Life and long term disability insurance

I have a wife and a family and in case something happens I need to make sure they are protected. ’Something’ however can range from death (which is relatively easy to plan for) to long term disability (which turned out to be a nightmare to plan for). It is tempting to think that my work insurance is sufficient, but what happens if I ever leave my employer? Who says that my next employer will have as generous insurance offered on as good terms? What if I want to do my own start up? I really don’t want to be out in the insurance market at an older age trying to get life insurance. The same logic applies for disability insurance but times two due to its complexity. So I need to put protection in place now. This article walks through how I did it.

1 Disclaimer

I write these articles primarily to help me think through what I want to do. I am not an expert in insurance, finance or anything else related to this article. These are basically just my notes to help me out next time I have to deal with this. My purpose in publishing them is mostly to force me to write them and to get feedback and advice from others on what they did.

2 Finding insurance companies

My first concern is which insurance companies I want to do business with. For this article I’m looking for life/disability companies. I’ll handle car/home/rental/umbrella separately. My goal is to figure out which companies will actually honor the policies they write (spend even a few minutes looking through customer complains about insurance companies and one will quickly realize that our regulators and our courts are little protection against the crooks selling insurance) as well as which insurance companies have the financial strength to honor their obligations.
The second concern, financial strength, might seem slightly odd. After all, insurance company policies are in theory backed up by special government provided funds in the various states in which they operate. But in practice those funds tend to not be terribly large and going through a claim process with them doesn’t appear to be much fun. So the goal has to be to find companies that can actually meet their obligations.
I explain in the appendix (A↓) the exact process I went through to pick candidate companies but the final list for life insurance was Mass Mutual, Northwestern and Penn Mutual. For disability insurance I only wanted companies that write their own policies so that left Mass Mutual and Northwestern. Note that USAA would have made the list but my family doesn’t qualify since we aren’t former military. Also note that Country Life insurance also made the list but I literally couldn’t get any of their agents (I contacted two) to ever return my e-mails.

3 Finding insurance agents

Ideally I would find a fee only insurance broker who could handle all types of insurance and could provide me with an end to end review of our insurance needs. But I didn’t have much luck in finding fee only insurance brokers who weren’t actually financial advisers with little or no meaningful certifications in the insurance business. So I’m instead stuck with dealing with the agents from the insurance companies I want to buy insurance from. Yes, I could get an independent agent but they are still paid by the insurance company so I might as well get someone who knows the company’s policies because they sell them day in and day out.
Since I pay the same regardless of the agent’s qualifications I might as well pick the agent with the most experience and the best qualifications. Picking such an agent means that they can answer my questions faster and hopefully (gulp) more accurately. I found this out the hard way when I ended up with an agent who didn’t meet these criteria and he was really useless. In looking through qualifications I found two that seemed relevant to life/disability insurance:
Certified insurance counselor (CIC) CIC offers five ’institutes’ (e.g. different flavors of accreditation) including personal lines and Life & Health. It takes (stop laughing) 20 hours of instruction plus an optional (yes, optional) 2 hour exam to get accredited in an institute.
Certified life underwriter (CLU) This focuses primarily on life insurance with optional classes on financial planning, health insurance, etc. A minimum of 8 classes are required to get certified. Each class looks to be around 20 hours.
So I’m looking for an agent from each company that has at least 5 years of experience (the newbies can practice on someone else) and who is a CLU. In some cases this has proven impossible. It doesn’t seem like any of the Country Life agents have much beyond a college degree (and some don’t even list that). Of course none of the Country Life agents ever got back to me so there you are.
An interesting problem I ran into across the board is that the website contact forms for everybody seem broken. Northwestern Mutual’s form didn’t give the agent my e-mail even though I entered it, thankfully the agent just looked me up on the Internet since it did give him my name. Penn Mutual’s form apparently went into /dev/null, I had to contact an agent directly. So in general pick up the phone because this whole Internet thing seems a bit hard for our friends in the insurance business.

