A Closer Look at Level vs. Gradually Increasing Insurance Premiums
As a dentist, you have lots of policy options to navigate when reviewing disability insurance plans.
One of the more significant variables is the way an insurance policy charges its premiums.
Individual disability insurance policies purchased on the open market typically charge level premiums,
meaning the premium stays the same throughout the life of the policy. Unlike these policies, Great-West
Financial® offers the ADA Disability Income Protection Insurance with stepped premiums
that rise in 5-year bands as you age.
There are two considerations for dentists when making this choice: Pay more up front to ensure the same
payment over the life of a policy or pay less today for premium payments that gradually increase over
time as you age.
Removing variability in an insurance cost to create a fixed expense may feel reassuring to some dentists
as they plan for the near and distant future. However, more careful consideration can show that stepped
premiums offer the financial flexibility that may make them a better option.
The true cost of level premiums
To keep premiums level over the lifetime of a policy, the insurers offering this option have to overcharge
during earlier years.
When setting premiums for disability income policies, insurers all start with expected benefit costs that vary
by—and typically increase with—age. Those insurers choosing to charge level premiums then determine the risk of
insuring policyholders throughout their policy coverage period and calculate a level premium high enough to
cover the greater risks/higher costs that arise with advancing age.
This means younger dentists pay more than they need to, based on their risks, in the early years of their policies.
But it also means the dentist would need to hold the policy until the maximum coverage age to get the full
value of selecting the level premium approach.
Stepped premiums charge a rate based on 5-year age bands—under 30, 30–34, 35–39, 40–44, and so on. These rates
reflect each age group’s actual risk, which means your premiums aren’t inflated in the early years of your policy.
Rates that match where you are in your career
Having lower insurance costs early in your career can be beneficial. Stepped premiums result in lower payments in
your younger years, when you may be paying off student loans and building your practice.
By the time higher premiums emerge in later years, you will likely have a higher salary and a more stable financial
situation, which makes you more able to afford increasing premium payments.
An opportunity for significant annual discounts
While individual insurance policy level premiums might appeal to people who want to ensure that their annual
costs never rise, you should also note that your rates will never decrease. Any savings from the insurer’s
actual costs being lower than assumed in the premium are kept by the insurer—not policyholders. Essentially,
that level premium guarantee comes at a potential cost, and you must consider whether it is worth it.
In contrast, dentists with ADA members group insurance issued by Great-West Financial may be eligible for
premium credit discounts.
Great-West Financial reviews the group’s claims at least annually to evaluate whether total payouts for the
group were more or less than projected. If the cost of claims was lower than projected, those savings are
passed back to the members via a discount on their premiums. While not guaranteed, this discount has increased
by 25% over the last 15 years—from 10% to 35%.i
The value of stepped premiums is most apparent over time. Through lower group rates and the opportunity for
discounts, you may see significant savings with stepped premiums versus a level premium policy.
For example, over a 30-year career at current discounted rates, dentists could save $180,000 to as much as
$250,000 with ADA Disability Income Protection Insurance, issued by Great-West Financial, compared to other
Those savings translate to extra cash flow that you can use to support other financial needs, such as large
student loan payments, while ensuring you and your family are protected should something happen to you at
any point in your career.
Making a decision for a lifetime of financial security
Protecting your earning power with disability insurance is an essential step in protecting your future. But
taking the time to carefully weigh the costs and benefits of different policies can help you find the best
fit for your financial needs.
For a straightforward conversation about different disability insurance premium models, and a free quote
comparison, contact a Great-West Financial Insurance Plan Specialist.
iBased on internal premium credit calculations for ADA Disability Income Protection Insurance from 2004 to 2018.
The Premium Credit discount is not guaranteed but reevaluated periodically.
iiEstimate based on what a 35-year-old female and male dentist typically pays in disability insurance costs to
age 65 with $10,000/monthly benefit and Own Occupation + Residual Plus + COLA coverage. For a female, lifetime payments for
ADA/Great-West policy total $177,574; lifetime payments for policy from The Standard total $421,727. For a male, lifetime
payments for ADA/Great-West policy total $163,004; lifetime payments for policy from The Standard total $345,061.