The Advantages of the FPA Association Group Long-Term Disability Insurance Plan
by John Ryan, CFP®
There are basically two types of disability income insurance, those plans that are issued on an individual basis and those issued on a group basis.
Usually those plans issued on an individual basis require full medical underwriting and are the most expensive. The upside is that certain aspects of that coverage are superior to group plans.
In contrast, plans issued on a group basis require little to no underwriting and cost less than individual policies. This is largely the result of lower costs of the insurer to acquire the risk (lower commission and underwriting expense), the law of large numbers within a certain group, which can spread the risk of claim across a large audience so more healthy risks support the less healthy, and a pre-existing exclusion limitation that will protect the insurer for a year or two from immediate claims. Finally, group policy benefits offset with social security benefits received. Another common offset, one that is most overlooked by advisers, is the recurring income offset during total disability.
For example, if the claimant can't work, but continues to receive trailer income such as AUM fees, insurance or investment commission, most group policies will offset the benefit payable dollar-for-dollar (The FPA plan won't offset. You should check with your employer plan for this disadvantage). Finally, group insurance can raise rates, modify or cancel coverage if claims expenses are unacceptable. Individual policies can't do this once a policy is issued. These are the major reasons group insurance is less expensive than individual policies.
So, both types of plans have their strengths and weaknesses. Wouldn't it be great to have a plan that combines the best features of both without all the drawbacks? Well, such a policy has been available to FPA members since 2009. The FPA Voluntary Group Long-Term Disability Plan features most of these advantages and eliminates many of the drawbacks.
Key Features of the FPA Voluntary Group Long Term Disability Plan:
- Policies issued on a voluntary individual basis, so you don’t need anyone else in your office to sign up.
- WARNING: Most group policies offset with benefits received from other group policies (few exceptions). If you have a group policy now and want to add the FPA plan, contact us for guidance before doing so.
- Guaranteed Issue (no underwriting) for new first-time members who sign up within 60 days of joining FPA.
- Guaranteed issue to all other existing members (few exceptions) when AND if Standard Insurance Company grants an annual open enrollment (they have each year but not a contractual obligation.)
- Allows insured to increase benefits each year based on increased earnings, guaranteed issue.
- Own-occupation definition of disability to SSNRA. If claim begins after age 60, a reducing benefit period scale is used.
- Partial disability benefits included with a 24-month return to work incentive clause.
- Monthly premiums are often 40-60% less than the premium for individual policies with similar features. However, these group premiums are scheduled to increase at every five year age bracket. You can see those current and future premiums on the website calculator.
- No benefit offsets for trailer income during total disability if that income stream was created prior to disability. (check your employer group policy to see if this offset exists)
- 60% of income issue up to a monthly maximum of $15,000. PLUS, an additional 10% of earnings insured up to $5,000/month max to fund a retirement annuity PLUS, an additional 20% of earnings insured up to $2,000/month max, to reimburse insured for possible long term care expenses during a catastrophic disability.
- Policy insures earned income (up to $25,000/month) reported on the previous year tax return. (Some employer group policies exclude bonus and commission, so check your current policy for this limitation).
NOTE: If you are eligible for coverage but don’t have an income for the previous tax year because you are new to the industry, contact us for how you can still get insured.
- This plan makes a great supplement to individual disability insurance (We don’t recommend you drop individual coverage for the FPA plan without serious consideration. Call us for guidance before doing so).
- Cost of living adjustments during claim included.
- Drug, alcohol, mental and nervous claims are paid up to 24 months per incidence (This is better than per lifetime).
- No limitations for self-reported medical conditions as long as MD-certified and medical records disclose the condition.
- Policy can be converted, up to 4,000/month benefit max, once insured for 12 consecutive months if you change membership status.
Some insurance advisers may point to the fact the group disability insurance can raise rates or cancel your policy, so you should buy an individual policy instead. While this may occur, looking back on my 38 years since I entered the disability planning industry, this rarely, if ever, occurs. Far more likely is a slight across-the-board rate increase, say 5-7% every 2-3 years for employer-provided plans. The FPA plan premiums are scheduled to increase each five year age bracket. Outright cancellation of coverage is extremely rare.
The FPA plan has the usual pre-existing exclusion clause (6/24) and many of the typical benefit offsets found in group insurance, but in my opinion comes as close to the perfect disability policy available to financial advisers who want to be issued coverage on an individual basis and offered guaranteed issue protection in most cases.
As you can see, this is not your typical group LTD plan. In fact, since 2009, we have had two major premium REDUCTIONS, and made several different policy enhancements in an attempt to customize the plan to better fit the compensation model of most advisers (commission fee-offset, fee-only) and with due regard for the material and substantial duties required of advisers to fulfill their obligations to their financial planning clients.
I invite members to go to: https://www.onefpa.org/MyFPA/member-discounts/Pages/ryaninsurance.aspx
Non-members thinking of joining FPA but wanting to learn more about this plan first can go to: AssociationInsuranceBenefits.com
John Ryan, CFP® and his team are the plan administrators of the FPA Group long-term disability and term life programs. He not only insures FPA members, but also helps advisers insure their clients with similar individual and group programs. He can be reached at (800) 796-0909, x102, or [email protected].