3.1 Pity my poor agents

I worked primary with Mass Mutual, Northwestern and Penn Mutual. My agents were William Cooney, Ryan Wahlin and Tony Soh. I have no doubt that all three wish they had never met me. Tony probably got off the easiest because I was only talking to Penn Mutual (who he represents) about Life Insurance and the luck of the draw meant that I got to him last so by the time we talked I knew what questions to ask. But both Bill (Mass Mutual) and Ryan (Northwestern) got beaten into a pulp. I asked them question after question after question after question. They would get long detailed e-mails from me asking for all sorts of information, mostly about disability insurance which is a pit of complexity. To their credit they handled it like champs and got clear answers to all of my questions. I don’t know if their companies hand out purple stars but if they don’t they probably should after having to deal with me.

4 Life insurance

Apparently the rule of thumb for life insurance is to have 10x annual income. I calculated the value I’m using by using a program called ESPlanner. I have a whole article on it for those who are interested. It’s result was significantly lower than 10x. But given all the vagaries inherent in trying to predict life insurance needs I’m fairly impressed by how useful the 10x figure was in our case. Still using a program like ESPlanner (assuming you can survive it’s interface) can help one save serious bucks in terms of preventing overbuying insurance.
In terms of what kind of life insurance, the only kind I’m interested in is term life. I don’t want whole life since we don’t need insurance for our entire lives, in fact, the older we get the less insurance we need thanks to our savings and our daughter moving out of the house. I also don’t want Universal life insurance (variable or otherwise). Although there are some tax benefits to Universal life I choose to handle my investing needs via investing products and my insurance needs with insurance products. I have no desire to mix the two.
Note that there will (inevitably) be intense pressure from agents to buy whole life. Whole life is a complex product that in certain circumstances can be very useful but as soon as the discussion turns to using Whole Life as a financial product it’s time, in my non-expert opinion, to run away. It seems to me (based on absolutely no evidence) that the more complex a financial product is the less likely it is to do what one expects. And a whole life insurance policy is a telephone book worth of complexity. So I stay away from it.

4.1 Features that control the price

Fixed-rate level term This guarantees that the premium for the insurance remains fixed for a defined number of years. This can be an expensive option since it takes away the insurance company’s right to increase the premium. Without fixed-rate level term the insurance company can increase premiums each year of the policy’s existence. Note that different rates (often vastly different rates) are offered based on which health tier one ends up in. I usually asked companies to quote me the top few tiers since I have no idea where I’ll end up.
Waiver of premium rider If one becomes disabled how does one pay for one’s life insurance? Ideally the disability policy would pay out enough to cover life insurance policy premiums but typically disability policies pay only a percentage of earnings. So you can buy a waiver of premium rider that will pay the cost of the life insurance premiums should one become disabled. Alas the terms are different at different companies. Usually there is an up front period where if you meet their definition of disability (which can range from completely disabled to ’own occupation’ disability (see next section on disability insurance) then they will pay the premiums on the life insurance policy for some fixed period of time (anywhere from 6 months to 5 years) and after that will usually turn the life insurance policy into a whole life policy for the same amount (except for those who just pay the premiums but don’t convert to whole life). Typically however if one ever gets better then payments start again, this is especially problematic if one chose to switch the policy to a whole life since whole life premiums will be substantially higher than term life. Premium waivers are expensive and the terms are fiddly so my general plan is to just depend on our disability insurance to pay out enough to cover the costs of our life insurance.
Cost of living increase (COLA) Some policies contain (or one can buy) a provision that will increase the value of the policy automatically based on some measure of inflation. Note that there are typically limits to how much of an increase one can get in a year although some companies have a catchup provision (e.g. if last year’s increase in inflation was higher than the limit and this year’s was lower then the difference can be used to increase this year’s coverage). I’m not as worried about COLA since my goal is to reduce life insurance over time, not increase it.
Purchase option Guarantees the right to purchase more life insurance in the future up to a certain amount and age without having to provide evidence of insurability. But these options typically only run into the late 40s so it’s value as I age isn’t a whole lot.

