Posts Tagged ‘Insurance’

Disability Insurance Myths and Facts

January 14th, 2023

When people think of insurance, they think of life insurance, or auto insurance, or homeowners insurance. Rarely do they think about disability insurance (DI), yet this is a vital part of a person’s insurance portfolio. The odds of a person experiencing an extended disability due to illness or injury during their working life is remarkably high: about 25% of the population will suffer a disability that will put their income at risk. Yet, when people are told about disability insurance, they see it as an expense rather than a way to mitigate their risk of losing their income. So let’s take a look at some of the myths surrounding disability insurance that relegate this very important insurance to the bottom of their priority list of risk mitigation.

About 33% of employees do have some disability insurance through their employer. For those fortunate 33%, the first myth is believing this is all the DI coverage they need; however, that is often not the case. Many group DI policies are very restrictive and only pay if a person cannot work at all in any occupation. That means, for example, if a surgeon develops debilitating arthritis in her hands and can no longer perform surgery, but can still work at another occupation, say teaching, then the group policy will not pay a benefit to her. Further, if the employer is paying the premium for the policy with pre-tax dollars, any benefits paid become taxable income. Given that DI policies only pay between 60% and 66% of their gross salary, taxing this benefit can drop the net proceeds by over a third. Both of these issues make group DI policies a less than ideal alternative to individual DI policies. And the remaining 67% of uncovered employees have no income replacement in the event they cannot work due to illness or injury.

The second myth is the idea that dying prematurely is more likely than becoming disabled and losing income during one’s working years. In fact, the risk of serious disability due to injury or illness is surprisingly high. In fact, that the risk of a serious disability that puts somebody out of work from the age of 20 through retirement at age 67 is about 25%. And according to a report by Unum Insurance, 60% of their disability claims are for women! Compare this to the risk of dying prematurely: approximately 17% for males between the ages of 25 and 64 and about 11% for females in the same age bracket.

The next myth confuses workman’s compensation insurance with disability insurance. These are completely different products: the former is designed to provide wage replacement and medical benefits resulting from an injury or illness that is directly caused by activities in the course of employment. DI provides wage replacement, typically up to 66% of income for any injury or illness that precludes a person from working for an extended period. Fewer than 5% of disability claims are directly work related and are covered by workman’s compensation; 90% of disability claims are the result of illnesses that are not connected to employment, and therefore are not eligible for workman’s compensation. The point here is that you’re chance of suffering a non-work related disability that puts you out of work for an extended period is at least 18 to 19 times greater than suffering a work-related injury or illness. Therefore, workman’s comprehensive insurance is not a substitute for disability insurance.

The last myth I want to discuss is the myth of being too young to buy disability insurance. It turns out that over 40% of disability people under the age of 50 make claims, and people under 40 make almost 14% of claims. Further, just like life insurance, the younger you are when you buy disability insurance the less expensive the premium, and the more likely you will be underwritten. In other words, as you get older, there is a good chance that an insurer will not underwrite a policy due to pre-existing conditions, or rate a policy, adding to the premiums, which will already be more expensive because of age.

Now keep in mind that insurers are very conservative when writing disability insurance. That means that different occupations are rated differently and will have different premiums to account for risk; some occupations cannot be underwritten at all, especially those that have a high risk of on-the-job injury and/or illness. Often, people in high-risk occupations have to get disability insurance through specialty carriers that have experience underwriting and pricing policies for these individuals.

Another important point is that a person must have an income to get a disability policy. That income can come from salary or self-employment income (which has to be documented). People without an income or a steady income cannot purchase a DI policy, since the amount of coverage is directly tied to steady, current income. This can be problematic in situations where a spouse provides support for a self-employed breadwinner by doing activities such as marketing, administrative support, or bookkeeping, but is not compensated. Because there is no separate compensation, this supporting spouse cannot get a DI policy. In the event the non-working spouse cannot provide these essential services due to a disability, the primary breadwinner will need to hire or contract with a person to provide this support. That means higher expenses for the primary breadwinner. In order to mitigate some of the financial risk, it may be worthwhile to put the supporting spouse on the payroll at a market salary or wage so a policy can be considered for underwriting.

There are numerous other considerations besides what I’ve discussed in this article. These issues include elimination periods, partial disability vs. total disability, various riders, Own Occupation policies, and balancing coverage and premiums with the rest of an insurance portfolio. That requires an agent or financial advisor experienced in disability insurance products. The point of this article was simply to dispel some myths pertaining to disability insurance, and to motivate people to consider these policies as a part of an overall insurance portfolio.

