Disability insurance is one of those things most of us don’t often think about. But, for doctors especially, there are particularly good reasons to consider it carefully. The specifics of what doctors do and what could constitute disability in their line of work, combined with the often substantial salaries of those in the medical field combine to make disability insurance even more valuable to doctors than to the average person. However, those same factors can make getting the right kind of disability coverage particularly difficult for doctors as well.
Consider the first issue mentioned. What constitutes a disability? A complete disability? In most occupations we think of things like musculoskeletal injuries from moving heavy objects, cutting or damaging limbs or appendages with heavy equipment, carpal tunnel syndrome or other repetitive stress injuries in the office environment, or maybe even a chronic disease like cancer. But if you are a neurosurgeon there are a lot of other circumstances or events that could lead to you not being able to perform your specialty safely. Doctors have to be at 100% all the time. They can’t fudge it when it comes to having a steady hand or a clear mind. In other words, the threshold for disability is lower for a physician than it is for most people. More than that, what for some people would be little more than an inconvenience for a doctor can mean the complete inability to perform his or her job.
Suppose for example that you develop chronic essential tremor, or perhaps have a minor stroke that does little permanent damage but leaves you with a minor tremor. While in many occupations this would be an inconvenience, even a frustration, for a physician in any of a number of specialties this would be a career ender.
In addition to the unique specialized definitions of disability needed to secure adequate coverage for physicians there is the question of amount of coverage. While we know that physicians tend to be high earners we also know that physicians tend to have lots of expenses. Medical school debt, mortgages, properties, and investments are all staring down at you in the case of a significant loss of income. But typical group long term disability plans (LTDs), and even individual disability plans (IDs) often don’t offer enough coverage for those in high income positions. By all means, eQuoteMD encourages you to have those policies in place, and if you don’t already have them, to work with your employer and a broker to secure basic disability coverage. But for many a further layer of protection is a significant asset.
This is where high-limit or lump sum disability policies come in. Several brokers and insurers are now offering policies intended to supplement your standard LTD and/or ID policy. Among the best of these are those that offer a guaranteed lump sum payout after a short period of total disability. In most cases this is a tax free, single payout of somewhere between $1 and $3 million dollars. That money could make the difference between selling your house, draining your 401k, and liquidating assets and investing, continuing to pay into your retirement funds, and becoming debt free as you transition into what may amount to an early retirement or a second career in a field that your disability doesn’t preclude you from operating in.
As a thought experiment, consider what your current coverage consists of. If you don’t know, now is a good time to check. Many of us don’t think about our disability coverage because we don’t think about the fact that disability could happen to us. But it happens to people every day. And in many cases what you find when you look into your employer provided LTD policy is that it pays something like $10k a month. Now let’s say you’ve also got an ID policy that pays another $5k a month. That’s $15k a month to live on. Now the question becomes, is $180,000 a viable salary for someone in your situation? Keep in mind too that there may be limits to how long those policies will pay or how much, particularly if you see physical improvement in your condition. Also consider that any continued payment into your retirement funds or investment monies will have to come out of that. Then there’s the question of taxes—depending on your situation you may have to pay taxes on a portion of that money. And of course if you want to convert your LTD payment plan into a lump sum the payout will be reduced and the tax blow is likely to be even greater.
None of this is to say that standard disability insurance policies aren’t good and valuable. They are. And for most people they offer sufficient coverage. But for doctors, and particularly doctors with substantial salaries, and even more particularly for doctors with substantial salaries and substantial assets, debts, and/or liabilities an extra layer of coverage is a smart investment.
Let’s go back to our thought experiment above. Now imagine that everything mentioned remains the same: $10k per month from your LTD policy + $5k per month from your ID policy = $180k per year. But this time, you also receive an additional $3,000,000 through a tax free lump sum supplemental disability policy. You invest that money and average, say, a 10% return for an additional $300,000 annually. Now you are looking at $480,000 a year (almost half a million) to live on instead of $180,000 and you have $3,000,000 (give or take depending on how your investments are doing) sitting untouched in your portfolio. That’s a big difference. That’s when you pour yourself a drink, smile, and thank yourself for buying that supplemental policy.
So, consider supplementing your long term disability and/or individual disability policy with a specialized supplemental disability policy. There are different kinds available on the market but we recommend at a minimum looking for something specifically designed for physicians with definitions of disability tailored to your medical specialty. We also recommend looking for a lump sum payout plan rather than a monthly installment plan because of the freedom it gives you to invest, pay off debts, or whatever you want to do, as well as the psychological freedom of not having to be constantly assessed as to your continued eligibility for disability payments. Also, in most instances these lump sum payouts are totally tax free so it’s a great deal financially. Finally, look for a broker that offers discounted rates on a policy like this to doctors who purchase other insurance with them. Often these brokers are able to partner with well-known specialty insurance underwriters like Lloyd’s of London to provide discounted rates and premiums to their clients as a benefit.
Hopefully this has been a helpful reminder about the importance of an oft-neglected aspect of financial security for doctors, and hopefully we’ve simplified things and given you some options that will leave you feeling more confident about your financial future. If you have questions or would like us to help you shop for a quote on a disability insurance policy just give us a call at 1 (855) 857-8746 or email us at firstname.lastname@example.org.
This post was written by Justin Donathan.
Justin at Google+