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of Disability Insurance
of Disability Insurance
Part One of Three
What is the most important asset you have? For most of us, it is not our house or our car — it is our income.
Let’s assume you are a 40-year-old physician earning $250,000 per year. Assuming you work for the next 25 years and your pay increases by 3% per year, your total earnings by age 65 will be greater than $7 million. Over time, your cumulative earnings will far exceed the value of any other asset you own. Your income protects your family’s lifestyle, helps pay for your children’s college education and allows you to invest in your retirement accounts. For a physician, having adequate long-term disability insurance is critically important based upon the “asset” being insured.
It’s sometimes hard to imagine a disability can happen to you. So what are your chances of becoming disabled? Twenty percent of “white collar” professionals will suffer a disability lasting at least 90 days during their working years. eing out of the workforce, even for a short period of time, could have lasting repercussions on your financial well-being. And not only will you experience falling income during disability, but the potential for greater expenses like health care, special equipment, health aids and transportation will be added costs to consider.
There are several disability products available in the marketplace, some of which you may already have:
New York State statutory disability: Covers “off-the-job” injury or illness and pays 50% of income up to $170 per week. The waiting period is seven days, and benefits last for as long as 26 weeks. Total disability is required.
Workers compensation: Covers “on-the-job” injury or illness and pays 66% of average weekly wage up to $739.83 per week after seven days of disability. Benefit amounts will be adjusted based upon your percentage of “disability.” Partial disability is covered.
Social Security disability insurance: Must be totally disabled and your disability must have lasted, or be expected to last, a minimum of 12 months. You must be unable to earn an income greater than $1,000 per month.
Group long-term disability: Offered through place of employment and covers “on- and off-the-job” injury or illness. The waiting period for benefits is typically 90 or 180 days and covers on average 60% of pre-disability income up to a maximum monthly amount that varies by plan. Benefits are usually payable up to age 65 or Social Security normal retirement age. This coverage is typically offered without medical evidence of insurability. It may be paid for by employer, employee or a combination of both.
Individual long-term disability: Purchased by you separately through an insurance carrier. Some of the features include total and partial disability coverage, portability, indexed/cost of living adjustments to keep pace with inflation, a non-cancelable contract with guaranteed premiums, and benefits payable up to age 65 or 70. This coverage is generally subject to medical underwriting.
Supplemental disability policies such as critical illness/cancer insurance: Benefit that “fills the gap” in medical benefits for specific illnesses such as cancer, heart attack, stroke, carcinoma, renal disease and coronary artery disease. You have the ability to purchase between $5,000 and $50,000 of coverage. Policies may be purchased individually through employer under voluntary payroll deduction.
If you are in the market for disability insurance, here are some questions you should consider:
- How much coverage do I need, and how much can I obtain?
- What extra benefits are available?
- What are the third-party ratings of the insurance companies being considered?
- What are the definitions of total and partial disability?
- How does my individual policy integrate with the group long-term disability insurance I receive from my employer?
In the next series installment, I will tackle some of these questions and others as they relate to group long-term disability (group LTD). Many physicians and medical employees are covered by a group LTD plan through their employers. It is important to understand the limits of these types of disability policies and why most medical professionals need to supplement this coverage with a personal disability policy. Although you hope to never collect on your disability insurance, having the right amount of coverage with the right terms and definitions, insured with a highly rated and reputable company, may be one of the most important financial decisions you make during your career.
Peter L. Derrenbacker, CLU, ChFC, CFP, is a licensed insurance broker. His insurance practice, Derrenbacker Group Benefit Specialists, LLC, specializes in group benefit design and service for medical and professional groups. For more information, he can be reached at (315) 437-7677 or firstname.lastname@example.org.