Hi, I'm Billy Gwaltney and this is the CYA podcast. This show is for the physician who understands the importance of protecting everything you've worked so hard to achieve. Each week I'll bring you tips and advice to help you cut through the clutter and misinformation and show you exactly what you need to preserve your income and way of life. If you're ready to achieve the peace of mind that only financial security can bring. Let's get started.
Welcome to today's episode, the cover your assets podcast. This is Billy Gwaltney, and I'm really excited to be with you today to cover another important question that we get occasionally regarding disability coverage from our physician clients and today's topic is when it comes to specialty disability coverage in particular for physicians, what's the difference between a level premium and a step rated or a graded premium. And that's a great question and I'll get right to it.
(00:57): A level premium is, is a discounted premium, hopefully discounted if structured properly, that cannot be increased in the future by the company, unless you increase coverage, essentially, not for details in that where there could be exceptions. See the previous podcast on an earlier podcast regarding non cancelable and guaranteed renewable contracts versus a guaranteed renewable, only contract. But essentially for purposes of this conversation, if you start out with a level rate, that's going to be your rate. There won't be a scheduled increase in the future to that rate, unless you increase your coverage. A step rated premium starts out a good bit lower initially, and is level four typically about, let's say five years, that's an average time period. And then it jumps to a higher level premium. And that higher level premium at that sixth year is higher than it would have been.
(01:58): Had you started out at a level premium from day one. So basically you get a discount for the first five years, so you pay less than the contract, technically charges, and then in the future, you're going to overpay. So you pay less for shorter period with the cost of paying more for a longer period, a graded premium starts out lower and typically increases every year. And there is what's commonly called a conversion premium that if, and when you want to switch over to a level premium in the future, the insurance company would let you know what that rate would be. Sometimes in the, in the quote. Initially, if you have that, it'll tell you what that rate would be, but each year you have the option to switch it over to a level range. But again, ultimately that level rate is always going to be higher than it would have been.
(02:55): Had you started out at the level rate to begin with, so the question becomes, is it ever make sense to have a graded premium or a step rating premium compared to a level premium? And so, you know, disability agents or brokers can disagree on this. I've heard some agents state that greater premium makes sense because it gets someone in training who has a really tight budget. It gets them coverage when they otherwise might not be able to afford it. And I certainly understand that, but it also can mean that the agent or broker gets paid twice. In other words, they, they get started, they get paid a commission or fee when the initial PR policy is purchased. And then at when the step rated portion is transitioned to a level rate, they get another commission or, or an upfront fee on that. And so there can be, it's not always the best option.
(03:51): We have very few clients that have I think I can think of one client currently, who has a graded premium or a step rated premium. And that was at her insistence that she get it. I would not purchase a graded or level of premium personally. And so it was very difficult for me to recommend that because I know that it ultimately ends up with a much higher cost to the policy holder than had they figured out a way to get the level premium. First. Now I understand if, if money is very tight and someone can't get coverage, or they simply cannot figure out a way to pay the extra 30 bucks a month or whatever it might be, but those are usually more extreme. We just don't run into scenarios where that's been something that's been worth recommending. Somebody's getting a greater level premium.
(04:47): Of course, it's your individual call. The point in this podcast in this episode is to explain to you the difference, oftentimes by a significant margin. And so if there's a way to pay the level rate, you would want to pay it. Of course, you need to have a discount with that. We help all our clients get those discounts. You would want to work with someone that can get that for you and figure out a way to make that part of it work. Hopefully this has been helpful to you from the standpoint of figuring out if it's wise to consider and at least letting you know what the differences are. It doesn't always come up, but there are times when people want to know, is there a less expensive way to get the same contract and that does exist, but ultimately there's no free lunch. So if you get a lower rate now through one of these step rated or graded premiums, then you're going to overpay down the road. Thank you for carving out the time today. Please feel free to text me or call me anytime to arrange a conversation or with questions would be happy to discuss that with you. My number is (704) 270-2376.
(06:01): Again, that's (704) 270-2376. I'd be happy to discuss your situation any time. And until next time again, this is Billy Gwaltney greatly appreciate you carving out a few minutes to listen, have a great rest of the day.
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