What Physicians Need to Know About COLA Riders & Future Purchase Options with Ethan Abramowitz - RR Ep 16

Should physicians add a Cost of Living Adjustment (COLA) rider to their disability insurance policy? 

How do Future Purchase Options (FPOs), also known as Future Increase Options (FIOs), protect future earning power and insurability?

In this episode of The Responsible Resident, Amber Stitt sits down with disability insurance attorney Ethan Abramowitz to discuss two of the most important disability insurance riders available to physicians: COLA riders and Future Purchase Options. 

Together, they explain how inflation impacts disability insurance benefits, why COLA riders can help preserve purchasing power during a long-term disability claim, and how Future Increase Options allow physicians to increase disability insurance coverage without additional medical underwriting.

This episode covers:

• Cost of Living Adjustment (COLA) riders explained
• CPI-based vs fixed COLA disability insurance riders
• Future Purchase Options (FPOs) and Future Increase Options (FIOs)
• Disability insurance planning for residents, fellows, and attending physicians
• How inflation affects disability insurance benefits
• Protecting future insurability and future earning potential
• Why own-occupation disability insurance remains the foundation of physician income protection
• How disability insurance riders support long-term financial resilience

If you're a physician, resident, fellow, dentist, or medical professional evaluating disability insurance, this episode provides practical guidance on building a policy that can grow with your career and adapt to future financial needs.

🔗 To connect with Ethan Abramowitz:

📲 LinkedIn: https://www.linkedin.com/in/ethanfabramowitz

📲 Website: https://www.seltzerlegal.com/attorneys/ethan-abramowitz

📲 Phone: (215) 735-4222

📲 Email: ethan@seltzerlegal.com

#theresponsibleresidentpodcast, #amberstitt, #ethanabramowitz, #disabilityinsurance, #disabilityinsurancelaw,

📻 Thank you for tuning in to The Responsible Resident!

To Download the FREE Medical Professionals Blueprint:

StittStrategies.com/Blueprint

If you would like a free quote, please contact us at: 

mddisabilityquotes.com/responsible-resident

Amber Stitt is a disability insurance specialist with over 15 years of experience helping physicians protect their income and make informed financial decisions. 

As the host of The Responsible Resident, she brings a structured, education-first approach to topics like disability insurance, underwriting, and income protection, areas often overlooked during medical training. 

🔗 Connect with host, Amber Stitt, on Social Media:

• AMBER’S INSTAGRAM
• AMBER’S LINKEDIN
• AMBER’S FACEBOOK

📲 Be sure to visit the Stitt Strategies website:

www.StittStrategies.com

🎬 And remember, let's take action today!!!

Transcript

Amber Stitt [00:00:00]:
Welcome to The Responsible Resident. I'm Amber Stitt. This podcast takes a common sense approach to financial decisions for physicians, breaking down complex topics into something clear, practical, and usable. Because you shouldn't have to have a finance degree to build financial freedom.

Amber Stitt [00:00:16]:
I am your host Amber Stitt and today we have Ethan Abramowitz back again, so that we can discuss all things insurance and legal contracts. If you haven't listened to one of our episodes yet with Ethan, he has litigated a wide variety of insurance liability and class action matters and has an extensive background conducting insurance fraud investigations, including multiple projects with the special investigation units of the nation's largest insurance companies. We welcome Ethan back to share with you about some common provisions inside insurance contracts. I thought that since most of my clients ask questions about legal definitions when shopping for a plan, Ethan, I thought you'd be a great person to help us dive a little bit deeper into these insurance fundamentals. I think even today, specifically with our environment, COLA is trending, if you haven't figured that one out, yet. Everyone's talking about COLA, which is our Cost Of Living Adjustment riders because of the inflation, the CPI index, and everything political, which we're not going into today. But I thought it might be good for you to talk to us about the COLA rider because that is one of our top watched videos on our YouTube channel over at MD Disability Quotes. And certainly it's one of those add-ons that people are always asking about.

Amber Stitt [00:01:30]:
So, would that be a good thing to talk about today? Just to give people your perspective on whether, or not, we need that COLA rider?