As a licensed life, disability and health insurance agent, I can help you evaluate your needs for disability insurance. I will be happy to sit down with you for a no-cost consultation to see if I can help mitigate your risk in the event you are disabled and cannot no

Three Must-Ask Questions For Medical Resident Physicians Purchasing Disability Insurance

November 14th, 2022

Purchasing disability insurance during medical residency is a smart idea for young physicians. Obtaining coverage during training allows one to benefit from better health, lower premiums and less financial documentation. Most of the top insurance carriers providing high quality coverage for physicians today have special limit programs that allow residents and fellows to obtain disability insurance based on their level of training rather than their current income. This is advantageous for young physicians but only if the planning is done properly.

As a medical resident or fellow, you are likely to be in practice for over 30+ years, and likely will also maintain your disability income coverage that long as well. It is therefore critical to be certain that the policy you purchase provides high quality income protection. Below are three questions that young physicians should ask before purchasing a Disability insurance policy.

1. Can the provisions or price of my disability insurance policy change in the future?
The response to this question can be answered by reviewing the renewability provision of a disability insurance policy. As a young physician, it is best to obtain a policy who’s provisions and pricing cannot be changed in the future. In order to achieve this goal, medical residents must obtain a disability insurance policy that is non-cancellable and guaranteed renewable. This will guarantee that the insurance carrier, from which the policy is purchased, cannot cancel the policy, increase the premiums or change the provisions so long as the premiums are paid on time.

2. How is total disability defined in my policy
The definition of total disability is one of the most important provisions for young physicians to review when purchasing disability insurance. This is the provision that dictates the circumstances in which an insurance carrier will consider a person as totally disabled at the time of claim. In today’s market, there are two primary versions of this provision that young physicians should focus on.

Often referred to as modified own-occupation, this definition considers a person totally disabled if solely due to injury or illness, he/she is unable to perform the material duties of his/her occupation and must not be gainfully employed.

The second and more reputable definition, known as true own-occupation, considers a person totally disabled if solely due to injury or illness, he/she is unable to perform the material duties of his/her occupation, even if he/she is employed in a different occupation.

As noted, the true own-occupation definition of total disability does not forbid a person from being gainfully employed in a different occupation, while on claim. For a highly educated and skilled professional, like a physician, this can be a critical provision.

In reviewing this provision, young physicians should be sure to also inquire as to the period for which this definition is applicable. Few insurance carriers will offer a true own-occupation definition of total disability with medical specialty language for the full benefit period. For medical residents and young physicians, it is advisable to obtain only a policy that will provide this definition for the full benefit period.

3. Does this policy include the necessary riders for my circumstances and future?
There are many optional policy riders that can be included in one’s disability insurance contract. Policy riders are enhancements that aid in protecting against some additional level of risk associated with experiencing a long-term disability. Young physicians that consider purchasing coverage during medical residency should be aware of three specific riders to include in their policy.

Residual disability benefits: This policy rider provides a benefit for partial disability, where an injury or illness directly causes a 15-20% or greater loss of income. This could be the result of working less hours, being unable to complete all occupational duties or simply the inability to work as efficiently throughout the day. Since an overwhelming number of long-term disability claims are the result of an illness and most illnesses do not appear and disappear overnight, it is likely that a disability claim will either start or end with a partial disability, hence making it a fairly important rider.

With respect to the nature of medical professions, it is imperative to be assured that the residual disability rider also include recovery benefits for the full benefit period. Recovery benefits are payable, following a period of total disability, when an insured returns to work full-time and still incurs a 15-20% or greater loss of income. Such may be the case for a physician or dentist in private practice, whose income is reduced significantly resulting from the loss in patient base throughout a period of total disability.

Future Increase Option: This rider provides medical residents with the option to increase their monthly benefit in the future, as their income increases. The true benefit of this rider is that no medical underwriting is required in order to exercise an increase option. At the time of increase, a person is simply required to provide financial documentation showing the increase in income that warrants a benefit increase, but not medical information. Being that an attending physician’s income is considerably greater than a that of a resident physician, exercising an increase is typically justifiable within the first few years as an attending.

Cost of Living Adjustment: This rider is intended to hedge the risk of inflation that one may incur during a long-term period of total disability. For every year that a person remains on disability claim, the policy benefit amount will be increased by a defined or variable interest rate at each policy anniversary. For a young physician whose career may extend 30+ years, the risk of inflation can be of great magnitude in a long-term disability claim, and is therefore wise to include in a policy. Benefit increases are handled very differently amongst the various insurance carriers offering disability insurance and should therefore be reviewed carefully with an experienced advisor.

Similar to the care and attention a medical student contributes to his/her studies and a resident physician contributes to his/her training, young physicians should apply a high level of care and attention to protecting their highly trained skill level and future earnings with a quality disability insurance policy. You can review more detailed information by visiting the Young Physicians Buyer’s Guide excl