4.2 Features that are standard to all policies

Reduce coverage Over time our need for insurance drops so when evaluating policies we need to see what terms are offered for reducing the amount of coverage. Every company I talked to had the same policy - you can reduce coverage any time you want, no strings attached, by filling out a form. Reducing coverage will proportionally reduce fees using the rate schedule in force when the policy was issued. Since reducing coverage reduces the insurance company’s liability and since they get to keep everything you already paid they always seem happy to reduce coverage. Still, I think it’s a good idea to check their policies just to make sure. Since our insurance needs will go down over time having reducible coverage is a big deal.
Reconsideration period Let’s say we don’t get the highest possible health tier due to something we can change like weight or possibly cholesterol. Some companies have what’s called a reconsideration period. This is a period of time (usually from 1 to 2 years) after the policy is issued where if you can show that you lost the weight or lowered the cholesterol and kept it off then you can get the price of the policy adjusted. Some companies will let you adjust at the age you were when the policy was issued but at current rates. Others let you adjust both at the age and rates that were in force when the policy was issued. In the end I didn’t need this because I got enough offers in the highest tier.
Convertible term life insurance Lots of life insurance policies offer a rider to let one convert the policy from term life to whole life. This will raise the premiums but there is no medical exam required. I don’t think we will need whole life but depending on the cost the option could be useful in certain situations. I didn’t pick this option.
Limitations on travel Most of these policies have rules about where and when one can travel. Amica, for example, had a rule that the policy can’t be issued if one is traveling too soon in the future. Travel, btw, generally has to be outside of the United States, Mexico and Canada. Other companies charge higher fees if one has plans to travel anytime in the next year or two. But it turns out that ’plans’ (according to all the agents I talked to) mean ’booked tickets and hotel rooms’. If we are thinking about traveling but have no firm plans then according to the agents we are supposed to mark ’no’ to the question about travel.
Limitations on activities Scuba diving, hang gliding, bungee jumping, etc. can all cause premium increases (and can void the insurance if one is caught doing them before the exclusion period is over). Interestingly enough some folks didn’t charge higher premiums to certified divers, only un-certified ones.

4.3 Features I avoid

Renewable level term This rider allows one to get a guaranteed renewal on the policy after the term expires without a medical exam but the price will be adjusted up based solely on age. This feature is not so much to be avoided as simply not available on all but the shortest term life insurance policies. I only mention it because it came up in the books I read on insurance.
Re-entry renewable level term Essentially one has to re-qualify for insurance on some regular period, such as every year or every 5 years via a medical exam. In other words, the insurance is not guaranteed beyond the rather short renewal period. The main benefit is that it’s cheap. The main downside is that it’s dangerous if one’s health declines one can end up not being able to afford any insurance just when it’s most needed.
Decreasing term insurance In theory this might look good given my conviction that over time we’ll need less insurance. This type of insurance automatically reduces coverage every year. The premium however is fixed over the lifetime of the policy but should be less than fixed rate level term since the offered coverage is less. But this kind of coverage requires us to know ahead of time exactly the rate of decrease and my crystal ball isn’t that good.
Return of premium policy At the end of the term this insurance will return some or all of the premiums paid. Typically there is also some provision for paying interest. Much like universal life I don’t want to use my insurance policy as an investment vehicle.

4.4 What we actually bought

We went with Mass Mutual and got a 20 year fixed rate level term. It has no premium waver, COLA or purchase options. All three companies I talked to (Mass, Northwestern and Penn) have pretty much identical life insurance policies so the decision just came down to price.
The amount we bought was set by the previously mentioned ESPlanner. We also decided to get all of our coverage external to my employer mostly because the prices were comparable and having the insurance externally gives me much greater flexibility in the future in terms of choosing where to work.

