A physician should make it a point to not only look for physician disability insurance based on price, but also on what they are entitled to should they go on claim. Please contact us for an analysis of the best plans available for your needs.
Physician disability insurance is an absolute necessity and in many instances, one of the most important types of coverage that someone in a medical profession needs to possess.
Finding disability insurance for physicians that offer adequate coverage amounts can be a challenge.
Most financial experts agree that someone needs, should they be unable to work for a period of time, at least 65% of their current monthly income after tax.
High-income earners, such as physicians, surgeons, or any other person in the medical field, can find themselves underinsured and at risk for financial problems should they face a temporary or permanent disability.
Individual Disability Insurance
The “Cadillac” (or Bentley, Lamborghini, Range Rover…pick your metaphor) of physician disability insurance plans is a personally owned policy. That means that no matter where you work, whether you change employers, or your actual duties have changed at the time of claim, you will be covered.
This doesn’t mean that you shouldn’t opt for a group or association plan; however, that is certainly an option to weigh.
Individual physician disability insurance plans are arguably more expensive than a typical AMA (group) policy, however, they have several advantages:
- They do not require a total disability prior to receiving residual benefits
- If you decide to change professions (e.g. get burnt out and want to invent a medical device) you are not penalized nor do you lose coverage.
- If you decide to leave a group plan and go into private practice, you can take you plan with you.
- There are higher potential limits.
Take the case of…
Dr. Greene, a 52-year-old surgeon who contracts manageable cancer. She has to go through chemotherapy and radiation which obviously has its ups and downs. Some weeks she can take on a full caseload, while other weeks she can barely get out of bed. This creates an issue since her billable hours are drastically decreased due to her illness and yet because she has never been “totally disabled” her group policy refuses to pay. However, since she also has an individual disability policy, she is entitled to a “residual benefit”.
Residual benefits make up for lost income while you’re still working in your current profession. Plans differ from one to the next but for the most part, the right policy will compensate you for lost wages once your income dips below 80% of your pre-disability income. This creates a very workable situation for Dr. Greene. Although she can only produce 50% of her typical income due to her illness, her disability policy makes up for the majority of her lost income through her claim.
Group / Employer Physician Disability Insurance plans
Most employer-provided group physician disability insurance plans place limits on the benefits. For example, they may say they will pay up to 65% of the current monthly income however they will also institute a dollar benefit limit. Most plans will limit the benefit amount from $10,000 – $12,000 per month. Since employer paid plan benefits are also taxable, this will further reduce the benefit amount.
The most popular group plan is typically a plan from the AMA (American Medical Association). While these plans can be solid and affordable for a new practitioner, they are normally woefully small coverage for an established high-income earner.
For one, they typically require a total disability prior to offering residual benefits. As you saw from our Dr. Greene example, that is not always the case.
Secondly, if you change professions or no longer wish to practice medicine, you won’t be covered.
Lastly, they rarely provide full coverage for an established physician. Someone making even 300k is unlikely to be fully insured.
This dollar benefit limit is where the problem lies for the high-income earner.
The answer in this case (should you desire to keep your AMA policy) is to secure a high limit supplemental physician disability insurance plan. A properly structured plan will ensure protection against financial loss while allowing someone to continue in their current lifestyle. With these plans, the insured can meet the 65% of income amount.
Take The Case Of…
Dr. R, a 45-year-old Doctor has an income of $350,000. His group carrier maxed out at $10,000 per month. This only covered 34% of his income. With our disability insurance for doctors plan, one carrier was able to provide an additional $9,000 per month bringing his level of coverage to 65% replacement.
Doctor disability insurance plans are supplemental to a current, in-force plan. If you are in a private practice and self-employed you can also get a supplemental physicians disability insurance plan.
You don’t need the same limits as an established doctor. Nor do you have the income substantiation necessary for a high limit plan. Our disability carriers have considered this…
You can often get “no documentation” coverage when in residency. This means that you won’t have to substantiate your income or pass the typical requirements needed for a stand-alone IDI (individual disability insurance) policy. You’ll often have lower limits, similar to a group plan, however, you’ll be able to substantially increase your cover in coming years.
