March 2003
The hidden costs of association
coverage
by Roy Smith
On a recent trip to an electronics
store to do some holiday shopping, I couldn't help but notice the change
in stereo equipment from the time I first bought one to outfit my freshman
dorm room 25 years ago. I can still remember walking into Service
Merchandise to pick out my stereo phonograph with AM-FM cassette. It was
during that shopping visit that a lovely woman and her husband stopped me
to ask for some advice.
She and her husband were shopping for a
hi-fi system they could use to record their own music. She couldn't decide
between the system with the 8-track player or the cassette player. I told
her that although the current selection of music available on 8-track was
much greater than that of cassette, I felt that cassettes were going to
make 8-tracks obsolete. If it were my money, I'd buy the system with the
cassette player (and I did!).
The woman's husband grumbled something
about the cassette system being $25 more than the system with the 8-track.
After a lengthy discussion between them, the couple walked out with their
8-track system in hand!
How often have you regretted not
spending the extra money to purchase something of quality that would stand
the test of time? Buy a cheap suit, replace it in a year. Buy a cheap car,
make up the difference in repair bills, or worse yet, hospital bills. The
same can be said of anything you buy -- including disability insurance.
Some people elect to purchase
disability insurance through an association in an effort to get cheap
coverage. At first glance, these policies look less expensive than
individual insurance policies. But when you look at the benefits that
these association policies offer, you'll begin to understand why they are
priced the way they are.
One of the biggest problems with
association coverage is that the carrier may decide to cancel the policy.
Prominent associations have had their disability insurance carrier
recently drop their coverage. They include:
***
The American Dental Association
***
The
American
College
of
Surgeons
***
The
International
College
of
Surgeons
***
The
New York City
Medical Society
***
The
New York
Bar Association
There is no guarantee that another
carrier will pick up the coverage after it has been dropped. And what
happens to individuals who develops a medical condition such as heart
disease or Parkinson's disease during the time they are covered by the
association? They may now be unable to purchase individual disability
insurance as well. If the association loses coverage or changes carriers,
the individual could be left out in the cold!
Below are some other disadvantages to
association policies:
***
Premiums are scheduled to increase every 5 to 10 years. They may
even surpass the outlay for an individual policy purchased at the same age
the association policy was acquired.
***
Historically, the circumstances for which benefits may be received
under association policies have been more restrictive than those under
individual disability insurance policies.
***
The maximum benefit amounts of association policies are generally
not as high as those offered by individual policies.
***
Inflation protection and other optional benefits are generally not
available.
***
Coverage will be lost if the person leaves the association.
***
The insured does not obtain the services of an agent, which can be
extremely important when a claim is filed.
I have made my share of purchasing
mistakes over my lifetime and I have learned from each one. In most
instances, had I spent a little extra money on the front end, I would have
been satisfied in the long run. I can never think of one occasion where I
paid a little extra for the best and regretted it. However, I can recall
with vivid clarity the times I tried to save a little up front only to pay
for a lot more in the end.
As I left the electronics store this
holiday season, I also couldn't help but notice the number of cheap VCRs
on sale. I immediately thought of the nice couple I met in Service
Merchandise 25 years ago. I wonder if they are still married. If so, I can
only imagine the conversation they are having today -- "No, dear. Why
do we need a DVD player? The VCR is much cheaper!"
(Roy W. Smith, a fully-licensed
financial representative with The Guardian Life Insurance Co. of
America
,
specializes in the areas of life insurance, disability insurance and
retirement planning. Additionally, as a licensed representative of
Innovative Underwriters, he is able to provide superior products and
services from more than 30 of the nation's top insurance providers.
Currently licensed in 46 states, Mr. Smith works with Chiropractic Benefit
Services. CBS is committed to enriching and protecting the lives of those
in the chiropractic community and now carries quality individual long term
disability insurance through MetLife, an outstanding A-rated carrier. Call
800-582-4989 for details.)
