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Individual Disability Insurance
Details you need to know for Disability Insurance for Physicians
September 10, 2009
All carriers do not offer the same type of definition and the provisions vary as well from contract to contract. We do a review that involves us breaking down how each carrier’s contract is different, the financials of each company, and the cost. Below is an outline of the definitions and provisions that should be on a contract.
If you have any questions please do not hesitate to call or email us. We want all of our clients to be clear on every aspect during this process.
Definitions of Disability
The definition of disability that is on a contract is the most important aspect. All definitions we offer protect you within your occupation. Meaning you cannot be forced to go back to work.
Own Occupation: The insured is unable to perform the duties of his/her regular occupation. Thus, a surgeon who is unable to operate but can teach or writes a book and chooses to do so will still be paid full disability benefits.
Transitional Occupation: The insured is unable to perform the duties of his/her own occupation. The insured is NOT required to work in another occupation, but if he/she chooses to do so, the benefit will be offset by his or her earnings IF the annual benefit amount plus the income generated from another occupation exceeds their previous income.
Example:
* Individual disability insurance benefit are received tax-free if paid with after-tax dollars
Your Occupation: The insured is unable to perform the duties of his/her own occupation. The insured is not required to work in another occupation, but if he/she chooses to do so, the benefit will be offset by his or her earnings.
Example:
Provisions of a Contract:
Non-cancelable: The insurance company cannot cancel the policy for any reason, other then unpaid premiums.
Guaranteed Premiums: The insurance company cannot increase premiums. The rates are guaranteed at the time of purchase.
Residual: Residual benefit pays if you are partially disabled. So if you suffer from a disability that prevents you from working full-time you will receive that portion of your lost income. You must have a loss of income of at least 20%. If you had a 20% loss in income you would receive 20% of your benefit a month.
Cost of Living Adjustment (COLA): COLA increases the benefit annually so the insured’s benefit keeps up with inflation during a time of disability.
Guaranteed Option to Increase Coverage: This allows the insured to increase his/her benefit amount without having to go through medical underwriting. This is not an open invitation to increase whenever the insured wants, the insurance companies have very specific times they offer increases. You can increase your benefit in between these offers, but you are subject to underwriting.
Recovery Benefit: This allows the insured to continue to receive benefits if after recovering from a disability in which they were receiving benefit, return to work full time, but have a loss of earnings of at least 20%. This benefit is designed to support you while you are rebuilding your business or practice. This benefit is offered in varying ranges but the maximum period is 3 years.
Portability of Contract: Once you have your policy you can take it with you anywhere. So if you move to say California or Florida where coverage is more expensive, and in some cases not offered, you will not be affected. Your Policy remains the same as when you obtained it.
Monthly Benefit: The amount you receive each month in the event you become disabled. We advise a physician in training to receive $2,500-$3,000 of monthly benefit because that is roughly what there take home income is now. Obviously you would want to increase your benefit once you are in practice.
Elimination Period: The period of time a person must wait from when they are disabled until the policy will begin paying benefits. The elimination period is like your deductible. The elimination period can be 30, 60, 90, or 180 days. We advise our clients to get a 90 elimination period. The cost for 30 and 60 days is expensive, and the difference between 90 and 180 days is nominal.
Benefit period: Insurance companies vary from the benefit period they offer. You can get a benefit period that pays to age 65, 67, or 70.
“But I Have Group Coverage?”
Obviously we are aware many of our clients have some level of group coverage. We feel this coverage is less the ideal for any physician. Below is a general description of group coverage.
The definition of disability is “Any” occupation. This means the insured is unable to perform the duties of his/her occupation and is unable to work in ANY occupation. Thus, you can be forced to back to work
The benefit is either a percentage of your income (typically 60%), or a decreasing amount
The benefit is taxable, so you receive 60% of your income and on top of that it is taxed
The policy can be cancelled at any time by the insurance company and the contract typically not portable
Many of the provisions (residual and recovery benefit) are not generally on group policies
If you have any questions please do not hesitate to call or email us. We want all of our clients to be clear on every aspect during this process.
