policies that only pay own occupation benefits for the first few years of a disability, and thereafter require that you be disabled from "any occupation" or "any reasonable occupation" to qualify for further benefits. Be sure to investigate these differences carefully before making a buying decision.
Editor's note: This article does not constitute legal, tax, or financial advice. Please seek professional input as appropriate to your situation.
Jim Biesterfelt is vice president of Group Special Accounts at Great-West Life & Annuity Insurance Company, which underwrites and administers the ADA Insurance Plans and is the sole provider of ADA-sponsored life and disability insurance to ADA members. For more information, call (866) 607-5330, e-mail [email protected], or go to www.insurance.ada.org.
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