“Variety,” according to William Cowper, “is the spice of life.” For physicians and their families, it can also be the key to a solid disability income protection strategy.
If you are looking to achieve maximum protection at an affordable cost, you may find that you need more than one type of disability insurance:
Here are some relevant facts you should know about each type of plan.
If you are employed by a hospital, group practice, or other entity, you may already be covered by group disability insurance. The premiums are typically reasonable, but the benefit may replace only part of your income—generally, 60% of base salary is the maximum. The term “base salary” is important. If your compensation includes bonuses, they will not be included in the calculation of your benefits. Also, your benefits will likely be taxable as ordinary income. (Check with your tax advisor on your personal situation.) Be sure to consider these limitations when calculating what your benefit payments will be.
Here is something else to think about: How does your employer group disability policy define disability? Is it when you are unable to do any work? Or when you are unable to fulfill the requirements of your profession? Or your specialty? These are important distinctions. An “any occupation” definition could leave you without benefits even though your condition would not permit you to practice medicine. Physicians and others in high-earning and demanding professions are best served by disability insurance that pays benefits as long as the policyholder is unable to engage in their usual occupation—your medical specialty.
Finally, employer group disability insurance is typically not portable, and you’ll need to reassess your plans if you should change employers.
Just as the name implies, this is coverage you arrange on your own, whether as your sole disability income protection or as a supplement to other types.
Individual disability insurance (IDI) is favored by many physicians seeking a plan tailored to their specific needs. IDI policies offer level premiums—that is, the premium remains the same as long as the policy is in force. While this offers the advantage of predictability, stepped premiums, which increase as age and risk increase, may be more advantageous to young physicians. IDI policies are also usually non-cancellable as long as premiums are paid when due. Since you, the policyholder, are likely paying the premium with after tax dollars, the benefits you receive may not be taxable. Ask your tax advisor to provide you with guidance on this.
Offered by a group — say a professional organization — this type of insurance is usually aligned with the specific needs of a profession and leverages the bargaining power of the organization to negotiate rates.
Association group disability insurance usually offer stepped premiums, lower premiums to start that gradually increase over time. This makes it an attractive option for young physicians seeking quality disability income protection at an affordable cost.
There is no set answer. In fact, the best solution may be “layering” — combining a couple of types of policies to achieve solid protection in the most economical way.
A physician insurance specialist can be a valuable resource, helping you build not only a solid physician disability income protection plan, but also protection for your family and all the things that mean the most to you.
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