Ethan Abramowitz [00:01:36]:
I think it's one of the most important riders you can have in a policy, aside from the true own-occupation total disability rider and the true own-occupation partial residual disability rider. The first thing you look at is protecting your income, if you become disabled, whether it's total, or partial. The next is that if you're out on disability, that benefit is going to stay stagnant. If you're totally disabled, the benefit's never going to change unless you have a cost of living adjustment rider. And the current times, I mean, couldn't be a clearer example of why cost of living adjustment rider is crucial. And over the past year we've seen clients who have it, whether it's with a total disability claim, or partial disability claim. The clients that do have those riders have seen a significant jump in the increase that the rider affords. And I think there are 2 things we talk about with the COLA rider and it depends by the policy they have. Some it's a set amount, a certain percentage dictated in the contract.

Ethan Abramowitz [00:02:37]:
The other definitions are based on the CPI-U index, which is maxed out at a certain percentage. What's nice about the COLA rider is as time passes, your benefit grows with you. And I've got a number of clients right now who have seen their benefit increase significantly. I've got a client who's been on claims since 2012 who started out with a $15K a month benefit. That benefit through increases as COLA is compounded, meaning that it takes the $15K a month benefit in year one. After the first year the rider kicks in and the increase occurs and then that increased base benefit from $15K, to use simple math, from $15K to $16K a month. The next COLA increases based off the $16K and then $17K and change.

Ethan Abramowitz [00:03:25]:
So that one client started off with a $15K a month benefit. It's now gone up to $21K a month over a 10 year period. So we've seen our clients that have these riders that have been on claim for extended periods of time, the riders significantly increase the monthly benefit. Even clients that are on claim shorter periods of time. Do we have clients that have been on claim north of 10 years? Absolutely. Do we have clients that are just starting out on claim that are in their 40s? Yes. And typically see clients in their 50s and 60s.

Ethan Abramowitz [00:03:55]:
But we're seeing, and I've worked with a number of clients who are late 30s, early 40s. And they're going to have, especially if they have a true own-occ claim, they have a physical impairment that is degenerative in nature, that's never going to improve, that's going to keep them out, then each year that benefit's going to grow. And as we're learning with inflation right now, and these are unprecedented times that we haven't seen since the 70s. But if you have a $5K, $10K a month benefit today, today's money is less valuable than it was a year ago. So that benefit's not going to go as far as you thought it was, or when you were analyzing what your financial planning would be, and how to structure your expenses and budget moving forward. And it provides a great deal of flexibility and an added layer of financial security. And I know you can speak to this better than I can, but I'm sure one of the things you see is, "Is it worth the X amount a year more, for it?" With any rider, the question is how many months of benefits will it take to make up that question in the rider? So if you're talking about a total disability rider for, for the true own-occ vs the modified own-occ, if it's $200 a year difference, that's going out to dinner and having a babysitter for the night.

Amber Stitt [00:05:12]:
Yeah, some of these things we can build it into the budget. If you're saying, in my mind it's one less dinner a month, that could certainly be helpful. You were talking about the CPI index. So some of these COLA riders, they're at a 3% fixed compounding and then some are floating from 0 to 3%. Some carriers have simple interest on one version and then they'll do a compounding on a higher floating version of 0 to 6%. It could probably change in five years. There could be some enhancements, or differences, but typically you want to try to go if you're going to pay for it for a compounding version because that'll grow quicker, faster.

Ethan Abramowitz [00:05:50]:
It grows faster. And in my experience with clients I've worked with, I've seen significant increases of what the base benefits started out as, versus what they're looking at now, and it triggers within a year.

Amber Stitt [00:06:02]:
So I know, though, some carriers do not kick in their COLA unless you're fully disabled. Have you seen both play out at claim time?

Ethan Abramowitz [00:06:10]:
Yes, again, everything in this world is contract specific. So I live and die by what's in the four corners of the document and what that person elected when they signed up to get their coverage. So if someone does have a COLA increase that attaches to the partial disability claim, it sometimes becomes a convoluted topic when you're going into the minutiae of how the partial disability claims work. But there's two components on a partial disability claim. One is the indexing on the pre-disability monthly earnings, which is the calculation used to quantify the loss of earnings while disabled to calculate the benefit. And then the other would be cost of living increases. So what you can have is a situation where again, I'm a simple math person. If you look at someone who's making, for this conversation $120K a year, pre-disability, their pre-disability monthly earnings will say is $10K a month.

