New Product Analysis – Synergy Part I – Disability limitations

Manulife does a great job of developing products that address gaps in the marketplace, and an equally great job of promoting them. Their latest creation is an all-in-one product that can provide life, disability and critical illness insurance.

I have read comments from various insurance agents that this bundled product can save a client up to 30% of the cost of purchasing individual policies. I think that the potential cost savings of the Synergy product may be misleading and bears further scrutiny.

In my view, the reason that premiums are lower is the benefits within the Synergy product are less generous as compared to robust individual policies for life, disability and critical illness.

Now, there is nothing wrong with purchasing an insurance policy without all the bells and whistles as long as you understand the tradeoffs that you are making. For example, when shopping for a car, I expect that a fully loaded vehicle with all of the possible features will cost more than a standard, bare bones version of the same car. If I decide that I don’t need the heated leather seats, I am happy that I don’t have to pay for them. Buying insurance is not like buying a car though. The features that make disability insurance policies more expensive are not nice-to-haves like leather seats, but must-haves that dictate whether, and how much, you will actually receive in benefits at the time of claim.

As with all product purchases, buyer beware applies. Understanding what a policy does not cover is as important as understanding what it does cover.

In this entry I highlight some of the limitations of the disability insurance aspect of the Synergy plan that purchasers should be aware of.

Benefit Period Limits

Manulife limits the benefit period (for how long they will pay you) to a total of 24 months for all disabilities that are caused by psychiatric or by neck or back conditions. Some statistics indicate that up to 70% of disability claims fall into those categories.

So whereas a typical stand alone disability policy will provide benefits to age 65 no matter the cause, the Synergy product imposes a two year limit on payments for the most common disability benefit claims.

As a result, by limiting their exposure to these risks, Manulife should be able to reduce premiums.

Pre-existing conditions

For the Synergy product, Manulife does not pay disability benefits if a total disability begins within 24 months of the policy start date and is caused by, contributed to, or results from a pre-existing condition.

So, if you complained to your doctor of numbness in your foot, and then were diagnosed with Multiple Sclerosis within 24 months of the policy start date, Manulife could refuse benefits on the basis that the numbness was a pre-cursor to the MS related disability. 

In a typical stand alone disability policy there would be full medical underwriting, and unless the policy specifically excludes or limits disabilities related to particular conditions, all disabilities would be fully covered.

Lessons learned

Make sure that your insurance agent properly compares the Synergy product against the stand alone alternatives. There is no question that a bundled approach can be an affordable solution for consumers. Just make sure that you understand what you are getting for the price paid.

Next entry I will highlight the limitations within the critical illness element of the Synergy product.