Definitions of Disability
The definition of disability that is on a contract is the most important aspect. All definitions we offer protect you within your occupation. Meaning you cannot be forced to go back to work.
Own Occupation: The insured is unable to perform the duties of his/her regular occupation. Thus, a surgeon who is unable to operate but can teach or writes a book and chooses to do so will still be paid full disability benefits.
Transitional Occupation: The insured is unable to perform the duties of his/her own occupation. The insured is NOT required to work in another occupation, but if he/she chooses to do so, the benefit will be offset by his or her earnings IF the annual benefit amount plus the income generated from another occupation exceeds their previous income.
Example:
John is a surgeon and earns $300,000 a year. He becomes disabled and is unable to perform surgery. He has an annual disability benefit of $120,000 a year ($10,000/month)*. He chooses to teach at the medical school and earns $75,000 a year. Because his income as a teacher and his benefit does not exceed his prior income he receives full benefits. ($120k + $75k = $195k).
Using the same example above if John earned $200,000 in another job he would not stop receiving benefit. It would be adjusted so his new income plus his benefit equaled his old income of $300,000. So John would receive $100,000 of benefit a year.
Using the same example above if John earned $200,000 in another job he would not stop receiving benefit. It would be adjusted so his new income plus his benefit equaled his old income of $300,000. So John would receive $100,000 of benefit a year.
* Individual disability insurance benefit are received tax-free if paid with after-tax dollars
Your Occupation: The insured is unable to perform the duties of his/her own occupation. The insured is not required to work in another occupation, but if he/she chooses to do so, the benefit will be offset by his or her earnings.
Example:
John is a surgeon and earns $200,000 a year. He becomes disabled and is unable to perform surgery. He has an annual benefit disability benefit of $96,000 a year. He chooses to teach at the medical school and earns $100,000 a year. His annual disability benefit would be adjusted to $48,000 a year, which is 50% of his benefit.
Provisions of a Contract:
Non-cancelable: The insurance company cannot cancel the policy for any reason, other then unpaid premiums.
Guaranteed Premiums: The insurance company cannot increase premiums. The rates are guaranteed at the time of purchase.
Residual: Residual benefit pays if you are partially disabled. So if you suffer from a disability that prevents you from working full-time you will receive that portion of your lost income. You must have a loss of income of at least 20%. If you had a 20% loss in income you would receive 20% of your benefit a month.
Cost of Living Adjustment (COLA): COLA increases the benefit annually so the insured’s benefit keeps up with inflation during a time of disability.
Guaranteed Option to Increase Coverage: This allows the insured to increase his/her benefit amount without having to go through medical underwriting. This is not an open invitation to increase whenever the insured wants, the insurance companies have very specific times they offer increases. You can increase your benefit in between these offers, but you are subject to underwriting.
Recovery Benefit: This allows the insured to continue to receive benefits if after recovering from a disability in which they were receiving benefit, return to work full time, but have a loss of earnings of at least 20%. This benefit is designed to support you while you are rebuilding your business or practice. This benefit is offered in varying ranges but the maximum period is 3 years.
Portability of Contract: Once you have your policy you can take it with you anywhere. So if you move to say California or Florida where coverage is more expensive, and in some cases not offered, you will not be affected. Your Policy remains the same as when you obtained it.
Monthly Benefit: The amount you receive each month in the event you become disabled. We advise a physician in training to receive $2,500-$3,000 of monthly benefit because that is roughly what there take home income is now. Obviously you would want to increase your benefit once you are in practice.
Elimination Period: The period of time a person must wait from when they are disabled until the policy will begin paying benefits. The elimination period is like your deductible. The elimination period can be 30, 60, 90, or 180 days. We advise our clients to get a 90 elimination period. The cost for 30 and 60 days is expensive, and the difference between 90 and 180 days is nominal.
Benefit period: Insurance companies vary from the benefit period they offer. You can get a benefit period that pays to age 65, 67, or 70.
“But I Have Group Coverage?”
Obviously we are aware many of our clients have some level of group coverage. We feel this coverage is less the ideal for any physician. Below is a general description of group coverage.
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