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Disability Insurance: What every physician should know

Would you ever consider scrimping on your malpractice insurance -

buying a cheaper policy to save money or one-size-fits-all coverage to

save time? Probably not, because most physicians know that a solid

malpractice policy is a vital part of practicing medicine today.

Without it, you could be ruined, so the time and money spent on

getting the best possible coverage is a good investment in your own

economic safety.

But did you know the same is true for disability insurance? It may not

be safe, for instance, to rely solely on a group policy your practice

may have purchased. While group DI is often relatively inexpensive and

easy to administer, it can also fall short just when you need it most

- leaving you in for some unpleasant surprises when it’s too late to

correct the situation.

Disability may be far more common than you imagine. Even if you’re

young and careful, it could happen to you - through an accident, an

injury or a lengthy illness. And in fact it does happen, probably much

more often than you might think.

According to a recent study, although most people believe they have

only a 16% chance of becoming disabled during their working years, the

reality is that:

_ If you’re under age 35, chances are one in three that you will be

disabled for at least six months during the course of your career.

_ Men have a 43% chance of becoming seriously disabled during their

working years. Women have a 54% chance.

_ At age 42, it is four times more likely that you will become

seriously disabled than that you will die during your working years.

Learning to Speak the Lingo

The right disability income policy can help you keep your household

going, even if you suffer a long-term disability. But before you go

shopping for a policy, you need to know what features to look for -

and the language the insurance industry uses to describe them. The

following terms are part of the language describing high-quality

policies and are what you should look for to get coverage you can

count on.

_ Non-cancellable: To avoid the possibility of losing your coverage

just when you need it most, choose a policy that’s non-cancellable and

guaranteed renewable to age 65, with premiums also guaranteed until

age 65. With group or association group coverage, you run the risk of

being dropped and left unprotected at a time when, due to your age or

a change in your health, it would be very difficult to qualify for

coverage from another provider.

_ Conditionally renewable for life: Although premiums may increase

after age 65, your policy should be guaranteed renewable for life as

long as you are at work full time.

_ “Own-occupation”: Own-occupation coverage defines “totally disabled”

- and therefore eligible for benefits - as being unable to perform the

material and substantial duties of your own occupation even if you are

working in a different occupation. As a highly skilled professional

who has invested much in education and training, you want to make sure

you have genuine own-occupation coverage so that, even if you can

teach, for example, in your field, you are still eligible for benefits

if you cannot practice in your medical specialty. Group coverage is

rarely true own-occupation coverage.

_ Residual Disability coverage: Through a rider, a good individual DI

plan can provide you with protection against the income loss you may

suffer as a result of partial (residual) disability, even if you have

never suffered a period of total disability. This kind of residual

coverage is not available with many group plans.

_ A choice of “Riders”: Riders offer optional additional coverage such

as annual future increase options, automatic increase and cost of

living adjustments, or “COLA.”

Protecting Your Practice

As a physician, you must also protect the source of your income: the

practice you’ve worked so hard to establish and grow. Special

policies, available from the same DI providers who offer individual

coverage, offer your practice protection while you recover from a

disability.

To help meet the expenses of running the office while you are

disabled, consider a separate type of disability coverage known as

overhead expense, or OE. Benefits reimburse your practice for expenses

such as office rent, electricity, heat, telephone and utilities, as

well as interest on business debts and lease payments on furniture and

equipment.

Overhead expense insurance specifically designed for professionals

pays some additional costs not included in regular business overhead

expense policies, including the salaries of employees except those who

are members of your profession. In a practice, for example, salaries

for the receptionist and nurse would be covered, but not the salary of

your physician partner or employee. However, high-quality professional

overhead policies will cover at least part of the salary of a

professional temporary replacement for you, such as a doctor retained

to fill in during your total disability.

Buy-Out Policy

Physicians who are partners in a group practice may want to consider a

policy known as a Disability Buy-Out, or DBO. In much the same way

that life insurance benefits can be set aside to fund a buy-out by the

remaining partner (or partners) if one partner dies, DBO is designed

to fund the healthy partners’ purchase of the disabled partner’s share

of the business. With the proper agreement in place before a

disability occurs, hard feelings and conflicts of interest can be

avoided.

Furthermore, in combination with the disabled partner’s individual

disability income coverage and OE, a DBO policy can allow the business

to continue to generate an income for the healthy partner while the

disabled partner is supported by the benefits from his or her

individual DI policy. Any continuing share of the business expenses is

reimbursed by the disabled partner’s OE policy until the buyout is

effected.

Take the time to consider upgrading your DI coverage today. Like your

malpractice insurance, it could be vitally important to your economic

well-being in the future. Protect one of your most valuable assets:

your ability to earn an income.

© 2008 Personal Finance Times.