THE PUBLISHER’S SALE OF THIS REPRINT DOES NOT CONSTITUTE OR IMPLY ANY ENDORSEMENT OR SPONSORSHIP OF ANY PRODUCT, SERVICE, COMPANY OR ORGANIZATION.Custom Reprints (609)520-4331 P.O. Box300 Princeton, N.J. 08543-0300. DO NOT EDIT OR ALTER REPRINT•••/REPRODUCTIONS NOT PERMITTED #31803

(over please)

!

Sales Rise as Cheap PoliciesPrompt Employers to OfferCoverage at a Discount

By M.P. MCQUEEN

OFTEN, IT’S one of the last safetynets people think about—afterhealth, home and car insurance.

After life, dental and maybe even petinsurance. But now, disability insuranceis attracting new interest.

Sales of disability insurance, whichprovides an income ifyou can’t work becauseof a serious illness orinjury, had been stag-nant after industrylosses drove out manyproviders. But nowsales are on the rise,driven by more-afford-able policies, as well asa growing number ofemployers making dis-ability insurance avail-able for workers to pur-chase at a discount.

In particular, a sim-pler and cheaper type ofdisability policy called“guaranteed renew-able” is becoming in-creasingly popular, withsales of new policiesincreasing 8% last year,according to Limra In-ternational, an insur-ance-industry research group. Guaran-teed renewable provides less of a safetynet than older-style “noncancelable” poli-cies that lock in premiums for the life ofthe policy. The rates on guaranteed-renewable insurance can go up eachyear. But it is significantly cheaper thannoncancelable coverage.

Prices and benefits range widely ac-cording to age, the amount of incomebeing replaced and a host of other vari-ables. The average monthly benefit fornoncancelable individual disability insur-ance is $4,242, for an average annualpremium of $1,684, among companiesreporting to Limra. The average monthlybenefit for guaranteed renewable is

$1,479, for an annual premium of $523.(Figures include both long-and short-termpolicies.)

Fewer employers are paying for groupcoverage in their employee-benefit pack-ages, in a bid to cut labor costs. But thenewer products are allowing employerssuch as Staples Inc., ING Groep NV andhospital group Freeman Health System tooffer private policies for at least 20% lessthan what workers would pay if theybought coverage on their own.

Some of the big providers of individuallong-and short-term disability policies areUnumProvident Corp., Metropolitan Life

Insurance Co., andMassachusetts MutualLife Insurance Co., asubsidiary of MassMu-tual Financial Group. AtMassMutual, worksitesales of private insur-ance grew 17% in thepast three years, aspokesman says. AflacInc. is the top seller ofshort-term disabilitypolicies that cover work-ers for a few months, aswell as accident dis-ability policies.

There are a numberof issues to considerbefore buying a dis-ability policy, say in-surers, consultants andconsumer experts. Con-sumers should be surethey understand how“disabled” is defined by

the policy, the percentage of income thatwould be replaced, and the duration andtax treatment of benefits. Also, policiesbought at the office fall into a gray areaof benefits law, with some courts limitingconsumers’ ability to sue if claims aredenied.

But even consumer advocates who areoften critical of the insurance industry forpushing unnecessary products (such aslife insurance for someone with no depen-dents) say that a disability policy can bea smart buy. “Disability insurance wouldprobably be the one insurance productthat is undersold,” says J. Robert Hunter,insurance director for the ConsumerFederation of America.

The renewed interest in disabilityinsurance comes as disability rates arerising. Americans are recovering andliving longer from accidents and diseasessuch as cancer, but they aren’t alwaysable to go back to their jobs. And someresearch, such as a recent Hartford In-surance Co. study, suggest that rising

The Growing Appeal of Disability InsuranceTUESDAY, DECEMBER 19, 2006 © 2006 Dow Jones & Company, Inc. All Rights Reserved.

THEWALLSTREETJOURNAL.

What’s driving disabilityinsurance:

% Affordable “guaranteedrenewable” policies are thefastest-rising category ofdisability insurance,insurers say.

% More employers are makingprivate disability insuranceavailable for workers topurchase at a discount.

% Disability rates are rising,as the work force ages andAmericans live longer withdiseases such as cancer butaren’t always able to keepworking.

Safety Net

A Guide to BuyingSome tips on buying individual disability insurance:

n Before you buy a private policy askyour employer about disability insuranceavailable at work. It’s important to coordinate with any employer-provided policy so that you don’t over-insure,among other issues. Insurers generally won’t let you collect more than 75%-80% of your income from all sources.Five states--New York, New Jersey,California, Hawaii and Rhode Island,require employers to provide short-term disability.

n Find out what conditions are coveredas disability under the policy you’re considering.

n Closely scrutinize definitions in the policy. For instance, “own occupation”coverage protects you if you cannot perform the specialized tasks ofyour career, such as surgery. “Any occupation” coverage will not pay a benefit if you can still work in any occupation at all.

n Look at the elimination or waitingperiods and benefit periods. To save money, lengthen the waiting period before benefits kick in, rather than limiting the benefits period during whichyou can receive payments.

n Choose a long-term disability over a short-term policy if you cannot afford both and your employer provides neither.

n Check that any policy you buy in the workplace is portable or convertible so that you can take it with you to another job.

n Check the complaints record ofthe prospective insurer with the National Association of Insurance Commissioners (www.naic.org).