5 Disability insurance

Disability insurance typically will only cover a percentage of income and equally typically this is just salary and bonus income. Mass Mutual was also willing to look at the stock compensation provided by my company which meant they were willing to write a larger policy than Northwestern was.
It’s tempting to rely on Social Security benefits for disabled people in case something bad happens but the benefits are small and apparently the qualifications are so stringent that it’s highly unlikely we would qualify in all but the most extreme cases. So for planning purposes we need to just ignore Social Security disability payments all together.

5.1 Features that control price

Coverage calculations Every company seems to have their own rules for how they calculate how much of a benefit they will give. It’s useful to understand what those rules are since it might open up areas, such as stock compensation, that the company might be willing to talk about. Huge kudos go to my Mass agent Bill Cooney for pushing the stock issue hard with his underwriters.
Own-occupation coverage Own-occupation coverage pays out if one can’t perform the ’primary duties’ of one’s job. But we have to be careful. Many policies only apply own-occupation for a limited period of time, after that they become some form of any-occupation coverage.
Any occupation coverage Means that if one can get any kind of job at any salary then one is employable and the disability insurance no longer applies. So ’any occupation’ coverage is really for catastrophic disability, where one is so completely incapacitated that while one is alive one can’t do any form of work. In other words, it’s insurance against becoming a complete invalid. So it’s extremely important to find out what definitions the insurance company is using and to check those definitions since the whole policy hangs on it.
Modified any occupation Some companies have an in-between definition which is between any-occ and own-occ. It tends to use mushy language that specifies that one doesn’t have to take any job but so long as the job is somehow relevant to one’s education and background then it qualifies. I find these terms hard to parse and I can only imagine that they would be settled in a court of law. Not a great way to get a disability contract.
Non-cancelable/Guaranteed renewable The insurance company cannot increase the rates or change the terms of the policy even if I change occupations. In other words, my income could go down and I would still be insured at the original amount. The classic example is that someone in a high paying job quits to go become a teacher. If they have a non-cancelable/guaranteed renewable policy then their insurance coverage stays at the same level it was when they had their high paying job. Also note that most companies treat ’own-occupation’ coverage as applying to the job one had when becoming disabled. So if someone switches from their high paying finance job to a low paying teaching job then the disability insurance would kick in if one’s injury prevented one from teaching. Each company has its own variants on these rules.
Guaranteed renewable The policy is guaranteed to be renewed each year but the rate isn’t guaranteed. However rate increases cannot be targeted at me specifically, they have to be a class like everyone who lives in a State or everyone who has a particular job or everyone who bought disability insurance a particular year.
Elimination period This is the period between becoming disabled and when I can first claim benefits. Typically I’ll want to make this as long as possible and self insure that period in order to reduce costs. Typically I found that the cost savings became minimal after a 180 day elimination period.
Coverage period Some policies only apply for a fixed number of years others cover to certain ages and I’ve heard (but no company I want to do business with has offered) lifetime coverage.
Residual disability coverage This is also known as partial or proportional benefits. If I can get a job but due to my disability it doesn’t pay what I used to make this rider will give me a percentage of benefits instead of a strict ’all or nothing’. But I have to make sure that the residual disability benefit lasts as long as the policy does! Also make sure that the residual disability coverage is indexed for inflation. It seems like there is a separate inflation indexing for residual disability then there is for complete disability benefits.
Purchase option Also known as an additional purchase benefit (APB or FIO). A guaranteed right to increase coverage without regard to health. This is useful if income increases but is usually an additional rider. Note that you generally have to prove that you are earning enough to justify the increase under their coverage guidelines and typically the new coverage is purchased at current prices. There is also usually a limit for how much more one can buy regardless of one’s financial situation and there is also usually an age limit where one can’t buy any additional coverage. So the key to the purchase option is that one doesn’t have to go through another health exam. Note that the amount of benefit is quoted in dollars per month. So if they offer say a $1000 FIO then they are giving a right to purchase up to $1000 of extra benefit a month without a health exam.
Retire Guard This is offered both by Mass Mutual and Guardian. This rider puts a monthly benefit into a trustee account each month one is disabled. The trustee account operates pretty much like a standard 401(K). There are different retirement investment options (and fees of course) and when one is old enough to retire one can draw from the trustee account. Note however that unlike standard disability benefits which are completely tax deductible, retire guard benefits are fully taxable. Also note that Retire Guard only applies if we are totally disabled. There are too many caveats and expenses here for me to want this.
Level vs graded premiums Some companies offer a choice between level premiums, where one pays the same amount over the life of the policy and graded premiums. With grade premiums one pays less at the start of the policy and more as one gets closer to retirement. In theory one should pay the same amount over the lifetime of the policy with level or graded, it’s just a question of if payments are front loaded or not. I general go for level premiums because as I get older it will get harder and harder to get a new job if I lose my current one so my purchasing capability goes down.
Catastrophic disability Additional benefits will be paid if a particularly disabling illness or injury occurs. In a sense this is a form of long term care insurance. But one must check both how much in the way of benefits are available and what the cost is.

