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Red Alert – Test Alert A – July 12 expiration
Red Alert – Test Alert A – July 12 expiration
The statistics are sobering: You’re much more likely to become disabled than to die during your practice years. The cost of disability insurance can be daunting — anywhere from two percent to four percent of the income you are trying to replace. Still, few physicians are prepared to rely solely on their personal savings during an extended period of disability. With that in mind, consider these steps for ensuring you have a source of income should you become disabled:
Most employers provide some form of group disability coverage, and a basic employer-sponsored plan certainly helps when you are starting out in practice. Coverage under a basic employer-sponsored plan usually is limited and policies are not portable if you change employers. Well-informed medical and dental professionals treat this type of coverage as supplemental to a more comprehensive personal policy.
Personal policy premiums are higher than group plans, but the coverage and flexibility are superior. Coverage is customizable and provides substantially more control. Individual polices follow you throughout your career and can be designed around your particular practice specialty and lifestyle needs. Unlike group policies, individually owned plans are generally non-cancellable, non-taxable and benefits cannot be reduced.
What is the cost/benefit value of the policy?
Is the policy guaranteed for renewal? Is it non-cancellable?
Is the definition of disability in the policy for a “true and pure” occupation, modified occupation or regular occupation?
What is the definition of income in the policy? Is only base pay (not incentive pay) considered?
Is the policy specialty-specific?
What restrictions or exclusions are included in the policy?
Does the policy include provisions that would reduce the benefit under certain circumstances?
Does the policy include partial benefits?
Does the policy include recovery benefits?
Is the company writing the disability contract financially sound?
Consider beefing up coverage with policy riders to ensure that you obtain benefits specific to your needs and for as long as possible. A rider for Own-Occupation protects you if you are unable to perform the duties of "your own medical specialty" and continues to pay benefits if you are forced to practice a new specialty or even a new occupation because of disability. A Future Purchase Option gives you the right to purchase a pre-determined amount of coverage in the future. In particular, it allows residents and early-career physicians to increase coverage as their income grows without having to go through additional medical underwriting.
If you are working in a solo or small medical group practice, consider overhead continuation insurance for you and your partners. This insurance is relatively affordable and is designed to help pay a professional’s share of office expenses for a period of disability without the need to dip into personal or family savings, or take on more debt.
Work with an agent who specializes in disability insurance for medical and dental professionals. Consider working with an independent agent who can shop your coverage with several disability insurance companies. Each company will look at your location, gender and medical specialty a little differently, so it’s critical to request a variety of quotes.
There really is no time like the present. Because an insurer’s underwriting decisions are based on your age, current health status and accident/illness history, the best time to purchase disability coverage is when you are young and healthy.
Ultimately, the best disability policy is one that is tailored to your specific income replacement needs and specialty. If you choose your options wisely, you may have a reliable source of income even if an illness or injury forces you to stop practicing.
As you consider disability insurance options, you can turn to our firm for guidance on determining the right amount of coverage and options.
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.
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:
You can use the calculator developed by the Council for Disability Awareness to calculate your own “disability quotient.” Access the calculator here.
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.