Does Increasing LTD Coverage Require Second Policy?

Aug 8, 2016

  1. costbenefit
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    costbenefit New Member

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    When my son was born four years ago, my wife and I purchased Long-Term Disability policies from Northwestern Mutual. We did not purchase Additional Benefit Riders, and since we got our policies our income has gone up, leaving us undercovered in terms of income replacement.

    I reached out to our broker about increasing our benefit amount, and he said that we didn't have to go through full medical screening just to "top off" our coverage, but could just answer medical questionnaires. He said the Additional Benefit Rider just allows you to retain your right to purchase more coverage if your health changes, and that as long as we were still healthy we wouldn't be paying higher premiums.

    When reveiwing the changes for signature, I noticed that instead of increasing the benefit on our existing policies, the agent had sold us entirely new policies. The premium per dollar of benefit is essentially the same (at least in year 1, I haven't checked in future years), so I asked why it was necessary to issue new policies instead of increasing benefits on existing policies. He responded that this was necessary because we are older now than when our first policies were issued.

    Having two policies each seems overly complicated to me. Is this typical? Does my agent's commission increase with the sale of new policies? If I elect to add the Additional Benefit Rider now will I be able to increase coverage later without buying another whole new policy? If I become disabled will I have to file a claim on each policy?

    This could get ridiculous if income keeps increasing over time. I'm only in my 30s and could see us each having half a dozen policies in the next 30 years. I'd go to my agent directly with these questions, but I'm a little skeptical that he's sold new policies to juice his commission and therefore won't give a straight answer. Any insight from members here appeciated.
     
  2. dgoldenz
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    dgoldenz Moderator Moderator

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    Yes this is normal, you aren't adding on to the existing policy, you are buying a second one. Some companies will also issue a second policy when exercising a Future Increase Option rather than attaching it to the first one.

    NWM's disability policy is not as good as some of the other companies out there. I'd look at seeing whether it makes sense to replace the existing coverage with one new policy that has a higher benefit. Depends on your occupation and the benefits chosen, but I'd be surprised if one of the other companies wasn't a better option.

    Agents get paid on the premium increase for DI policies, so it doesn't matter to your agent whether you buy a new policy or exercise a Future Increase Option type rider, but you said that you don't have one on your current coverage so that only leaves one choice. You can't add a rider to an existing policy.
     
  3. costbenefit
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    costbenefit New Member

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    I really appreciate your detailed response, thank you.
     
  4. pfg1
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    pfg1 Guru

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    Do you happen to know specifically how some of the major players handle this option? (Guardian, Mass, Std, ON, etc)
    Meaning if they have the rider and opt to purchase more covg... do they just increase the original?

    Thanks.
     
    Last edited: Aug 14, 2016
    pfg1, Aug 14, 2016
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  5. dgoldenz
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    dgoldenz Moderator Moderator

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    Guardian issues a new policy with FIO, I think Met adds on to the existing policy. Not sure about the others off the top of my head, would have to ask them.
     
    dgoldenz, Aug 15, 2016
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  6. Caryn Montague
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    Caryn Montague Expert

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    FWIW, and realizing this thread is a year old.....exercising an FIO and purchasing new coverage are not always the same. Exercising the option does not always result in getting the latest, greatest coverage or wording that is even identical to what was originally purchased. Please, be mindful of this and realize that the FIO is there to protect your future earnings in the event you cannot pass the medical criteria in the future.

    If you can qualify for new, additional coverage - even if you have to take a new physical- consider it. Have a broker evaluate this action vs exercising the option.
    #
     
    Last edited: Nov 15, 2017
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