5.2 Cost of living adjustments (COLA)

I’ve broken COLA into its own section because there are at least three different flavors of COLA I’ve run into so far. And in the case of, for example, the Northwestern policy, each of the types has different terms. How’s that for complex? In Northwestern’s case two of the three COLAs are actually a standard part of their policies and don’t cost extra.
Cost of living adjustment (COLA) A COLA is an adjustment to some benefit based on some measure of inflation. Typically an index like the CPI-U is used to measure inflation. In other words if the CPI-U says that inflation went up by X% then in theory one’s benefit will be automatically adjusted at the end of the year for X%.
Maximum yearly increase Inflation can and has increased by large amounts and insurance companies don’t want to leave themselves open to those huge increases. So most policies have a maximum yearly increase measured either in cash or percent. If inflation is higher than that limit then the policy will only be adjusted to the limit.
Catch up Imagine a policy has a 6% maximum yearly increase and in year 1 inflation was 7%. That means the policy will only increase at the end of year 1 by 6%. Now imagine that in year 2 inflation is 3%. A policy with a catch up clause will ’credit’ the unused 1% increase from year 1 to year 2 (since year 2’s inflation didn’t exceed the maximum) and thus give a 4% increase in year 2.
Future increase benefit (FIB) I think of this as the healthy COLA. The FIB increases the income provided by the policy every year while I am healthy. Note however that this increase isn’t free. If benefits are increased thanks to FIB then one also has to pay more premiums. In effect a FIB offers one an increased policy, without a health exam, but at increased cost. If an increase is rejected a certain number of years in a row then the benefit can be lost.
Indexed Income benefit (IIB) I think of this as the sick COLA. If we get disabled and draw benefits then the IIB determines if those benefits are adjusted for inflation.
Residual COLA This is a variant of the sick COLA, it applies in the case that we are using the residual coverage (see Features that control price↑) . At least in the Northwestern’s case it has different (although better) terms than the IIB.

5.3 Features common to all policies

Mental illness coverage How long are benefits paid if one a mental illness that precludes work? What about ’self reported’ illness like fatigue, unverified pain, numbness, etc.? Most policies I’ve seen limit mental illness coverage to 2 years. Guardian was one of the only exceptions.
Premium waiver while on disability It’s good to check to make sure the company will waive any premiums for the policy while one is drawing disability payments.
Dividends Most companies pay dividends on disability insurance, it’s worth checking out their policies and past payment history. But remember, payment history may or may not match future payments.

5.4 Features we don’t want

Return of premium If the policy isn’t used before it expires then all premiums are returned. As with life insurance I use insurance as an insurance product, not a savings product, so I don’t want to pay extra for this feature.

