Disability Insurance
Do You Have Enough Coverage

Insurance experts don't agree on much, but they do agree on this: You face a much higher probability of being disabled than of dying during your working years.

But a typical individual disability policy covers just 60 percent of net income and caps monthly benefits. For physicians in certain surgical specialties, even $10,000 a month doesn't come close to replacing 60 percent of their net income. Add in the demands of a growing family or practice, and many physicians find they simply need more coverage.

The Challenge of Adding Coverage

In the wake of a massive financial shake-up of the disability insurance industry a few years ago, good disability coverage is getting more expensive, more restrictive and harder to find. Fortunately, there are strategies for increasing and/or supplementing your disability coverage.

Investigate a high-limit policy. A few insurance companies have developed high-limit policies designed to bridge the gap with up to $15,000 extra a month in disability benefits. High-limit policies generally only pay benefits for a maximum of five years. While high-limit supplemental coverage is offered in most states, it doesn't come cheap. And it must be renewed every three or five years, typically at rising premium rates. This insurance isn't meant to replace a primary disability policy - only to provide temporary financial security until you can sort through your options.

Consider critical-illness insurance. This is an excellent option for high earners and physicians who live in states where insurers are capping monthly disability benefits (such as California and Florida). Benefits are triggered strictly by the diagnosis of a covered condition, such as cancer, heart attack, renal failure or stroke. You can collect even if you eventually return to work. Unlike disability benefits, which are distributed monthly, proceeds from a critical-illness policy are paid in a lump sum.

Protect your retirement contributions. A second type of supplemental disability coverage, called "retirement- contribution protection insurance," allows you to continue adding to your retirement savings if you become totally disabled. There are options that pay benefits directly to a trust and allow you to direct the money into a wide range of investments, including annuities, stocks and mutual funds.

Look at coverage on the practice side. There are a variety of business policies that could dovetail nicely with your primary disability coverage. This makes perfect sense when you consider that your practice is the engine that ultimately generates your income. "Business protection" or "overhead expense" insurance can be used to pay ongoing expenses, like rent and salaries, if you can't work. Likewise, a "reducing term disability income" policy can provide coverage for business loan payments while you are disabled.

Look to life insurance. It's also possible to tack disability coverage onto your life insurance, with a "waiver of premium" option. This benefit, which kicks in about six months after you purchase the life coverage, will pay your premiums for the duration of the policy if you can no longer work.

The benefits are particularly robust in the case of a whole life policy, for example. Here, the insurer would continue paying premiums and the policy's cash value would continue to build tax-deferred. With proper planning, the policyholder could then borrow against the cash value tax-free. Note that a waiver-of-premium option is also available with term life insurance. Upon disability, the policy will convert to whole life or universal life coverage.

The Comfort of Solid Protection

If you choose your options wisely, you'll have the comfort of knowing that even if an illness or injury forces you to stop practicing, you'll still have a source of income to provide for family and loved ones.

Our experienced professionals can help you "run the numbers" to determine if you have sufficient coverage. Please contact our office for assistance.

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