The more income you earn, the more income you stand to lose if you become ill, injured, or fully disabled and can no longer perform the duties of your job.
And that’s why disability insurance exists.
While some individuals can live on SSDI benefits provided through Social Security Administration, high income earners, such as physicians, cannot. High income earners need to purchase their own individual disability insurance policy to safeguard their earnings and continue to collect a “paycheck” when a medical condition makes working an impossibility.
If you haven’t already protected your future unearned income with an insurance policy, you need to do it now.
Here are our top tips on how to choose the right disability insurance plan for your needs.
Know the Difference Between Group and Individual Policies
If your employer is generous enough to offer disability insurance as part of your benefits package you might think you’re all set.
Policies offered by your employer are group policies. They are not customizable, so you have no control or option to structure the policy terms and benefits. Plus, in most cases, when you leave the employer, you can’t take it with you.
Even if your employer does offer a group disability policy, you’ll want to purchase an individual policy on your own. Individual policies are fully customizable, which means you can tailor a plan that perfectly suits your individual needs.
Physicians and other high income earners must protect themselves with a customizable, individual, long-term disability policy. Anything short of that will not offer the income protection you need.
Decide How Much Coverage You Need
Most insurance companies offer coverage up to 60% of your current salary. If you’re the only income earner in your household, you’ll want to opt for the highest coverage amount possible. If you have a spouse that works and can maintain your lifestyle without your income, you may want to opt for a bit less coverage to save on monthly premiums.
Pay Attention to the Definition of Disability
Every policy has a definition of disability, which is the standard that you must meet to be eligible to collect benefits.
The “any-occupation” definition is the most common definition that all insurance companies offer, but in order to collect benefits you must have an illness or injury that makes it impossible for you to work in ANY job at all. This requires that you have a serious, significant diagnosis.
It’s far easier to collect benefits from a policy with the “own occupation” definition. Under this definition you can collect income replacement benefits if your illness or injury prevents you from doing your current job.
When shopping for disability insurance, narrow your focus to the five insurance companies that offer the own-occupation definition:
- The Standard
- Mass Mutual
Learn more about disability insurance for physicians and why the own-occupation definition is so important.
Determine the Benefit Period and Waiting Period You Need
The benefit period is the time in which you can collect benefits. With a long-term disability policy this can be two, five, ten, or twenty years, or all the way up until you reach the age of retirement.
The waiting period, also called the elimination period, is the time frame between the date of your injury or diagnosis and the date that you can start collecting benefits. This ranges from as little as 30 days to as many as 720 days.
Both periods affect your premium rates. The longer the benefit period, the more you’ll pay. The shorter the waiting period, the more you’ll pay. Weigh your options carefully to find the balance that’s right for you.
Know Which Riders Offer the Best Benefits
When purchasing a policy, you’ll have the option to add riders. Each rider you add will increase your monthly premiums, so it’s important to know which ones you need (and which ones you don’t).
The Own-Occupation Definition Rider
Every physician should purchase the own-occupation definition of disability rider. If you’re considering a carrier that doesn’t offer it, you need to look elsewhere.
The Future Purchase Option Rider
One of the other most important riders is the Future Purchase Option. This allows you to increase your coverage amount as your salary increases, and without having to undergo any further medical evaluations.
The COLA Rider
The Cost of Living Adjustment rider is a must-add. With this rider, your benefit amount increases based on inflation. It’s a safeguard against rising inflation rates, and it ensures that the benefit amount you select at the start of the policy increases proportionately with the Consumer Price Index.
Now that you know the key things to look for in a disability insurance policy, there’s one more tip we have to share:
You must comparison shop.
Rates and terms vary from carrier to carrier. When you’re ready to purchase a policy, compare prices and terms to make sure that you’re paying a fair amount for the type of coverage you need.