5.5 What we got

We went with Mass Mutual for several reason. First, their prices were lower than Northwestern. Second, because they were willing to consider my stock compensation they were also willing to write a larger policy. Comparing the policies wasn’t trivial however because many of their terms are different. For example, I can get coverage up to age 70 with Northwestern but only 67 with Mass. Mass’s inflation adjustment while disabled is based on a flat 3% adjustment every year while Northwestern uses the CPI-U with a limit of 6% but does have a catch up provision. For residual disability inflation adjustment Northwestern uses 5% or CPI-U, whichever is higher while Northwestern uses CPI-U with no maximum. In the end once I controlled for total payout and costs the Mass deal was better than Northwestern. Of course the wild card here was dividends. Northwestern has a history of paying very generous dividends (although they only kick in after a few years of owning the policy) which Mass’s dividends have historically been much less generous. But a promise isn’t quite the same as a contract so in the end I really couldn’t think too deeply about the dividends.
The policy we ended up buying was to age 67, has their ’future insurability option’ (a.k.a. a purchase option), the cost of living adjustment while disabled, extended partial disability coverage (a.k.a. residual disability coverage) and an own occupation rider. We also bought as much coverage as they would offer us. My main motivation is to move as much coverage as possible out of my employer in order to give me more flexibility in the future in regards to employers. But this choice isn’t cheap so it was a hard decision given the costs involved.

6 Health related insurance types we don’t need (yet)

6.1 Accidental Death and Dismemberment (ADD)

Why would one want extra insurance if one dies accidentally? Are the family’s costs greater? If one is worried about death then one needs life insurance, the amount doesn’t change because of the cause of death. Similarly with dismemberment. If a part of my body is cut off or otherwise destroyed then the medical and other issues this raises need to be dealt with via disability insurance. So no ADD insurance.

6.2 Short term disability

Lots of employers offer short term disability insurance and if it’s free, hey, go for it I figure. But in general I want my disability insurance policy to handle disability and how long or short term should be dealt with via the elimination period, not a separate policy.

6.3 Long term care insurance (LTCI)

Take a stroll over to the MetLife Mature Market Institute and find their latest Market Survey of Long-Term Care Costs. It’s a treasure trove of data on how much it costs for everything from full time care to assisted living to home care. From their 2011 report the average daily cost for a private room in Seattle (where I live) is $285 with a high of $352. That works out to $128,480/year per person. All the other costs were less than that. Long term care insurance is intended to help pay for these costs. What isn’t so clear is how long one needs these costs? Apparently the average long term care stay is around 3 years but what if one has to stay for a lot longer?
Furthermore the issues of getting long term care insurance, including options, costs, etc. gave me a serious headache. Which is typically a warning, to me at least, that the insurance is likely to have gotchas I’m likely to miss. Insurance products that require a lot of intelligence are better suited for separating me from my money than helping me out (something I constantly worry about in regards to disability insurance).
There are a number of threads on LTCI on the Bogleheads forum. There are a variety of opinions, but there is some consensus on the following points:
  1. LTCI is most useful if your net worth is between $300k and $2M (at the time you need the care). Less than 300k, you should rely on Medicaid. More than $2M, you can self-insure.
  2. If you do choose to get LTCI, it’s best to purchase it in your 50s or 60s, rather than when you are younger.
Here are a few threads, you can search for more:

