7 minute read
Disability Insurance Can Be Clutch for Physicians
DISABILITY INSURANCE CAN BE CLUTCHfor Physicians
DCMS Central PA Medicine
Tuesday, July 5, 2022
Name
Credentials
Angie Stephenson
CFP®, CPA/PFS
holly.white@domaniwealth.com
Bio
Angie Stephenson is a CFP® professional, CPA/PFS and trusted wealth advisor for many individuals and families throughout Central Pennsylvania. She enjoys helping clients develop customized financial plans to meet their goals. Angie works closely with many physicians in the Central PA area to make sure they are on the right path to reaching their retirement goals.
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By ANGIE STEPHENSON, CFP®
Article Information:
Article Title
Disability Insurance Can be Clutch for Physicians
Article Topic
Long-term disability insurance isn’t front-of-mind Especially for physicians in prime earning years and relatively good health, disability insurance might be an important consideration. Not only does this benefit offer income protection, it can also play into your overall financial planning strategy. Upload Article for many of us, managing busy work lives, time docx with family, and other responsibilities. Especially for physicians in prime earning years and relatively good health, disability insurance is certainly not pinging on any radar.
Disability Insurance Can be Clutch for Physic…
However, unfortunately accidents and illness do not discriminate. Thousands of people each year are unable to work due to an unexpected incident, whether recovering from major surgery or experiencing debilitating effects of a developing disease. Many of our members see these cases firsthand in their work. In fact, the U.S. Social Security Administration reports that more than 25 percent of people currently in their twenties will experience a debilitating illness or injury before their typical retirement age. Being proactive about personal and household finances has always been wise; however, the global COVID-19 pandemic is perhaps a stark reminder to always be prepared for the unexpected. With that in mind, it may be beneficial to consider taking a closer look at your disability insurance options. Not only does this benefit offer income protection, it can also play into your overall financial planning strategy.
DISABILITY INSURANCE: WHAT YOU NEED TO KNOW
Disability insurance replaces a percentage of your income should you become unable to work because of an injury or prolonged illness. Many organizations offer short- and long-term disability plans as part of an employee benefits packages.
CAUSES OF LONG-TERM DISABILITY CLAIMS
If you have healthy savings, short-term disability claims (such as pregnancy or a broken limb) might not affect your longterm financial health. However, longer-term claims could significantly impact your overall financial picture. Especially in a time when inflation continues to be of concern, and costs for just about everything seem out of hand, protecting your financial stability is paramount.
According to the Council for Disability Awareness, the most common causes of long-term disability in 2020 included:
• Musculoskeletal disorders (27.6%) • Cancer (15%) • Injury, such as fractures and sprains (12%) • Mental health, such as depression (9.3%) • Circulatory issues, such as heart attack or stroke (8.2%)
DISABILITY DEFINED: OWN OCCUPATION VS. ANY OCCUPATION
One important distinction among disability insurance policies is how a disability is defined. Providers will typically offer either “own occupation” or “any occupation” coverage:
Any Occupation: Provides coverage for when someone is unable to work in a job suitable for their education, experience, and age. This means if the insured person could find work elsewhere, even at a lower wage, the policy would not pay benefits. Typically, any-occupation policies cost less and, as such, are often the norm in group disability insurance plans (like your employer may offer you).
Own Occupation: Provides coverage for the insured person’s specific occupation at the time of the claim; this means if the person is unable to perform the duties of that position, their benefit claim would most likely be approved. Further, the person could still receive the long-term disability benefit even after finding employment in a completely different occupation.
Disability insurance can be a critical benefit of employment, particularly for a household’s primary earner. However, typical group policies have limitations that could adversely impact high-income earners.
DISABILITY INSURANCE CONSIDERATIONS FOR PHYSICIANS
While you may have employer-provided group disability insurance and don’t think much about it, it’s good to learn exactly what’s covered if you are a major breadwinner in your household.
Group disability insurance often has a maximum coverage amount, which is a percentage of your income – 60 percent is typical. However, it’s important to note this is based on a salary and does not include bonuses, income from practice ownership, or other forms of pay. Also, there’s usually a monthly cap on payments, which means those in higher salary situations might suddenly find themselves compensated at a much lower percentage rate. Someone earning $250,000 per year might have long-term disability insurance through their employer that caps a monthly payment of $5,000, which amounts to only 24 percent of their salary.
A mix of employer-paid and individual disability insurance policies may help maximize supplemental income should a long-term disability occur.
HOW DISABILITY INSURANCE FITS INTO AN OVERALL FINANCIAL PICTURE
Disability insurance can play a significant role in a financial plan. For example, if a professional is out of work due to a disability claim, they might not be able to contribute to a retirement or savings plan in the same way they had been. They also might not have access to other group benefits, such as health insurance for family members.
A disability claim may also increase the burden on family members, as they may have to step into a role with higher earnings potential while also helping to manage your care if you are disabled for a period of time.
Disability insurance can help mitigate risk, planning for potential income gaps to help maintain overall financial wellbeing. Someone on a long-term disability claim might need to dip into savings to cover everyday living expenses or needed care while out of work.
As you learn more about the disability insurance your workplace provides, ask specifics about how much income would be replaced and what a claim might look like for your finances.
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YOU CAN ALSO CONSIDER:
• Own-occupation vs. all-occupation policy options • Percentage of income replaced • Cap on annual benefits • Maximum length of benefit period • Portability • Taxes – properly structured benefits can be tax free
To find supplemental insurance options, you can consider the following: • Add additional disability insurance coverage through your employer’s group plan. You may be able to elect voluntary coverage, such as cost of living benefits, at an additional premium.
• Purchase your own policy: You can go to market and find a self-pay disability insurance plan that fits your needs, budget, and long-term goals. It’s important to note that individual policies need to go through the underwriting process – that is, your premium will depend on your health. • Ask about executive disability carve-outs: Some employers participate in group disability insurance programs that have multiple layers of coverage. Executive disability carve-out offers a “guaranteed issue benefit” for high-income earners that might otherwise be capped out of income replacement.
If you are a business owner at a practice, you can also look into a range of disability and income replacement insurance options through companies that specialize in business insurance.
None of us want to think about unexpectedly finding ourselves out of work for an extended period of time, especially during years we know we are supporting our family and earning for our futures. This generally means we don’t think about disability insurance. However, fully understanding how injury or illness would affect a physician’s income (and livelihood) in the short- and long-term can help you make better proactive decisions for you and your family.
Disclosure: Domani Wealth, LLC (“Domani”) is an SEC-registered investment adviser with offices in South Central Pennsylvania. Domani and its representatives may only transact business in states where they are appropriately notice-filed and registered, respectively, or exempt from such requirements. For information pertaining to the registration status of Domani, please contact the SEC or the state securities regulators for those states in which Domani maintains a notice-filing.
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