Disability Insurance for Physicians: Does Your Coverage Measure Up?

MAY 24, 2017
Jason Zimmerman, MBA, CLU, CAP
Long-term disability coverage is important for many occupations, but for physicians it’s particularly critical. Even a relatively minor accident or illness can interfere with their ability to practice medicine. And for many physicians — especially younger ones — future earnings potential is their biggest asset.

Disability insurance is designed to protect this asset by replacing your income in the event a disability prevents you from working for an extended period of time. Unfortunately, many standard disability policies fall far short of this goal. To ensure that you and your family are protected, you should evaluate your current coverage and consider purchasing additional insurance to close any gaps.

What’s Your Disability Gap?

The first step is to measure the gap between your current income and the benefits your disability policy provides. A basic individual disability policy typically covers 60 to 65 percent of your current monthly income when you start practicing, but these policies also place a cap on monthly benefits — usually the most you can obtain is between $5,000 and $15,000 per month. As your income grows, your disability may not be able to continue to insure all of your after-tax income.  Thus, you will have a gap in protection and exposure.
How Traditional Group LTD Plans Discriminate Against the Highly Compensated
disability insurance
Example shown: Group LTD covers 60% of earnings up to $10,000 per month.

It’s also important to consider taxes. Generally, benefits received under an employer-paid plan are taxable, but if you pay the premiums using after-tax dollars, the benefits are tax-free. A 65-percent tax-free benefit would likely come close to duplicating your after tax income (assuming the monthly limit is high enough).
High-end disability programs can fill the income gaps left by standard policies. As you weigh your coverage options, here are the most important policy provisions to consider:
Coverage amount. Look for a policy with a monthly benefit that’s sufficient to comfortably meet your monthly budget in the event an extended disability causes your income to take a hit. The best policies offer maximum benefits of $50,000 to $100,000 per month or more and cover up to 75% of your current income.
Guaranteed Issue. High-end group disability programs may offer guaranteed issue policies, which cover participants without the need for a medical exam. This is a huge benefit for groups whose members have pre-existing conditions.
Definition of total disability. The most comprehensive policies provide benefits if you’re unable to perform the “material and substantial” duties of your “own occupation.” Policies that provide true own occupation coverage pay full benefits even if you get work in another occupation and regardless of how much you earn. For example, a surgeon who injures her hand would be eligible for benefits even if she gets a teaching job at a medical school. Some policies define “own occupation” as your specific medical specialty. So, for example, a physician who is unable to perform surgery would receive benefits even if he is able to practice internal medicine.
Some policies contain “modified own occupation” provisions. They provide coverage if you’re unable to perform your regular occupation, but reduce or eliminate benefits if you find gainful employment in any occupation. Others contain “transitional own occupation” provisions, which scale back benefits once your combined benefits and earnings from other occupations exceed your pre-disability income.
The least generous policies consider you to be totally disabled only if you’re unable to perform the material and substantial duties of any occupation.


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