A Selecting candidate companies that sell Life Insurance/Disability

To find candidate companies I went through a filtering process.
  1. I went to Weiss Ratings and look up their list of strongest life insurers. I start with Weiss because they are the only ratings company that is paid by those who consume the rating, not by the companies being rated. I ignore the state column in their insurance listings because that’s just where the company is headquartered and most companies do business in multiple states.
  2. Then I check each company against the Washington State Insurance commissioners yearly status report appendix E section “Life - Life Insurance”. This lists the top 40 companies, by market share, who sell life insurance in Washington State. I’m pretty wary of any company that isn’t in the top 40 since it implies that the company’s commitment to sell insurance in Washington State is likely weak and it’s knowledge of the market (local conditions, laws, etc.) is probably not top notch and their agents on the ground are likely thin. Ideally I want several candidates who are in the top 10 insurance underwriters in Washington. Eventually I had to go through Weiss’s list until I got down to the A-’s before I had enough candidates so that at least 4 were in the top 10 (the rest being in the top 40).
  3. Next I checked out the company’s credit ratings with other agencies. After all, who says Weiss is perfect? I checked out AmBest, Standard & Poor’s and Fitch. I wanted to also check out Moody’s but their website confused me. My goal is to get at least 3 out of 4 companies to agree that the company is top notch. See section A.1↓ for what ratings I consider acceptable from reach rating company. This process left me with 8 companies.
  4. Next up I checked the Life Insurance complaint index from the Washington State Office of the Insurance Commissioner. Companies aren’t listed if no complaints were received or if they didn’t receive enough complaints to get into the top 80 companies by complaint. My rule was to kick out any company with a complaint Index higher than 1 (which means they receive more complaints than average) but the highest was 0.69591 so I still had 8 companies left.
  5. I then looked up each company’s BBB rating. The key is to look for ’head quarters’ or ’multiple locations’ ratings which often will roll up complaints about the company from across the country. I want that roll up since company cultures tend to spread bad, so if a company is awful in one state it’s likely to become awful in others. BBB uses an A+ to F rating system but given my own experience using BBB I wouldn’t trust any company with a rating less than A+. So I lost two companies due to BBB ratings. I also removed a third company because BBB didn’t have enough data on them to rate them and that’s just bizarre given that we are talking about huge companies. So this left me with 6 companies.
  6. I then checked the companies out on, and FBIC Ranking 100. I’m not completely comfortable with FBIC since I don’t really understand who they are but I used the data as part of the process. With ripoffreport and screwedbyforums I was mostly looking at complaint count (e.g. how many unique complaints). I also checked the companies out at This is a company that rates how good a company is to work for, a company that sucks to work for isn’t going to have a happy future. I also did an Internet search for the company’s name with words like “sucks” to see how many people on the wide open web have issues with the company. This entire process however only caused me to kick out a single company, leaving me with 5.
  7. Finally I look to see if they are mutually owned or not. Just about all the majors are mutually owned, which means that the customers (although not term life insurance customers) own the company. Being mutually owned makes it a little bit easier for the company to actually focus on its customers since there aren’t any shareholders to please, just upper manager who needs to get their bonuses from someplace.
My remaining companies were Country Life Insurance, Mass Mutual, Northwestern Mutual, Penn Mutual and Amica. Note that I snuck in Amica. I currently use them for my property insurance and am happy with them. The only check above they didn’t make was being in the top 40 Life Insurance underwriters in Washington State. The reason for this is that until recently they only sold Life Insurance to their members.
Of the five companies it turns out that two don’t actually write their own disability insurance policies, they contract out with others. Those two were Penn Mutual and Amica. One of the companies, Country, doesn’t apparently want my business. I sent mail to two of their agents and never heard back (and yes, I checked my junk mail). So that left Mass, Northwestern and Penn. Penn doesn’t sell its own disability insurance so I only considered them for Life Insurance.
I believe USAA would have met my bar but since neither I nor my wife are former military we don’t qualify.

A.1 The rating I look for from each ratings agency

Weiss An A rating means Weiss thinks the company can survive just about anything. A B rating means the company is in great shape but if the general economic condition gets really bad then this company will need to be re-reviewed. Weiss considers any company with a B+ or higher to be ’strong’.
AmBest Financial Strength Ratings (FSR), the ability to meet its obligations to policyholders. A++ and A+ are superior.
Standard & Poors AAA and AA for financial strength rating would seem to be the minimum requirements for a super financially secure company. If S&P does an unsolicited credit rating then they will apparently add a ’pi’ subscript to the rating which means the rating is based on public data and so is not as trustworthy as a rating without a ’pi’. The whole ’pi’ thing feels like a shakedown to me so I tend to ignore those ratings.
Fitch - NationalInsurer Financial Strength Ratings The ratings are done within a single country. Note that the ratings are relative, not absolute. In other words if all companies in the U.S. suck then the least suckiest still gets a AAA. Generally AAA and AA seem to be the only ratings one can sleep safely with. I found that there were a number of insurance companies that Fitch either didn’t rate or doesn’t rate anymore.
Moody’s Long-Term Insurance Financial Strength Ratings - Aaa and Aa are considered “high-grade” companies. I had trouble getting actual ratings out of Moody’s. You appear to need to subscribe to get those.

