There is nothing more controversial in disability insurance than the benefits and drawbacks of uni-sex rates and guarantee issue programs. Advisors go round and round with each other about their stance on these plans. The intention of this blog is not to bash nor commend either program but rather display information allowing the reader to determine whether or not these tools are right for them. Let’s start off with the basic definitions of each:
Guarantee Issue Programs (not to be mistake for Guarantee insurability or Guarantee increase) are a marketing strategy created by insurance companies to entice applicants with policies that are issued to without a medical examination or any questions asked.
Uni-sex Discounts are also a marketing tool. These “discounts” provide a single rate based on age and occupation class given to all applicants, regardless of sex, at massive teaching institutions and hospitals.
The most natural question at this point in time is, do these programs really benefit all that apply? The truth is, they do not and can be more harmful than good to some applicants. Below is a breakdown of Program benefits and Drawbacks:
Guarantee Issue Programs – These programs are great for those individuals who have significant medical histories, or are on prescription drugs for ongoing medical and mental conditions. But if you are healthy, going through individual underwriting is most likely your best option. Guarantee Issue programs are typically offered by smaller companies, who want to claim a larger market share, in turn accepting risk they normal would have declined. A single Disability claim could amount to $10 million or more. Taking on bad medical risk can tie up a considerable amount of assets for a small insurer, thus putting healthy clientele in a risky situation. The purpose of insurance is risk avoidance, but Guarantee issue programs are in direct conflict with this mission.
Uni-sex Discounts – As stated above they provide a single rate for both sexes dependent solely upon age and occupation classification. Actuarially, women are viewed as a greater risk to insurers than their male counterparts. This is because women inherently have more opportunities to make claims, including pregnancy, menopause, post menopause, hysterectomies etc. Thus a woman’s premiums are 40% to 50 % higher than that of a man’s. For this reason, Insurance companies decided that designing a program that lowered women’s rates A.K.A a Uni-sex discount would help them attract women to their company. While women’s rates decrease, Uni-sex programs do have a catch. Women’s savings are offset by the increases in cost faced by men. This increase helps the Insurer establish a rate to maintain profitability.
There are more to these programs than most people realize. To recap; guarantee issue programs are great for people who have a significant medical condition but terrible for healthy applicants. Furthermore Uni-sex rates are wonderful for women but they do come at a significant cost for male applicants. If ever presented with these strategies by your advisor be wary, make sure you read up on the company, its programs and get a second opinion from a Specialist. For more information on Disability insurance or Financial Planning topics for the Medical Professional visit Income Protection Specialist.com.
By Kyle E. Musleh
V.P. of Operations
