Know the Urgency of Disability Insurance

Physician's Money Digest, June 2006, Volume 13, Issue 6

New

York Times

According to the , approximately30% of all peopleaged 35 to 65 years willsuffer a temporary disabilityfor at least 90 days, and aboutone of seven can expect to become disabledfor 5 years or more. Subsequently,the average duration of recoveryfrom a disability for a person aged 40 to54 years is greater than 4 years.

With these statistics in mind, theodds of becoming temporarily disabledfor a significant amount of time arealmost one in three for a physician inthe prime of their earning years. If aphysician suffered a disability for evenjust 2 years, they would be at risk tolose their practice; if they worked in agroup practice, the group would probablybe forced to replace them.

All or Nothing?

Physicians, therefore, must face thequestion, "If I were disabled for 1, 2,or even 5 years, what would happen?" The first step to answering this difficultquestion is to acknowledge that theevent of disability can occur under oneof the following scenarios:

  • You are disabled and cannotwork at all.

For most physicians, the second scenariois most likely and could potentiallyproduce a sticky situation withregard to receiving benefits from a disabilitypolicy. The reason for this is thatmost people view disability from an"all or nothing" standpoint. But whatif Dr. Smith injured his leg and upon hisreturn to work (while he was stillrecovering) he found that his normalcaseload of 10 patients a day needed tobe reduced to 5 patients a day becausehe had difficulty standing for long periodsof time? Dr. Smith would still beworking in his regular professiondespite his disability, but his incomewould decrease to just covering overheadwithout gaining any profit.

During this recovery period, a qualitydisability policy would provide forresidual benefits. These benefits makeup for any loss of income if you are stillable to work as a physician, but yourdisability prevents you from executingall of your normal responsibilities.This feature is typically an optionalbenefit rider that you can—and mostdefinitely should—add to your policy.

Residual benefits will be offered byquality policies. If you are recovering,it is understood that it will take a whileto get back, both physically and economically,to where you were beforethe disability occurred. Quality disabilitypolicies consider income to youonly after your business overheadexpenses are paid.

Simply stated, physicians typicallyrun a 50% ratio of business expensesto income. Thus, a disabled physicianwho only earns enough to coverexpenses will have a 100% loss ofincome and will be paid 100% of theirdisability benefits.

So, although you are trying to recover,you may find recovery a processthat takes quite a while. Residual benefitswill also typically provide a minimumbenefit for the first 6 months of50% (or the actual loss, whichever isgreater), which also helps and allowsfor your recovery. Granted, you mightrecover immediately, but your practicewill not. Like you, it needs time torecover economically.

An Important Clause

A clause that is provided in mostquality disability policies that morephysicians should be aware of is presumptivedisability, or a "specific loss." Typical policy language includes: "If yousuffer a loss [some carriers require thatthese losses be irrevocable, some do not]of sight, speech, hearing, one arm, oneleg, both arms, or both legs, the benefitswill be paid from the first day of suchloss and continue for the full benefitperiod [even for life in some contracts]."

The twist here is that typically themedical care requirement normallyneeded to qualify for benefits is waivedas well. Also, benefits will be paid regardlessof your ability to work inyour regular occupation. To go onestep further, regardless of your incomeor ability to work, total benefits areautomatically paid.

The latest addition to this concept isthe catastrophic benefit rider. Thisrider will pay additional monthly benefitsfor stated covered losses withinthe policy, in addition to your normalmonthly benefits. These benefits canbe as high as $8000 per month. Somecarriers add conditions with stipulationsconcerning Alzheimer's disease,dementia, etc. Where presumptive andspecific loss are normally included in aquality disability policy, catastrophicdisability is usually added on as a riderwith an additional cost.

The purpose of disability insuranceis to protect your most valuable assets:your ability to earn income. There is anurgency to this message and it shouldbe taken seriously. It is simply a matterof economics and good planning.Nobody ever said you had to be permanentlydisabled, nor do you have tobe unable to perform your regularoccupation, to benefit.

Typically, the combined total of allyou will pay the insurance company inpremiums to age 65, will usually be lessthan you would receive in benefits for adisability that lasted 1 year. That doesnot even take into account residual benefits,presumptive benefits, or the possibilityof becoming totally disabled.

Ron Cohen has specialized in disability insurance

for physicians since 1969. He has

authored many articles on this topic, served

as a guest speaker for insurance companies

and professional organizations, and consulted

with many companies in the design of their disability

products for physicians. Mr. Cohen welcomes questions

and comments at ron@roncohenrhu.com. For more information,

visit www.roncohenrhu.com.