Disability Insurance – Three Common Questions
April 20, 2016 | Marshall Weintraub & Michael Merrill, CFP, CLU, ChFC
Spring is in the air. Along with it comes graduating medical students, interviews and, for cardiologists entering practice, questions on how best to protect their incomes. We would first like to agree with you that disability insurance is not the most exciting area of building your financial plan. With that said, we would like to remind you that properly protecting your income in the event of a long-term disability is one of the most important planning steps you can take. This article addresses three common questions we receive when discussing disability insurance with cardiologists.
Is my employer-provided disability insurance sufficient?
Generally not, as group disability insurance has several downsides that limit its effectiveness. We have found there is often a misunderstanding around disability insurance through your employer's benefits. Many cardiologists learn that group coverage is not as comprehensive as they may have initially believed, with downsides including a partial and taxable benefit (so not all of your income is protected) and a less specific definition of disability than highly-trained cardiologists should have (more on this below). Also keep in mind that most group policies are not portable if you change employers, so when you finish training there is no guarantee your next position will offer the same level of coverage, or any at all.
What is the most important factor when looking into individual disability insurance?
The most important aspect of a disability insurance policy is that it will pay out a claim if you are disabled and cannot perform the duties of your occupation. This is referred to as the "definition of disability" and is the legal contract language within the policy that must be satisfied for you to qualify as being disabled. The ideal definition of disability is known as "true own occupation," which means if you are unable to perform the material and substantial duties of your own occupation, then you are considered disabled. A proper definition of disability will then define your occupation in easy-to-understand language with the insurance carrier often using your current procedural terminology (CPT) billing codes to define your occupational duties. In simple terms if you can no longer perform the duties you were previously doing for wage or profit, then you are disabled and will receive a benefit.
Group disability insurance will normally begin with some variation of own occupation language, but will then usually revert to less favorable wording known as an "any occupation" definition of disability after about two years on average. This differs in terms of how disabled you need to be to continue collecting a benefit. If you are now deemed to be able to perform any gainful occupation you may reasonably be suited to do based on your education, training or experience, then you will no longer be considered disabled and will cease to receive a benefit. We do not recommend cardiologists rely on this wording to protect millions of dollars of future income.
I already have disability insurance. Is there anything I need to do if I am finishing training this spring?
Yes, you will want to coordinate your disability insurance benefit with your attending income to maintain your higher standard of living. Residents and fellows commonly obtain a small policy to protect their income while in training, which includes a rider generally referred to as the future increase option. This provides the option to increase your benefit in the future based purely on financial underwriting and without having to repeat the medical underwriting required to initially secure coverage. If the cost of your primary residence and student loans have risen since graduation, then it may be difficult to meet your higher obligations if your disability insurance benefit has not been adjusted to your new expenses.
If you do not yet have disability insurance, it will be beneficial to begin looking into this soon because several carriers provide substantial discounts for the life of the policy as long as you secure this while in training. When you do, we would encourage you to work with an independent advisor who is not affiliated with an insurance company to minimize any conflict of interest. More detail on this can be found in our December 2015 article regarding fiduciary duty and independent advisors.
This post was authored by Marshall Weintraub and Michael Merrill, CFP, CLU, ChFC.
Marshall Weintraub & Michael Merrill are financial advisors with the independent financial services firm, Finity Group, LLC. To ask them questions or arrange a consultation, email them at Marshall.Weintraub@thefinitygroup.com. Office Address: 4380 SW Macadam Ave, Suite 245, Portland, OR 97239.Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Finity Group, LLC and Cambridge are not affiliated.