The Invincible Doctor: Are You Prepared for Disability?

Judy Kaltenbacher, CPA, Tax Partner,

  Filed under: News and Tax Blog, Practice Elevations - Medical/Dental Blog

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Did you know that you face a much higher probability of becoming disabled than of dying during your working years?

Considering that the average long-term disability absence lasts 2.5 years, your family’s finances — and your practice — could take a hit if you are disabled and have not prepared.

What Brings Docs Down

The Council for Disability Awareness’ most recent Long-Term Disability Claims Review shows that the following conditions are the leading causes of new disability claims:

  1. Musculoskeletal/connective tissue disorders (arthritis, back pain, spine/joint disorders)
  2. Cancer
  3. Injuries and poisoning (fractures, sprains, burns, allergic reactions)
  4. Cardiovascular/circulatory disorders (hypertension, heart attack, stroke)
  5. Disorders of the nervous system (Parkinson’s, ALS, Multiple Sclerosis, Alzheimer’s Disease)

You can use the calculator developed by the Council for Disability Awareness to calculate your own “disability quotient.” Access the calculator here.

Health Is Wealth

You may have heard this before: Your health is your wealth. Your most important asset, as a medical or dental professional, is your intellectual capital and your ability to work. Even with basic disability insurance, you will probably be able to replace only 50 to 60 percent of current income, and monthly benefits will probably be capped.

To mitigate the risk of that loss, consider how a disability of any duration would impact your finances — and what you can do to prepare. 

1. Review your current income and monthly expenses.

Start with an honest appraisal of your lifestyle. If your income stream was disrupted, would you be able to maintain financial commitments such as private schools for the kids, philanthropic undertakings and planning for a comfortable retirement? What about any lingering educational debt? Then, factor in the normal costs of living (mortgages, healthcare, etc.) and ask yourself if your assets and income will cover expenses. 

Action: Determine how expenses could be adjusted to eliminate unnecessary spending in the event of disability. Review potential sources of income to replace your current paycheck and help weather the disability crisis.

2. Consider the long-term impact of a disability.

A disability can potentially rob you of the ability to earn a living. In the case of a permanent disability, the potential loss of income can run into the millions of dollars for a physician or dentist whose career spans 20-30 years. At the same time your earning potential dries up, medical and other bills related to the disability only increase. For example, there may be costs for specialized transportation, ongoing care and alterations to accommodate your disability.  

Action: Determine the income you would need to replace and the potential expenses that would need to be covered in the event of your disability. Then figure out if you have the personal savings, investments or other financial resources to cover them. 

3. Consider the impact on your practice.

What about the income of the practice? For example, if you are a sole practitioner and a disability keeps you from generating revenue for any length of time, you might not have a practice to return to. 

Action: Think through what would happen if you needed to use personal assets to keep the practice open. Last-resort options might include using credit cards to pay expenses, obtaining a second mortgage, using a home-equity line of credit or withdrawing money from a retirement plan.

4. Salt away some savings.

Long-term disability insurance typically kicks in only after 90 or 180 days, so it is important to be able to cover expenses until the elimination period has been completed and benefits start flowing.

Action: If you haven’t already, make sure you have access to enough liquid funds to cover anywhere from three to nine months of living expenses. This could be CDs, Treasury Bills or even a line of credit.

After you’ve reviewed the impact of disability and your current disability coverage, determine what additional disability coverage and overhead continuation insurance you might need.

The threat of disability is real. Let our experienced accounting professionals help you run the numbers to see if you are prepared to weather a disruption in income.

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Judy Kaltenbacher, CPA, Tax Partner
Judy has been in public accounting since 1985, with significant experience serving medical practices, real estate partnerships, S-Corporations, financial institutions, not-for-profit organizations and small business clients. She is experienced with providing tax planning for high net worth individuals and chairs the firm's medical/dental practice group. Learn more about Judy here.