Supplemental disability insurance can be expensive. Is it worth the cost? In general, the simple answer is usually YES! Long-term disability insurance is often worth the added expense. A physician’s most valuable asset is their ability to practice and earn income in their specialty field for an extended period of time. Physicians can generate millions of dollars of income throughout their working lives, and it is important to protect this earning potential. Without the income generated from practicing medicine, a physician may need to forfeit many of their financial goals such as purchasing a new home, paying for their children’s college educations, or even retiring comfortably. Long-term disability insurance can ensure that many of these goals are reached even in the event of a long-term sickness or disability.
How does long-term disability insurance work? Typically, a disability insurance company is willing to insure up to 60-70% of a physician’s pre-disability income. In the event of a disability, the policy will pay out a monthly benefit amount. These funds can be used to pay for necessary expenses and save for financial goals such as retirement. When considering a disability insurance policy, there are a few key terms to pay attention to:
- Elimination Period: This refers to the amount of time the insured must be sick or disabled and not working before the policy will start paying out a benefit. Common elimination periods are 90, 180, and 360 days.
- Benefit Period: This is the length of time the policy will pay out a benefit in the event a claim is made. A physician should always consider a policy that lasts until retirement age. The maximum benefit period typically offered is between age 65 and 70. The thought is at these ages a person becomes eligible for Social Security and Medicare.
- Definition of Disability: Physicians should consider True Own Occupation definitions to safeguard their specialty skill set. True Own Occupation ensures that if a physician is unable to work in their specialty field, the policy will still pay out the full benefit, even if they are able to work in another field. Compare this to just an Own Occupation or Any Occupation definition which says if you are able to work in any capacity, the income earned from that job will either reduce or eliminate the benefit being paid out by the policy.
When should you consider getting disability insurance? As soon as possible. The younger you are, the lower the premiums will be. Additionally, the younger you are means there are likely to be fewer red flags in your medical history that could cause the disability insurance company to exclude certain disabilities or completely reject you for coverage. If you are still in a residency or fellowship program, many companies will offer as high as a 20% discount if you get a policy while still in your training.
When can you drop your disability coverage? Some physicians consider dropping disability coverage when they believe they have sufficient assets to produce the inflation-adjusted income they need for the rest of their lives even if they are no longer able to work. This requires a careful assessment of their financial and health situation.
Insurance can sometimes be seen as annoying and something rarely used. However, disability insurance is important as it protects your MOST valuable asset—your ability to practice medicine and earn income in your specialty field. It may be the difference between accomplishing all your goals or accomplishing none of them.
Jeff Witz, CFP® welcomes readers’ questions. He can be reached at 800-883-8555 or at firstname.lastname@example.org.
200 North LaSalle Street – Suite 2300 – Chicago, Illinois 60601
312-419-3733 – Toll Free 800-883-8555 – Fax 312-332-4908 – www.mediqus.com
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