Posted on: May 8, 2017 by Chuck Krugh, CFP
Most of our readers understand the role of disability insurance in a doctor’s or dentists overall financial plan. Most experts would agree that for those in a high-earning profession like medicine, who have already invested substantial financial resources into their education, disability insurance is an essential building block in protecting their financial security and that of their families.
Nearly every physician we speak to recognizes the importance of disability income protection. But fewer understand the importance of structuring a personal disability income insurance policy properly, including the meaning of the various disability insurance riders available.
Here are some of the most important riders to consider when you look at your own personal disability insurance planning:
Residual Disability. This rider guarantees that the insurance company will pay benefits for a partial disability, and also that the insurance carrier will continue to pay partial benefits as you recover from any disability and transition back into the work force. We tend to always recommend purchasing this rider whenever it’s available and the applicant qualifies. It doesn’t add much to the premium, but the partial disability benefit casts a much broader safety net and makes for a much more coherent set of protections against potentially career-ending illnesses and injuries.
Future Purchase Guarantee. We commonly recommend this rider to anyone still in medical school, in residency or fairly early in their careers, when cash available to pay premiums is very tight. Many doctors and dentists who are still quite early in their careers can’t afford to buy enough immediate disability insurance to replace a meaningful percentage of their future salaries, once they have hit their peak earning years. By purchasing this very inexpensive rider, today’s residents, interns and medical students can get a written, contractual guarantee that as their income increases in future years, they will be able to purchase the additional insurance they need.
Without the rider, young doctors are exposed to the risk that an injury or illness will disqualify them from purchasing the disability coverage they need when they reach mid-career and are earning much more. A cancer diagnosis, or a diagnosis of depression, drug dependency, multiple sclerosis, muscular dystrophy, arthritis, or any number of other conditions could render you uninsurable and disqualify you from being able to purchase additional insurance in the future.
But with the guaranteed future purchase option (sometimes called a guaranteed insurability rider), you can still buy the required additional insurance – even if you are already on claim, depending on the specific language in your disability insurance contract.
Call us for more information on how that rider may apply in your specific situation.
Inflation Protection (The Cost of Living Adjustment Rider). Inflation has a devastating affect on the purchasing power of insurance benefits as time goes by. An inflation protection rider effectively indexes your benefit to inflation. This is important because all too many people who become disabled in their 20s and 30s are still disabled 20 or 30 years later. But without inflation protection, your level benefit may have less than half the purchasing power that it did when you first began drawing benefits – much less when you originally bought the policy.
Usually, we recommend this policy for anyone looking at disability insurance in their 20s, 30s or 40s. As you get closer to retirement, however, the inflation protection benefit becomes less valuable and you may be better off simply saving your money, or buying a higher monthly benefit to begin with, if you qualify.
Retirement benefits. Some policies offer a retirement benefit rider that guarantees that in addition to your cash benefits in the event of a disability, you will also receive a contribution to a retirement vehicle from the insurance company. In many cases, the insured is better off taking the money that would normally go to purchasing this rider and using it to buy a higher basic benefit on an own occupation basis. There are some narrow exceptions, though, from an asset protection perspective, depending on the state. If a direct benefit above a certain amount is subject to seizure by creditors, it may make sense to divert some benefits over and above the state exemption amount to a protected retirement account.
Catastrophic Disability. This rider pays a higher benefit in the event you are catastrophically disabled – usually after your disability prevents you from doing 2 or more activities of daily living (ADLs). In many situations, clients may be better off opting for simplicity and buying a higher basic monthly benefit instead with the available premium dollars, rather than the catastrophic disability insurance rider. However, it may make sense if you have already bought as much insurance as your income qualifies you for and you want or need additional protection. A good long-term care insurance policy may provide better protection, overall, as well, for the dollar, depending on the circumstances.
Let us review your plan
Has it been a while since you’ve updated or reviewed your disability insurance coverage, life insurance or long term care protection? Give us a call today and we can go over it with you in a confidential, no-obligation consultation. We can take a look at your current coverage, recommend additional coverage or cancellation/redirection of insurance protection, and possibly find ways to fund retirement savings or improve your overall protection against financial catastrophe.
For more information or a free consultation, call us today at 866-899-7318, or drop us a line via our website, www.doctordisability.com, and we’ll contact you promptly.