What is Disability Insurance?

Are you sufficiently protecting your talents, skills and capabilities?

Look beyond your patients care and you’ll see the impact of an illness or injury on a family, both emotionally and financially. You have the choice to make the decision to protect yourself and or your loved ones from the devastating impact of an accident or illness.

We take our talents and abilities for granted just like breathing air. Well, whether we like it or not, sustaining an accident or illness is always a very real possibility that could affect our ability to live, work and play.

Most people do not insure what is probably their most valuable asset – their ability to work and earn income.

A physicians earning potential creates the need to plan for wealth accumulation, protect a lifestyle dependent upon a certain level of income and possibly make considerations of ownership within a practice. All are financial obligations that make the protection of income a crucial consideration.

Long-term disability insurance coverage is important for many occupations, but for physicians, it’s particularly critical. Even a relatively minor accident or illness can interfere with your ability to practice medicine or perform surgeries. Many doctors are finding a serious gap between the traditional disability insurance benefit offerings and the income replacement needs of their true income.

Is There A Gap In Your Income Protection Coverage?

Financial experts recommend monthly DI benefits of at least 65% of income as being the minimum amount for adequate financial protection. But as incomes increase, traditional Group and Individual DI carriers lower the percentage available. With incomes growing larger than what traditional Group and Individual DI carriers will issue, highly compensated individuals turn to High Limit DI coverage to protect their incomes and their financial security.

larger than what traditional Group and Individual DI carriers will issue, highly compensated individuals turn to High Limit DI coverage to protect their incomes and their financial security.

The first step is to measure the gap between your current income and the benefits your disability policy provides. A basic individual disability policy typically covers 60 to 65 percent of your current monthly income when you start practicing, but these policies also place a cap on monthly benefits – usually, the most you can obtain is between $5,000 and $15,000 per month. As your income grows, your disability benefit plan may not be able to continue to ensure all of your after-tax income. Thus, you will have a gap in protection and increased risk exposure.

A Real Life Example

To illustrate the value for High Limit DI, let’s look at a real case story. Dr. Smith was a successful physician in Wisconsin. Dr. Smith and his financial planner completed a comprehensive financial review and they discovered a disability insurance deficit in Dr. S’s insurance portfolio of $49,000 per month! Dr. Smith should have $70,400 per month and his current coverage was only $21,400 per month.
With so much at stake, Dr. Smith decided to purchase a High Limit Disability Policy. Sometime into the policy period, Dr. Smith, unfortunately, suffered a laceration and nerve damage to his dominant arm and is now unable to perform surgery. Each month Dr. Smith receives benefits from three disability insurance policies.

• $15,000 from his Group LTD policy
• $6,400 from his Individual DI policy
• $49,000 from his High Limit DI policy

In addition to the monthly benefits, Dr. Smith purchased the career-ending benefit which provides $5,000,000 in the event of a career-ending disability. After a 60-month benefit period, Dr. Smith will receive a $5,000,000 lump sum if his disability is permanent.

Starting with just 3 lives, a medical practice may be able to secure a benefit plan with the following features;

• Receive substantially higher benefits than traditional individual disability plans.
• Obtain benefits on a guaranteed-issue basis  without medical examinations.
• Secure the full benefit amount for the definition of  disability within your occupation/specialty.
• Simple administration with one-page enrollment  forms.

Life gets busy and it’s easy to overlook the importance of disability income insurance, imagine if you lost your ability, strength or dexterity to perform everyday tasks?

Long-term disability insurance can be one of the single most important decisions you can make, or not. The consequences of your decision may have a profound effect on your life. Long-term disability insurance, often referred to as income protection, works hard when you can’t.

If you are properly insured, you and your family can continue living comfortably in the face of a temporary or permanent disability.

There are two types of disability policies: Short-Term Disability (STD) and Long-Term Disability (LTD):

  1. Short-Term Disability policies – have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years.
  2. Long-Term Disability policies – have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of your life.

Disability policies have two different protection features that are important to understand:

  1. Noncancelable means the policy cannot be canceled by the insurance company, except for nonpayment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.
  2. Guaranteed renewable gives you the right to renew the policy with the same benefits and not have the policy canceled by the company. However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.

In addition to the traditional disability policies, there are several options you should consider when purchasing a policy:

  • Additional purchase options
    Your insurance company gives you the right to buy additional insurance at a later time.
  • Coordination of benefits
    The amount of benefits you receive from your insurance company is dependent on other benefits you receive because of your disability. Your policy specifies a target amount you will receive from all the policies combined, so this policy will make up the difference not paid by other policies.
  • Cost of living adjustment (COLA)  The COLA increases your disability benefits over time based on the increased cost of living measured by the Consumer Price Index. You will pay a higher premium if you select the COLA.
  • Residual or partial disability rider  This provision allows you to return to work part-time, collect part of your salary and receive a partial disability payment if you are still partially disabled.
  • Return of premium
    This provision requires the insurance company to refund part of your premium if no claims are made for a specific period of time declared in the policy.
  • Waiver of premium provision This clause means that you do not have to pay premiums on the policy after you’re disabled for 90 days.


JOHN NICHOLS, MSM, CLUPresident, Disability Resource Group
John F. Nichols, MSM, CLU is a nationally recognized disability benefits consultant, the creator of disability products and administration systems and an expert witness in disability proceedings.

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