Few
of us think of the fact that we may be disabled. Unfortunately,
chances aren't as slim as you may think. If you are age 35, your
chance of becoming disabled for three months or more over the next 30
years, as a result of contracting cancer, suffering a stroke, or being
hit by a car, is three times greater than your chance of dying.
Think of it this way: a disability policy is the way to insure what is
likely your largest asset - your earnings power!Disability
insurance replaces your earnings when you are partially or totally
disabled from an accident or a sickness.
How to
Determine the Amount of Coverage
Generally
speaking, you should have enough disability coverage to replace at least 60% of
your gross income while a long illness or injury prevents you from working.
In fact that is usually the most coverage that insurers will sell you. If
they provide much more coverage, they assume that you will have little incentive
to return to work. See
our income ratio guide.
How Policies are
Offered
Disability
insurance can be purchased on either an individual or group basis. Group
insurance is usually provided by your employer or purchased individually from an
association. Although initially lower in cost, group policies have several
limitations. They can be canceled (by the association, the insurance
company or by your employer to save cost), rates increase as you get older,
benefits are taxed as ordinary income which means you will receive quite a bit
less than what you may think you will get and premiums are subject to
adjustments based on the claims experience of the group. Finally,
group and association policies often contain restrictive language which is not
usually found in individual policies and they contain less-generous contract
provisions.
Limitations
of Association Insurance
If
you are thinking of applying for association coverage, you should be aware of
its limitations.
1.
The policy can be cancelled by either the insurance company or by the
association.
2.
Rates increase as you get older (step or graded rate).
3.
The plan is subject to rate increases for the entire group.
4.
It provides limited or no coverage for partial/residual disability claims.
5.
It contains restrictive definition of your "own occupation"
6.
It is subject to benefit decreases at older ages.
7.
The plan offers limited options to protect future insurability.
8.
It may provide a limited benefit maximum.
9.
Important coverage may not be provided. (cost of living, waiver of premium,
group disability replacement, etc.
10.
As a member of the association, you receive a "certificate of
insurance". You do not receive a policy.
11.
You need to remain in your original profession and maintain membership in the
association. Coverage is not portable like individual coverage.
Renewability
There
are three options: 1) a non-cancelable and guaranteed renewable policy, 2) a
guaranteed renewable policy, and 3) a conditionally renewable policy.
1)
The non-cancelable contract, especially if price is not an issue, is by far
the best of the three. That's because it locks in your rates and benefits. The
insurance company can't make changes unless you request them.
2)
A guaranteed renewable policy is less desirable. After you invest in a policy,
your insurer doesn't have the right to drop you but they reserve the right
to raise prices for specific reasons.
3)
Finally,
avoid conditionally renewable policies. An insurer can put any condition on them
or raise rates at any time.
Look
for a broad definition of "total disability."
This
section of your policy is the most important part of a disability
contract. This section defines the terms for when and how the insurance
pays. Many definitions are embedded within a policy and should be examined
carefully. One definition that is especially important is the definition
of "Total Disability" This wording is very crucial and directly
impacts the contract's quality. Insurer's
offer several different definitions of total disability: The
following disability definitions are from most liberal to least liberal.
Own
Occupation Medical, Dental, Law Specialty Definition
This
is the best definition available in the marketplace today. It pays
even if the insured is working in another occupation. It is
especially important for the medical, dental, or law professional. Specialty
definition limits your occupation to your board certified medical, dental
specialty or specialty of Law. So if you are unable to do the substantial and material
duties of your medical, dental, or law specialty you are considered
totally disabled regardless of your ability to work in another occupation
or specialty of medicine, dentistry or law.
Own
Occupation/Not Gainfully Employed Elsewhere
Without
specialty definition, your occupation is that of a Medical Doctor, Dentist
or Attorney. This definition of total disability changes slightly
with possibly profound differences during claim, if you are unable
to do the substantial and material duties of your occupation (medical
doctor, dentist or law) you are then considered disabled regardless of the
ability to work in another occupation. Specialty definition of an
insurer's intent to recognize and protect your medical, dental, or law
specialty must come from an authorized officer of the insurer.
Own
Occupation for a period of time, thereafter unable to work in and
not working elsewhere. Modified Own Occupation.
This
is a split definition of true own-occupation for a period of time, such as five
years, for example. The definition then changes to "unable" to
work and not working elsewhere because of education, training, and experience,
and prior economic status in some instances. "Not working elsewhere give
the claimant a chance while "unable to work elsewhere" gives the
carrier more control.
Loss
of Income
This
definition does not recognized you as a Medical Doctor, board certified
medical specialty, dentistry or law. This policy will pay if you
suffer a loss of earned income and will stop paying benefits when your
earned income returns to 80% of your pre-disability monthly
earnings. All sources of earned income are used to determine your
loss of income.
How Disability
Policies Are Priced
The cost of
your coverage is influenced by 1) Type of contract, 2) your age, 3) your gender,
4) the amount of
your monthly benefit, 5) how long you must wait before benefits begin, 6) how
long you want your benefits to be paid, 7) any riders you want to include in
your policy, 8) your medical history, 9) and occupation. The younger you are
when you purchase your policy, the lower the cost of insurance. Therefore,
consider purchasing your policy as early in your career as possible to lock in
lower premium rates.
Purchasing
a high-quality disability insurance policy is an important decision.
Unfortunately, due to adverse claims experience, the individual disability
insurance marketplace has become even more complicated, especially for health
care professionals. Policies vary greatly in terms of the definition of disability
made available, the contract provisions offered and the premiums charged. For this reason, it is important to
discuss your needs with an insurance professional who understands the subject
and who represents more than one insurance company. Since Medical
Management has been advising health care professionals for over 40
years that we would like to think
that we fit this description. If you would like to discuss your needs,
call (800) 501-8078 and ask to speak to one of our representatives or E-Mail us
at kaplanmanagement.net
For Physician's
and Dentists in Training
Protect Your
Future Income Now
Training for
a career in medicine or dentistry takes a big commitment. Long hours,
personal sacrifices and right now planning for your financial future may
seem overwhelming. If you are just starting its not to early to
start thinking about protecting your future income. In fact, there
is no a better time for you to purchase a disability policy then
now. Since disability policies are based on your situation at the
time of your application, you have the opportunity to put yourself in
the best position and lock in a policy based on your current age, health
and you obtain many other benefits. The insurance companies
understand that you are on a limited budget so they have allowed us to
write a minimum of $ 1,000 per month and to include an Future Purchase
Option of $ 5,000. This enables you to lock in at least $ 6,000 of
future earnings. This will also protect you
if you have a change in your health in the future.
