Be prepared for the transition to a new employer by obtaining private disability insurance before the employer paid plan restricts what you can get.
Many employers have a standard benefits package that includes multiple insurance plans. Physicians who join new employers often don’t realize that the employer paid disability insurance plan can restrict what the doctor can obtain. Privately owned disability insurance plans that have been started before joining a new employer are not reduced by what the employer offers, but signing up for a private plan afterward may significantly reduce or prohibit the doctor’s ability to get a private plan altogether.
The insurance plans offered by employers can provide significant value to the physicians within the organization. In addition to the malpractice insurance, one of the most valuable plans is the health insurance. Health insurance can be very expensive and many employers subsidize most, if not all, of the cost.
The dental and vision insurance plans are a nice benefit too, but the economic value is much less than health insurance.
What about the employer provided life and disability insurance?
It’s important to note that life and disability insurance provided by an employer is not designed to meet a physician’s needs. Employers mainly offer this benefit as a means to provide something to the majority of the staff in the event of a catastrophe, so that the staff or their family is not caught in completely dire straits.
Employment benefits provided by employers add to the cost of their overhead. They are constantly prioritized and evaluated to determine what an employer is willing to spend on various areas. Life and disability insurance are not very high on this priority list. Why?
Employers tend to be more focused on the compensation, retirement and health insurance plans for doctors. When it comes to disability and life insurance, they are more interested in allocating funds toward areas that help the majority of the staff, not primarily the high income minority.
Employers also realize that it is common practice for physicians to obtain their own private plan and therefore see that it is impractical to have more than a basic benefit.
For example, the life insurance offered by an employer may only be one to two times annual income which does not come close to what most physicians need. Neither the life or disability insurance plan are portable and therefore they are only temporary in nature. With so many physicians moving on to work with new employers or groups, having a plan that is portable is essential.
What kinds of disability insurance plans are offered by employers?
#1 We often see that these plans are not portable just like the life insurance. This is a real problem because, unbeknownst to the doctor, getting disability insurance later on down the road is much more expensive and difficult to obtain due to health history.
#2 Employer-sponsored disability insurance is also not going to be a “true own occupation” plan which protects the doctor’s specialty. Some plans say they are own occupation but when you read the fine print (what really matters is the fine print), say they only protect the insured’s occupation so long as they don’t return to work for any employer in any occupation. Benefits being reduced because of working in another occupation is the exact opposite of the true own occupation definition of disability.
Doctors have invested so much time, effort and financial resources into their profession that they should be able to collect full benefits and not be penalized from a disability insurance plan even if they become disabled and later on choose to return to work in a different occupation.
#3 When employers pay the premiums for the disability insurance plan the benefit income is fully taxable at the ordinary income tax rate. This reduces how much the doctor can get which is the exact oppose of what they need while disabled.
#4 In addition to this reduction from taxes, the benefits are also reduced by other income sources such as social security, worker’s compensation or other earned income.
#5 Employer disability insurance plans are also capped at a level that does not keep pace with the doctor’s income level. Once again this is a result of trying to help the majority, not the minority–high income earners.
#6 Another major limitation to an employer’s plan is that it is cancellable and can be take away or changed. The participating doctor does not have any say on what is provided. Doctors are only able to control privately owned plans.
Planning for death and disabilities is very important and should not be taken lightly. It should be based on financial security for not only today but also the future.
The financial instruments used to provide this protection should be designed for doctors and be controlled by the physician.
Having said this, when is the best time to get these plans started?
Before joining a new employer.
This is because private disability insurance obtained before joining a new employer is not reduced by what the employer provides. In contrast, if the private plan begins after starting with a new employer, the benefits are normally limited and in some cases are outright restricted.
Since it is routine practice for doctors to get their own private life and disability insurance, we recommend to get the most comprehensive coverage and the lowest rate possible. There is no reason to overpay when their are multiple options available and market forces can drive the cost down.
In an effort to make the plans more affordable, Physicians Thrive allows doctors to join discount groups that enable them to get lower rates. In some cases, the rates are reduced by almost 50%.
To learn more about how to plan for the transition, contact our office.
Doctors who want to find out more about the special discounts on disability insurance may begin the research process by completing the following form on our physician disability insurance page.