If you don’t protect your income, then what is protected?
You could have the fanciest financial strategy in the world. But if your income gets cut off, all that goes out the window.
Retirement planning will go off track. Student loans will keep piling up. And mortgage payments will still be due.
Simply put, if you don’t preserve your income, you’re putting a lot at risk.
Income protection is more necessary than you think. According to the CDC, 1 in 4 people live with a disability. For the average healthy 20-year old, there is a 1 in 4 chance they’ll become disabled during their career (90% due to illness, not an accident). While you may think it won’t happen to you, there’s a 25% possibility.
This is why you need the right disability insurance. As a medical professional, income is your most valuable asset, and you must fully protect it.
What’s Wrong with Your Group LTD Insurance?
You may have long-term disability (LTD) insurance through your employer or acquired it individually through a professional association. However, your LTD insurance may not be enough because:
- Benefit caps: There’s a limit on how much income you can replace. For instance, most group LTDs only cover base salary (no bonus coverage!). Some even place dollar caps on the benefit amount.
- Eligibility: You may not qualify for a payout if you still work in another healthcare role.
- Portability: If you change employers, you can’t take the plan with you. Keep in mind 50% of physicians change jobs within the first five years.
- Taxes: If paid with pre-tax dollars, your payout will be taxed. This may make the plan less valuable than initially thought.
In most cases, employer-provided disability insurance falls short. The policies don’t provide enough income for your needs.
Why Group LTD Plans Fail to Fully Cover Your Income
There are a few reasons for this:
- Any gainful occupation: Most group LTD plans include an ‘Any Gainful Occupation’ policy. This essentially states that, if you can perform the duties of any job that pays at least 60% of your pre-disability earnings, you won’t get the benefits of the LTD plan.
- Risk mitigation: Long-term disability insurance providers know they must provide coverage for a variety of people within group plans — the young, the old, the healthy, and the unhealthy. The only way they can offer coverage is to reduce their risk by offering fewer benefits.
So you can get more clarity, here’s a real-world example:
A surgeon becomes disabled and can’t perform surgery. However, the surgeon could continue to work in an administrative or clinical role. Since they’re still working, they may not be eligible to receive their disability insurance payout — even if they’re making substantially less money than before.
Why You Need an Individual Disability Insurance Policy
Your group plan probably doesn’t do enough. An individual disability insurance policy can fill in the gaps.
Since you choose the plan, individual disability insurance policies can be tailored to your needs. That means you can:
- Cover bonuses and insurance compensation: If your LTD is only covering your base salary, you need more coverage.
- Get tax-free benefits: Make contributions after-tax, and your benefits are non-taxable.
- Protect yourself during partial disability: For instance, if you have a car accident and need a few months to recover, an individual policy can cover your income losses.
- Protect student loan payments and retirement contributions: You can find such options with individual LTD plans.
- Protect yourself with an own-occupation option: For example, if you have to move from surgery to a clinical role, you can protect your income losses with a robust individual own-occupation policy.
Remember: You have to meet the insurance policy’s definition of disability to get benefits. So, having an own-occupation policy can benefit you tremendously. Here’s why:
- Any-occupation policies prevent you from obtaining benefits if you can do another job, even ones not in your medical field!
- Own-occupation policies provide benefits when you’re unable to do your most recent job.
How Much Disability Insurance do Medical Professionals Need?
First, know the factors that influence premium rates:
- Monthly benefit
- Optional riders
- Occupational classification
Second, know the total amount your policies should provide in benefits. Most experts advise that a physician’s disability policies should cover 60-65% of their income after tax.
Calculating this appears simple at first glance. A physician earning $300,000 annually earns $25,000 monthly. That means they would need disability benefits of $16,250 per month (65% of gross income). But you must make sure your policies provide that net benefit. Here’s an example:
- You earn $300,000 per year, but get hurt and miss work.
- You have an individual policy with a $6,250 benefit per month.
- You have an employer-group plan with a $10,000 benefit per month.
While it may seem like you’ll get the $16,250 you need, your employer’s group policy benefits will get taxed. If you pay a 30% effective tax rate on that income, you’re left with $7,000 in benefits from your group plan. That leaves you $3,000 per month short of what you need.
This makes it essential to calculate net benefits. You have to be sure your policies’ benefits combine to provide what you need if a disability occurs due to an accident or illness.
Get the Right Coverage with Domenick Financial
Physicians may ignore this risk to their income because they imagine worst-case scenarios, such as horrific accidents and spinal cord injuries that cause paralysis. The fact is, back injuries, hand injuries, diabetes, cancer, heart attacks, and other illnesses are the biggest reasons why physicians file disability claims.
Any physician that depends on their paycheck should have individual disability insurance. Not only does it supplement insufficient group plans, but it also ensures you have a wider range of coverage. That way, you can always protect your most valuable asset: Your income over your entire career.
Know the best time to get individual disability insurance is now. Because the younger you get it, the better and cheaper your coverage will be. And later, you can increase your benefits if needed without needing medical proof.
So, don’t leave something as crucial as your income to the risk of the unexpected. At Domenick Financial Services, we can help you find a customized disability policy that fits your needs.
We’re an independent insurance broker with no obligations to choose any one insurance company. Working with you, we’ll source multiple options to find the most suitable coverage. This way, your disability insurance policy best aligns with your unique situation, goals, and needs.
Want to learn more about the disability policies we can offer you? Click the link below to visit our disability insurance page. We’re ready to help you compare disability insurance plans and costs.