Ethan Abramowitz [00:07:06]:
That's the litmus test for loss of earnings. What percentage loss do they have based on the current month earnings compared to the $10K? What's nice is with the indexing is as time passes and that person still working, the indexing will increase that $10K proportionally as defined in the policy. What that also does if they have COLA and the residual disability provision applies to the COLA increases is that they still have a 50% loss of earnings and the benefit is 50% of the max benefit. If X increases by 3% a year, even if the loss of earnings remains the same, the residual disability benefit will still increase, compounding 3% a year, as long as that loss remains the same. If the loss goes down, the benefit goes up even more. If the loss of earnings decreases, the benefit shifts. But that cost of living adjustment rider still will protect and grow with the partial disability claim. The other thing that's nice with some of those claims, as well, is that again, as we talked about previously, a lot of the claims I see start off as a partial disability claim and then transition to a total claim.

Ethan Abramowitz [00:08:13]:
If they have the COLA adjustment rider and it attaches to the residual disability rider, then when they do eventually transition to total disability, the maximum benefit has already increased. So if someone's been out or partially disabled for three years, they've in essence got two years because there's a year period before the cost of living rider takes affect. They've got two years of increases when they become totally disabled. So it is very specific and contract specific, but I think it's a very valuable add-on when analyzing the products that are out there. And again, I don't like to act as if $200, $300 a year is nominal with people. But when you look at the fact that in essence that COLA rider could potentially pay for itself if you're on disability for a year and five months because it kicks in a year after, like I said, I've got a client, multiple clients whose benefits have gone up thousands of dollars and otherwise they'd be at a stagnant benefit. A lot of the clients that walk into my office, the first thing they say is, "My maximum benefit is X, but I have cost of living, right?" I'm like, "No, your policy doesn't have it."

Amber Stitt [00:09:22]:
Well, let's talk about that because we don't always sell COLA, Scott and I, and sometimes people will forego the COLA just to afford the coverage.

Amber Stitt [00:09:32]:
I'd like to take a second to tell you about a FREE Medical Professional's Blueprint that I created with you in mind. At some point in your career, you realize it's not just about making more money. It's about making decisions that actually support your life. That's exactly why I created "The Pathways Perspective for Physicians." It's a simple, non-technical framework to help you think through your career, your money, your risk, and how everything connects as your life evolves. You shouldn't have to have a finance degree to build financial freedom. You don't need to have everything figured out, you just need a place to start. You can download the FREE Medical Professionals Blueprint at: StittStrategies.com/Blueprint

Amber Stitt [00:10:20]:
Like we've talked about before in a previous episode, if they're younger and they're buying this, a lot of times being younger can help that COLA cost sit on the contract. It's less expensive. Females are a different story because our costs are higher. I would say often to people it's better to buy something without COLA, than just nothing at all. Or potentially, and I know this sounds nuts based upon everything you just said, but maybe take a higher base benefit and forego the add-on versus going lower just to have COLA. What do you think about that? If we're going to do something, give it a plan, but COLA would be obviously a good idea. All depending upon the person's scenario.

Amber Stitt [00:11:01]:
But is it wild to think that we might recommend to go without it?

Ethan Abramowitz [00:11:04]:
I think the first thing that people need to consider is getting a true own-occupation individual disability policy with the residual disability rider. A true own-occ residual disability rider is preferred and I'll talk about that in one second. But when you're talking about insurance, whether it's home, auto, life, there are trade offs and you do what you can afford and you do what makes sense to you. Now there are a couple of roads I want to go down right now and I just don't want to lose track of my train of thought. But first things first is, someone can get a policy with you right now that meets the financial needs that doesn't have COLA. They can also maybe set the benefit a little lower and have a policy with future increase options that allows them to increase the monthly benefit and the premiums will go up accordingly. That also has the COLA rider. The other would be, yes, you forego the COLA rider, you get the policy that makes sense to you right now.

Ethan Abramowitz [00:11:59]:
But before maxing that policy out with increase options, they could then circle back to you and supplement it with another policy. So they have 2. And we do have clients who have multiple individual disability policies. So there are a lot of roads you can go down to make sure that if you don't have it at your base policy, you do supplement it in the subsequent policy that you get, because your income is going to grow. And I know over the years, and you can talk about this better than I can, enrollment limits have changed. Policies that I see that are 30 years old, they were $20K, $30K a month policies. It was one policy, but in late 90s, early 2000s, companies really cut back the enrollment limits to $10K.