These options are known as “buy-ups” and typically require only income verification to increase your coverage (meaning that you don’t need to qualify again medically). This is especially important to new physicians since, after residency, your income will likely drastically increase.
Take the case of…
Dr. Haugh, a third-year resident at a prominent hospital. His income is relatively meager, however, due to his medical specialty, is likely to increase 8 fold once in practice. He can secure a policy covering $5,000 per month today, with the option of increasing this coverage to over $10,000 per month once in practice, without any medical underwriting. If he desires additional coverage, he can apply for a supplemental policy that will increase his benefit to over 20k per month.
With his additional coverage, he’ll be able to make sure that his family is protected should he be unable to perform his occupational duties.
Best Disability Insurance for Doctors
The most important option is to have an “Own-Occupation” physician disability insurance policy. A person can receive disability payments until they can resume their “Own Occupation”.
If unable to return to their own occupation, some doctor disability insurance plans offer an optional Lump Sum Payout.
There are three key features that every physician plan should offer:
- Own occupation (own occ) coverage (for the life of the policy)
- Residual disability without the need for total disability
- The ability to increase coverage without medical underwriting
All of these options will come in different “flavors” depending on the carrier and the premiums. We can help you navigate this marketplace and because we’re independent, we can offer plans from every major carrier in the marketplace.
The Importance of “Own Occ”
Own occupation coverage is very important for physicians. What that means can be found in your policy’s “definitions”. A policy’s definitions are the requirements necessary to make a claim.
For physicians, this is extremely important. You have a very specialized occupation, and with that comes the need to have your income replaced with almost any claim, regardless of your ability to perform other duties.
The three different definitions of disability are typically own occ, any occ, and modified own occ.
Own occ has already been discussed. It is essentially the inability to do YOUR occupation for an extended period of time. This is irrespective of your ability to do another occupation (teaching, moving from surgery to internal medicine, starting an organic farming operation, etc.) The majority of physician disability insurance policies will have this type of coverage.
Any occ is normally the same definition that social security disability insurance uses:
“Disability under Social Security is based on your inability to work. We consider you disabled under Social Security rules if:
You cannot do work that you did before;
It is decided that you cannot adjust to other work because of your medical condition(s); your disability has lasted or is expected to last for at least one year or to result in death.”
Modified Own Occupation
A hybrid of the first two options, these policies typically allow for an “own occ” provision for a certain period of time (e.g. 2 years) and then switch to an “any occ” definition of disability. Some policies allow you to add a rider that will extend the own occ provision for the life of the policy…but as you know if you read my articles, those riders cost money.
Physician Disability Insurance for the Self-Employed
Private practice or self-employed physicians disability insurance primary plans are a must.
The primary physicians disability insurance plan is going to be a non-cancelable (meaning that your rates will never go up), guaranteed renewable (meaning that the carrier cannot cancel your coverage), in-force (being current on premium payments when going on claim), long term (to your projected retirement age) plan. The same benefit information that group plans offer will also apply to private primary doctor disability insurance plans. I encourage anyone to get as much personal primary coverage as possible. Once that is in force we can then add the supplemental disability insurance plan to reach the 65% of income amount.
Private primary plans must be underwritten versus a group plan that can be guaranteed issue. The benefit amount paid, with private plans, will generally be not taxable.
What does underwriting entail?
This is going to vary widely. Depending on your specific occupation, specialty, income, and benefits need, each carrier will have their own sets of requirements. For residents or even newer physicians, a physical exam and/or tax record might not be required.
For high-income professionals, you will likely be required to complete a paramed exam. This is typically a physical exam that is done at a location of your choosing, home or office. Most of these procedures involve blood, urine, height, weight, blood pressure and a few other metrics. Obviously, your health plays a role in the insurance company’s decision to offer you a policy.
