We have several members who experienced a physician career change or are transitioning to a non-clinical career due to a disability that prevented them from continuing their clinical practice. We are disappointingly in need of better resources for physicians with disabilities. One of the few measures that we can take as physicians, however, is to have a good policy in place in case of such a situation. Here is an article written by PRN member Donald Brown, DO, titled “Things You Need to Know About Disability Insurance.”
THINGS YOU NEED TO KNOW ABOUT DISABILITY INSURANCE
Your need for disability insurance is greater than your need for life insurance. Most people have no problem purchasing life insurance yet they hesitate to purchase disability insurance. Physicians like anyone else are not invincible; 43% of all people age 40 will experience a long-term disability event before age 65 (JHA Disability Fact Book, 2006).
Without a disability plan in place, will you be able to maintain your standard of living if you are not working? Can your family survive on one income when most families struggle with two people employed? How long would it be before your savings are decimated?
Student loans are a concern for physicians who are just starting out. These loans are not discharged in the event of bankruptcy. Paying them off or expiring are two ways to eliminate them. You are responsible for them even if you are disabled. SallieMae.com states on their web site that loans may be “discharged” if you are disabled. They continue to state that even if you qualify for social security disability (extremely difficult to qualify for) you may not qualify for “discharge,” and it will take a minimum of three years due to Federal Regulations, during which time you are still responsible for the debt.
Which way to go – GROUP OR INDIVIDUAL?
The benefits of an individual policy are that you own it and can take it with you if you change jobs. Pure “own occupation” to age 65 is available if you wish to purchase it. Paying the premiums results in benefits that are tax-free. Earned income (as defined by the IRS) is covered including commissions, bonus and profit sharing. If your individual policy is in place before joining a group, you may participate in the group plan. However, if you have group coverage first, you may be limited in purchasing an individual policy.
A group policy is a nice supplement to an individual policy. While you cannot double dip (i.e. make more on disability than working), most group policies insure at 60% of salary, and if paid by the employer, the benefit becomes taxable to the recipient. This results in a significant loss of income. You cannot take a group policy with you if you change employers and COBRA laws do not apply. The definition of disability and time frame are limited. Most group policies have significant policy changes after two years of benefits. There is a reason the premiums are cheaper.
What Riders do I need?
A rider is a way to modify coverage on an insurance policy. Insurance companies offer many riders to supplement a policy. Some examples are:
COLA (cost of living) – Valuable if inflation is feared in the future. Your benefit amount is not indexed to inflation without this rider. Given our present economic environment, I recommend this for everyone.
Non-cancelable – As long as premiums are paid, the company cannot cancel and the benefits and rates are locked in place. This is as opposed to “guaranteed renewable” or “conditionally renewable,” both of which have restrictions.
Future increase option – your benefits do not increase automatically as your income advances. This allows you to increase your benefit regardless of health changes.
Return of premium rider – if you do not use the policy you will receive your premiums back when cancelling the policy. In my opinion, you are better off taking the difference in premium and either reducing debt, saving or investing the monies.
Other concerns?
Definition of disability in the policy
The best to have is “own occupation”. This is as opposed to “any occupation” to which you are suited based on education, training and or experience. Also, some policies may state own occupation for a specific time period and then change to “any occupation”. You want “own occupation” to age 65. If you are a pediatric neurosurgeon or CEO, will you be able to perform at any occupation after a disability claim?
How are premiums based?
Age, gender (women are more expensive because of perceived risk), the benefit amount including benefit period and medical specialty or occupation.
What is a good company?
A company must be fiscally sound. Ratings can be found at moodys.com, standardandpoors.com and ambest.com. Purchase on the Internet or use an agent. If you feel comfortable researching and reviewing and can monitor the policy as life changes than the Internet may be right for you. An agent gives you someone to discuss options with, explain benefits and riders and follow up with you as life changes. You do not want to purchase a $3000/month benefit when starting an internship and never increase the benefit or find you did not purchase properly when you need it in the future. Without updating the benefit you would only receive $3000, perhaps with undesirable restrictions in coverage.
No one expects to become disabled; however, having the proper policy in place before a disabling event may prevent bankruptcy.
Donald Brown, D.O.
m3t3gk@comcast.net
Dr. Brown retired from a successful anesthesia practice where he also managed the business aspect of a group medical practice. After retirement, with a certificate in Financial planning from Grand Valley State University, he joined Principal Financial Group as an investment advisor representative.
He has a strong background in investments (including options) as well as employer and employee benefits including the proper utilization of various insurance policies. Presently he has left Principal Financial Group to start his own consultation service.