Ethan Abramowitz [00:12:40]:
We've seen, I think lately, and again, I'll refer to you on this, that companies are opening that up a little bit more. So you can get a policy right now that maybe is a $5K a month benefit, but you have the increase option in the future to maybe stack on another $10K or $15K in coverage. Personally, when I took my policy out as a young attorney, I took out a $5K a month policy. But I've executed the FIOs. That's my income that's grown and it's a great thing to have in your back pocket. So there are ways they can structure it with you that makes sense to them. But at the very least the focus should be on true own-occ, true partial disability, and then COLA, and then the FIOs.

Amber Stitt [00:13:16]:
Oh, the FIOs. So usually when I teach this to clients, I'll say first you have the true own-occupation, that's your foundation. And we talk about how that works. And then part 2 would be that residual rider for the income loss and we talk about the components of that. And that's usually pretty tricky because there's a couple moving parts with recovery, as well. If you return to work, you're full time, but your income's not restored. There's a couple different levers we can pull now with different carriers to turn things on and off. So it's really teaching what's out there with own-occupation plans with the residual rider.

Amber Stitt [00:13:51]:
And then there's the Future Purchase Options is the 3rd part. And when I teach this, because some are available annually, some are every 3 years with some rules, and there's no right or wrong answer. It's just what works and what's the price point and what state are we in and what do we do? And then for me I'll go to that 4th component would be the COLA rider and then catastrophic. But the fundamentals of the 3 are: the true own-occ, patient definition residual, and how does that increase option work. And almost all carriers are going up to that $30K option with some other rules for the group insurance, income levels, and it depends on the specialty. There's other variables, but yeah, they're really picking back up. I know that although $30K is available with the plans that charge for the FIO. I work hard to talk with people about their specialty and the type of compensation model they'll have because we only want to buy what we will qualify for based upon income if we're buying a rider that costs money. Because we don't tend to just say, "Yes, everyone, go buy $30K."

Amber Stitt [00:14:52]:
Because there's income guidelines and someone might not want to buy all of that. But we talk about that in our analysis just to be sure people understand and they're structuring this correctly.

Ethan Abramowitz [00:15:02]:
Well, so the increase option is beautiful because when you get your base policy, your initial policy, and you set it out, let's say you're fresh out of, or you're in residency, or you're in your 4th year of medical school and you have the ability to purchase one of these products, your income is $50K, $60K. But, but the companies understand that in 5 years you're going to be making multiples of that and it allows you to lock in a coverage right now. And then as your income grows, you're no longer subject to medical underwriting. The only thing that matters moving forward is does your current income substantiate the increase in the benefit. So you could have a policy that you bought today that's $5K a month and in the next 5 years, depending on how it's set up, you could max that out. If your cap out is $15K, you could cap it out at $15K. Even if you subsequently have additional medical issues that arise between when purchased it and when you maxed it out, it's irrelevant. The only thing that will keep you from exercising that option is if you're currently disabled and meeting the policy definitions, at which point you won't be able to exercise it.

Ethan Abramowitz [00:16:14]:
But if it's a short lived claim, or something where maybe you have to have shoulder surgery, or a procedure done that keeps you out, where from 6 months to a year when you go back and you come off claim, you're then eligible to exercise it again.

Amber Stitt [00:16:27]:
Yeah.

Ethan Abramowitz [00:16:27]:
So it is a nice option to have versus getting a $5K a month policy today, suddenly your income quadruples in 2 years and you want to get another policy. You got to go back through medical underwriting with an individual disability policy and anything that's arisen, that will potentially be used against you, or to write you a denial.

Amber Stitt [00:16:48]:
Yeah, that's why we're always encouraging people to start as young as they can, to really consider this. And then females have a few other things to consider when it comes to family planning and other possible issues that can cause exclusions for us. So that's why trying to get this all done before any of that medical history is presented can help us have that nice FIO option there. So we don't have to worry about any of those life changes as we grow up and go through our careers. So we really appreciate your expertise and spending some time with us today in your busy schedule. We always love talking about COLA and the future increase options. So thanks for making it easy and bringing some clarity to those components of the contracts for our listeners. Thanks for being here today and we'll see you next time.

Ethan Abramowitz [00:17:30]:
Thanks, Amber. Always a pleasure.

Amber Stitt [00:17:32]:
If this episode helped you think a little more clearly about your next step, that's the goal. You don't need to have everything figured out, but you do need to take ownership and take a meaningful step forward today. Thanks for listening to The Responsible Resident! As a reminder, this podcast is for general educational purposes only. It is not legal, tax, or individualized financial advice and coverage options will vary based on your personal situation.