Unlike life insurance, morbidity (as opposed to mortality) also plays a role in a carrier’s decision to offer you disability insurance. Back issues, knee problems, tremors, etc. all can cause an increase in premium and/or a decline from coverage.
In addition to these requirements, the carrier may require the last few years of tax returns in order to substantiate income. If a carrier is going to offer millions of dollars in potential income replacement (which is at its essence, what an individual disability policy is), then they want to make sure that the income that they are replacing is accurate.
Overall, the underwriting process is fairly simple and yet can last several weeks. Our standard response as to “How long will this take” is 90 minutes or so for you (between the application process and the likely exam) and two weeks to two months for the carrier.
It is possible to secure a policy much more quickly. However, they won’t have the definitions that you, as a physician, require, nor will they offer adequate coverage.
With the right policy, this is the last time that you’ll ever need to go through this process, even with a rising income or declining health.
Are My Disability Benefits Taxable?
This is the million dollar question. Literally. Taxes can take more than a third of your potential benefits. If your employer pays your disability insurance premiums, then yes, your benefits are likely taxable. If you pay your own premiums, however, your benefits then become tax-free. In most cases, a physician disability insurance policy is going to be paid for individually and thus have tax-free benefits. If your goal is to actually have your CASH FLOW the same as it was before your disability, then tax-free benefits play a huge role.
The math is relatively simple…if you need 65% of your income to maintain your lifestyle in a disability situation, then paying tax on that 65% drastically decreases your spending power. If, however, that disability income is free from tax, then it will typically align with your spending tendencies.
Other Necessary Coverage
There are several ancillary plans that can also be very important to physicians in addition to their physician disability insurance policy. For instance, if your business involves a hospital and/or someone paying you a salary, then a retirement benefit plan can be very attractive.
Retirement Benefit Plans
Essentially, these plans will replace your 401k/403b contributions should you go on claim. That can be very attractive considering that most DI (disability insurance) plans only replace your income, not your ability to save for retirement. A substantial sickness or injury could derail your retirement plans without such coverage, even though you might be able to maintain your current lifestyle.
Key Person Disability Insurance
If you’re in private practice, you might have a physician or doctor that you employ who represents a substantial portion of your income. Key person, DI can help to offset the costs of replacing and training someone new to your business. This is a benefit to the business, not to the employee. Often, these plans are popular if you have a business structure where one of your employees is responsible for a substantial portion of your revenue.
Business Overhead Expense
As the title implies, this disability insurance covers your practice rather than yourself. It covers the mortgage/rent on your building, your employees’ payroll, your equipment costs, and other generic business costs.
We are consistently shocked by the number of people who do not apply for that which is a very reasonable cost for the amount of coverage available. If you run your own practice, this type of coverage is imperative. Should you suffer a disability, it will pick up the tab for your business expenses as you recover.
SUMMARY OF DOCTOR DISABILITY INSURANCE PLANS
We offer primary and supplemental individual disability plans for physicians from a variety of carriers.
With access to Guardian, Mass Mutual, The Standard, Principal, Ohio National, Lloyds and other key disability insurance players, we can find you the best policy to not only fit your cost objective but also your coverage requirements.
At HighIncomeProtection.com, we specialize in doctor disability insurance and key man disability insurance (If you have a business partner, these plans are mandatory, learn more about key man disability insurance HERE) and will work with you to make sure you get the best policy for your needs.
Contact me today at 888-636-2310 for a confidential discussion about your needs. You can also submit a quote request.
Talking through your objectives and goals is paramount in selecting the right disability strategy for your practice. Everyone is different, while some need minimal coverage that could easily be covered by an overlay on an existing AMA plan, others might need comprehensive coverage in multiple forms, including personal, retirement, and business overhead policies.
Our role is to educate. I appreciate you writing your IDI (individual disability insurance) policy with us, however, we are happy to operate as an independent educator/third party to provide a truly objective view of your options. We provide expert, unbiased advice in selecting the best individual disability insurance policy for your personal situation.
We look forward to working with you.