C:87241DI 2621

rates of obesity and diabetes are leavingworkers disabled at younger ages than inthe recent past. Cancer was the No. 1cause of long-term disability last year atthe largest disability insurer, UnumProvi-dent, the company says. Other top causesinclude complications of pregnancy,musculoskeletal diseases, back injuriesand heart disease.

Lack of CoverageDespite the growing risks, less than a

third of all workers in private industryhave long-term disability insurance, andonly 40% of managerial and professionalworkers do, according to the Bureau ofLabor Statistics.

As recognition of the coverage gapgrows, some people are buying policies tosupplement an employer-paid benefit—say, to increase the income replacementor cover short-term loss if the employerpays for only long-term. But many buy itbecause they otherwise have no coverage.

Five states (New York, New Jersey,Rhode Island, California and Hawaii) andPuerto Rico mandate that employersprovide some short-term disability cov-erage, or provide it through a state-fund-ed program.

Elizabeth Vaughn, 53, a cardiovascularscrub nurse at Freeman West Hospital inJoplin, Mo., signed up for a short-termdisability policy with $40-a-month payrolldeductions to cover 60% of her income thisspring. Her employer has offereddiscounted short-term disability fromUnumProvident since November 2004. InAugust, she underwent a knee-replace-ment surgery. During a 12-week leave ofabsence, she received nearly $5,000 indisability benefits.

Buying on the JobFour years ago, when she had the same

operation on her other knee, she borrowedmoney from her retirement plan to live onwhile she recovered. Ms. Vaughn says

she had never considered buyingdisability insurance until she was offeredit at work. “I never checked into it. Ididn’t know the benefits of it until wereceived it here,” she says.

Karen Morse, director of employeebenefits at ING Groep in New York, saysthe financial-services company startedoffering supplemental disability insurancefrom MassMutual at a 25% discount inaddition to its long-term employer-paidgroup coverage nearly six years ago. Theemployer-paid plan simply didn’t coverenough of the highly compensated execu-tives’ salaries, Ms. Morse says.

Taxable Benefits

To be sure, most people in the U.S. whodo have disability coverage get it fromtheir employers as a benefit. Groupcoverage has the advantage of being oftenfree to employees and guaranteed: Nomedical questions are asked and youcan’t be disqualified. But benefits areoften limited to 50%-60% of income andmay be capped at $5,000-$10,000 a month,among other limitations. Benefits aretaxable when the employer pays thepremium. Group policies also aren’t port-able; you usually have to leave insurancebehind with the job.

With private, individual policies, bene-fits aren’t taxable if you pay your ownpremium. And policies are portable if youchange employers. Private policies sold inthe workplace may even share some char-acteristics of group policies, such as notrequiring medical testing.

Among individual policies, noncance-lable insurance is often marketed to high-income executives and professionals. Ittends to have generous features such asdesirable “own occupation” definitions ofdisability that pay a full benefit if one isunable to perform the specialized dutiesof one’s occupation—say, those of a

surgeon—but one can still work at otherjobs, such as a general practitioner.

Affordable OptionGuaranteed-renewable policies tend to

have fewer features, but their lowercost—an average of 20% less thannoncancelable—makes them more afford-able. As long as the premium is paid, theinsurer can’t drop the policy. But rates onguaranteed-renewable policies can beincreased, subject to approval by stateregulators.

Rates for newly issued policies of bothtypes of policies for 35-year-old maleshave been rising at about 7% a year,according to Gregory Large, managingpartner of Lenox Advisors Inc., a benefitsbroker and administrator based in NewYork.

Individual policies of all types ofteninclude the option to buy inflation-protec-tion and other riders. And a growingnumber of insurers also offer policies andriders that make up for lost retirement-account contributions during disability,including Berkshire Life Insurance Co. ofAmerica’s Retirement Protection Plusand MassMutual’s RetireGuard (thoughsome group plans do, too).

Legal ProtectionsConsmer advocates warn that legal

protections for consumers who buy someindividual disability insurance products atwork can be unclear.

Insurance watchdog Joseph Belth,professor emeritus at Indiana Universityof Bloomington, has criticized someinsurers for invoking the EmploymentRetirement Income Security Act, afederal law that regulates benefits plans,to avoid lawsuits by disgruntled claimants

Erisa was intended to protect em-ployees’ retirement benefits, but hassometimes been interpreted by the courtsin ways that favor employers and in-surers defending against claimantlawsuits.