I am an otolaryngologist (surgeon) who just finished residency and have no medical problems. My husband's salary is comparable to mine, but he has a much higher earning potential. He has disability insurance through his employer. I currently pay $168/month for $3000/month coverage on an own-occupation policy. My agent is urging me to obtain more coverage before the rates go up and the coverage goes down. I believe that if my husband and I stay married, I won't need more coverage. But the worse case scenario (we have a few kids, get divorced, then I become disabled) haunts me and makes me think I should follow my agents advice. Also, is it better to get a level premium and pay more now or a graded premium and pay more later (when our income will be higher)? Thanks!

Zip Code: mtbowden@mnwent.com

The general rule is that you should have 60% of your income (after expenses, before taxes) protected by an individual disability insurance policy. However, the more income you earn, the lower the percentage of your salary that is actually replaced by the policy.

I certainly understand the concern that you have and will pose a question to you - and then give you some practical advice and potential solutions to discuss with your agent.

The question: Are you currently living on both of your incomes or need both of your incomes to reach your financial goals (purchase a home, pay for college, retire early, etc.)? If the answer is "yes", you should both have the maximum disability protection that is available.

Additionally, if you husband only has LTD (Long-Term Disability) provided by his employer, you should bear in mind that his benefit will most likely be taxable in the event of his disability (although there are exceptions).

The advice: You might consider leaving off the COLA rider if it is part of your policy (as you are not the primary breadwinner, rates for females are fairly high, and the odds of you and your husband being disabled at the same time are slim). You could then use the savings to purchase a larger monthly benefit today.

From your question, it sounds to me like you currently own a Berkshire/Guardian policy. In that event, if the FIO (Future Increase Option) is part of your policy, you could exercise that option during a disability and collect on it for that existing claim. This would allow you to leave your monthly benefit at its current level and increase it as the need or desire arises. However, there are a few reasons why you might not want to wait until that time (beyond the scope of this reply).

Additionally, there are changes currently being made to that rider (for new policies purchased after February 16, 2004 - that will no longer allow the FIO to be exercised and paid out on an existing disability claim - although this change depends on the state(s) in which you reside and/or work.

Finally, a level premium (on paper) will always be less expensive. One could make the argument that if you did a "time value of money calculation" - taking the difference between the fixed and level premiums, invested over time, at a certain percentage - you would probalbly be better off with the graded premium schedule.

However, if you don't feel that way and you purchase a graded plan, you could always convert it to a level rate in the future as your incomes rise and are able to pay more in premiums.

My professional opinion is that you and your husband should have the maximum disability benefits available. If you need to purchase the graded plan to make that happen, then that is what you should do.

If you have any questions regarding your specific situation, that you would like me to address, feel free to drop me an email.

Larry

Zip Code: lkeller@physicianfinancialservices.com

Thank you for the advice. I decided to increase my coverage to $5000 a month with a future increase option of $5000, no COLA, and a graded premium. I figure that the coverage is most important now, since we currently rely on both of our incomes to cover our monthly expenses. Down the road, when we have more in savings and less debt, I might drop coverage all together.

Zip Code: mtbowden@mnwent.com

I'm glad that I was able to help.

Larry

Zip Code: lkeller@physicianfinancialservices.com