Money Minutes for Doctors #15 - Income Protection and Disability Insurance
Major catastrophes in life generally do not telegraph their impending arrival…but there are ways to protect yourself and your family, as well as your income. In this month’s edition of Money Minutes, Katherine Vessenes discusses with us the three major catastrophes that typically present themselves to individuals and families ~ premature death, job loss, and too sick or injured to work ~ and the various ways to protect oneself following those events.
About Ms. Vessenes:
Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.
Quick Summary:
Three major catastrophes (1) premature death – mitigated w life insurance (2) job loss – protected by physician shortage (3) too sick or injured to work – mitigated by disability insurance
Best to purchase disability insurance while you are young and healthy.
If possible try to purchase within physician group as often way to get best rates.
Level premium and level death benefit is preferred
Variable companies offer different quality of coverage – price is not the only decision point!
Level of Income protection policies:
Only pay claim if too sick to do any work at all. Really does not apply to physicians
Own Occupation (vast majority) – applies or so long as you are not earning income or earning benefits elsewhere. Some polices deduct additional income that you get from outside sources from your benefit but most will deny coverage. For example too sick or injured to be a neurologist but if you do any teaching or lecturing would void the policy. If had multiple employment sources at the time of injury, application of policy would depend on what your primary income source was at the time of the disability.
Double dip own occupation (considered the gold standard) – if too sick to work in your own occupation but can function in other capacities can get full disability benefit but then allowed to keep income for alternate employment
** polices should be reviewed w some frequency to make sure information is up to date
FYI - As long as paying the premiums on the policy the insurance company cannot cancel policy and can’t raise the rates, but be sure to read the fine print.
Tax implications of receiving a disability benefit – (1) if employer is paying the premium then the benefit is fully taxable as income (2) if you pay for the benefit then the benefit is not taxable income
Having an agent/advisor that you trust is key to choosing the right product so you know what is covered and what is not as well as getting the best priced package.
Pre-existing conditions – this makes it difficult if not impossible to get coverage so pursue coverage early in life when healthy and/or optimize your health when you apply to get best rates and best policy (i.e. stop smoking, delay less emergent health needs so that they don’t appear on your record)