Resident & Fellow Transition Series – Week 1
In this video, Brad, our very own resident specialist, speaks about the different levels of disability insurance that are important for physicians finishing their residency and fellowship. Brad also discusses why you should look into supplementing your employer level disability insurance with an own-occupation policy.
Another hot topic for physicians is disability insurance – which is pretty important! It’s not only about protecting your future income and prime earning years, but also the investment you made into your highly specialized skills. At it’s most simplified – there are three tiers of disability insurance coverage – moving from least comprehensive to most comprehensive coverage.
Tier 3: Group Coverage is at the bottom. This is the insurance you likely have in residency and most institutions and group practices provide this level of coverage for their doctors. It’s basic disability and typically insufficient to maintain your standard of living as practicing physicians. These policies include 60% income coverage up to either 5k or 10k per month of benefit. This is a taxable benefit. Another downside – these policies do not pay benefits if you begin earning an income any place else after two years of disability.
Example: You have a policy with a $10,000/month benefit and make $100,000 a year. If you become disabled, this type of policy would cover 60% of your monthly income (up to that 10k). So you’d receive $6,000/month that would be taxed as income. For this example’s sake – after taxes, you could end up taking home only about $40,000/annually from this policy as your replacement income benefit.
Tier 2: Only one company still does these style policies. This type of policy pays a set amount of benefit per month, tax-free. If you begin making an income someplace else after two years of disability, this policy will only pay the difference between your earned income and your monthly disability benefit.
Example: You’re a disabled physician and begin working for a bookstore after two years of collecting benefits. You make $20,000 a year at the bookstore. If your benefit pays $60,000 annually before the job, it will only pay the difference of $40,000 in benefit after you begin earning income.
Tier 1: This is the best level of coverage – “own-occupation” disability and the style of policy we recommend for all physicians, and especially those practicing highly-specialized medicine. There are only 5 companies that offer this individual coverage. This type of policy pays if “you are not able to perform the material and substantial duties of your occupation.” That means this policy will pay benefits (even if you begin working a different profession), if you can no longer perform the skills necessary for your “own-occupation”
Example: Let’s say you’re a urologist who gets in a car accident that causes decreased dexterity in your dominant hand. Functionally, you’re capable and don’t suffer any significant changes in your quality of life, but you can no longer perform the highly sensitive and intricate surgeries you used to. You begin teaching urology residents instead. You’d still earn the income from teaching, as well as your full disability benefit per month.
There are many additional things to consider when you’re evaluating your options. For example, if you have an individual policy before you enter into a new position that offers a group policy, you can typically layer the coverage for a greater benefit in the event you become disabled. But that’s not always the case, and how contracts “work” together often has a critical effect on if/how benefits are paid out. If you’re not sure what options are best for your situation, seek guidance from an experienced risk advisor, or give us a call. We’re happy to help answer questions.
The information provided in this material is for general information only and are not intended to provide specific advice or recommendations for any individual