13 thoughts on “Life and long term disability insurance”

  1. This is awesome. I am facing similar choices around two other insurance products I am considering – Universal Life and a Fixed Indexed Annuity, and was wondering if you had any experience with these.

    1. Generally I stay far, far away from insurance products masquerading as investments. They only get away with this game because of tax advantages they have and one has to look extremely carefully to see if the fees/loads/charges/etc. aren’t so high as to wipe out all benefit. Fixed Indexed Annuities are particularly tricky because the insurance company gets to keep the upside (typically such annuities have a maximum return) and they generally only protect principal which means they don’t even adjust for inflation. Unless you have a tax situation that calls for them and you can find one that has low, low, low fees (which pretty much means only TIA-CREF or Vanguard) they are a sucker bet.

      That having been said annuities as a concept have real merit but for one and only one reason. It’s not like the insurance company is going to do a great job investing since no one really knows how to do that. But annuities typically don’t allow you to take any money out when you die. This means that the excess money, at least in theory, can go to the other members of the annuity and ‘goose’ their earnings. So there is a reason to expect that a fixed annuity could have a good return. But that assumes the insurance company isn’t using the money for something else like investing in derivatives. I’ll probably consider some form of fixed annuity when I get to retirement in order to protect some income but I don’t think it will be a huge part of my portfolio.

      Universal Life is just another financial product masquerading as insurance and I stay away from it for the same reason. Typically the fees/charges/loads/etc. are so massive as to wipe our any advantage it brings. You also want to ask yourself – how can an insurance company really make a solid promise about investment return? Sure they have actuarial tables that let them know how many people are likely to die early but this still leaves a huge exposure to the market. Personally I’m wary of people making promises that simple logic says they can’t keep. Nobody knows where interest rates are going and so no one is really in a position to make any very long term promises about returns.

      But again, that’s just my two cents.

    1. I strongly suspect the above comment is really just spam. But I did want to use it as an excuse to point out that short term disability insurance, in my unprofessional opinion, is a complete waste of money. One should only buy long term. Short Term, in theory, covers one until long term kicks in. But you can set how long a time it takes before your long term kicks in. Also if you can afford long term then you can afford to put away enough emergency money to cover your short term needs until long term kicks in. And it goes without saying, again in my unprofessional opinion, that one always gets long term before even thinking about short term. But personally I would pretty much never buy short term disability insurance (and yes, I’m sure there are exceptions where it makes sense but none of them apply to me).

    1. I am honestly not sure how Guardian didn’t end up in the final list. Given the criteria I was using they should have. Although, thanks to their complaint ratio and Glassdoor rating they would have been at the bottom of the list.

      In the end however I did have them in the running because the agent I used for Mass also handled Guardian. I actually mention this in the article. Guardian’s main advantage from my perspective is that it offers more generous terms for mental illness in its disability policy. But their prices were not as good as Mass’s so I didn’t go with them. But keep in mind that prices are extremely specific to the individual so just because they weren’t best for me doesn’t mean they wouldn’t be best for others.

  2. BTW, I ask since I thought you used a general insurance agent that sold each kind of insurance rather than a dedicated agent for Mass Mutual.

    1. In section 3.1 I list the three agents that I talked to. I actually talked exclusively with agents directly recommended by the insurance companies (after I made sure they met my requirements which I listed in section 3). In both Mass and Northwestern’s case they use general agencies who they send business to. So those agents can typically write policies across multiple companies. Personally I wouldn’t feel comfortable buying insurance without talking to at least three different companies and since prices are so individualized it doesn’t seem to me that it’s safe to assume that just because one person used a particular company that the same company is good for another person.

  3. Section 5.2 – excellent description of COLA and its iterations.
    What resources did you use to define IIB. if I may ask?

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