The Doctor’s Life Podcast Episode 037- Do You Need Disability Insurance?
So do you need disability insurance? As many doctors move from in-training to practicing right now, there is a (very!) significant jump in salary. You’ve heard all about disability insurance. You’ve probably wondered ‘Do you need disability insurance?’.
Dave Swan is back on The Doctor’s Life Podcast to tell you what you need to know about disability insurance and if you may need it. All episodes of The Doctor’s Life Podcast are available here, iTunes, Android, and on SoundCloud. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast.
I’ve been in the financial services industry for a little over 10 years working with clients helping them be successful now as well as plan for their future. Over this time, I’ve made a few observations. One common observation is that while we each have our own unique and personal goals and things that are important to us, generally speaking, we all tend to want the same things. Whether it’s the desire to pay off debt so that you have more money to put towards your actual goals, or wanting to be able to travel regularly, we all want to be able to afford things that will allow us to create memories and have meaningful experiences with family and friends. Whatever’s included in this list for you, usually all of these things, in some form or fashion, take money to accomplish.
We give presentations across the country to doctors in training and physicians in practice with the intention of educating physicians in areas that you really don’t get much time to focus on. Most of the time, at the end of our presentations, the questions range from student loan repayment options, ways to reduce taxes, job search, and questions about investing. Accomplishing these things of course are all predicated on the assumption that you will continue earning an income to fund these things.
As a physician, your biggest financial asset, the most important thing you have as far as a financial resource goes, is your earnings potential. Another way to put this is that the basis for all you want to accomplish, any goal you have now or in the future, almost always assumes you have income. You’ve spent countless hours crafting your career and preparing to transition into practice. What if, your income stopped, or was reduced due to illness or injury? How would you handle that?
A study done a few years ago revealed that nearly 1 in 5 people in the United States are living with a disability. Now, this sampling includes individuals from all age groups but that number is still staggering. Even more surprising is that just over one in four 20 year-olds today will become disabled before they retire. Even though you may be a few years past 20, you’re still included in that number, you’re chances for missing a paycheck or many paychecks due to illness or injury are higher than most think. For example, if you’re 35 years old, there’s a 50% chance of becoming disabled for 3 months or longer before you retire. That number is only reduced to a 33% chance if you’re 50.
You’re able to protect yourself and all your hard work by taking a relatively easy step, you simply transfer the risk of the possibility of losing your ability to earn income to an insurance company through purchasing disability insurance. Your employer may offer group disability insurance but there are many deficiencies in group disability insurance that you should be aware of. Most of the time, the group disability coverage doesn’t really protect you because it doesn’t allow you to work in any occupation. The most important feature regarding disability insurance for physicians is having what’s called true-own occupation disability insurance. This protects you in the event you’re not able to do the material and substantial duties of your own occupation, even though you may be able to work in another area of medicine or a different career all together. In this case, if you’re not able to do the material and substantial duties of your primary occupation, you’ll continue to receive a paycheck from the insurance company even if you’re earning an income from working in another specialty or occupation.
The second most important feature to have is what’s called Residual Disability coverage. This feature provides protection in the event you become partially disabled but are still able to work in your primary specialty. This feature eliminates the all or nothing assumption regarding disability insurance by providing a partial benefit to you in the event you have a 15 or 20% reduction of income due to illness or injury and you’re under the care of a physician.
Another thing to be aware of is how your benefit or paycheck from the insurance company is taxed. If your employer pays for the disability insurance, which is usually the case, any benefit you receive is 100% taxable as ordinary income. This means that if you have a $10,000/mo. benefit, after you pay taxes on that $10,000/mo. you may only actually be getting a benefit worth $6,500/mo. For this reason and many others, individual disability insurance policies are usually the way to go when it comes to getting the coverage you need. Benefits received from an Individual Disability insurance policy are received to you tax-free. This provides dollar for dollar protection on any coverage you have through an individual policy.
Protecting your lifetime earnings potential is among the top of the financial essentials when it comes to overall financial planning. I’ve highlighted a few of the things you need to be aware of regarding disability insurance for physicians and needless to say, there are many more. If you have any questions or would like to go over the other things to know, simply visit our website to connect with us and we look forward to helping you simplify your life.