One of the most common questions physicians ask regarding disability insurance is, “Why should I purchase an individual owned disability insurance policy when I can get group disability coverage at a lower cost?” It is true that group long term disability policies are often provided at little or no premium cost to a physician through his or her group. It is also true that individual coverage is typically more expensive and the underwriting is more difficult. But, the bottom line is you get what you pay for.
If you are paying little for a long term disability policy, you are going to get little when you need it the most. Just like any type of insurance, it is important to understand the fine print. Let’s explore the differences between long term individual disability and group long term disability.
1. The Definition of Disability
This is the most important part of your disability plan and you want to make sure you are getting this part right. As a physician, you want to be covered by an own occupation definition of disability. With own occupation disability, you are covered on the basis of your specialty. For instance, if you are an Orthopedic Surgeon and you suffer a hand injury that prohibits you from performing any surgeries, own specialty coverage will pay benefits as long as you are incapable of performing orthopedic surgeries. A weaker definition would cease payments if you are considered capable of working in any profession that you are considered reasonably trained for. Given the extensive training that every physician undergoes, this could be any number of professions, including teaching or working as a drug rep for instance.
Long Term Individual Disability Insurance: You choose your policy definition. While you may have to pay more for Specialty Specific Own Occupation Disability insurance, you can rest assured you will be covered through the length of your disability. Even if you decide to work in another profession, you will continue receiving your disability benefits.
Group Long Term Disability Insurance: These may have an Own Occupation definition, but are often limited to 2 years and then revert to a weaker definition that is not specialty specific. In other words, after 2 years, if you can work as a drug rep, you will no longer receive benefits.
2. Residual/Partial Disability Coverage
Many people think of disability in terms of being completely unable to work in your profession. What if a sickness or accident leaves you unable to perform some of your duties or decreases the amount of time you can work? The more common disabilities are not all-or-nothing scenarios. More often than not, disabilities can affect the amount of work you are able to do and therefore your income. Residual Disability programs offer partial benefit payments as soon as the insured physician has a 15% to 20% loss of earnings due to a disability.
Long Term Individual Disability Insurance: You choose your benefits package. We always recommend including Residual Disability coverage in your policy as the majority of claims are partial claims.
Group Long Term Disability Insurance: Most require an individual to first suffer a full disability before any disability benefits are paid. Furthermore, during the standard 90 day elimination period, if you attempt to go back to work, your elimination period will reset starting on that day.
3. Premium Stability
Your premium payments are, by and large, a factor of your current age, your current health and the benefit amount you would like to receive. What happens when you get older?
Long Term Individual Disability Insurance: Throughout the entire length of your benefits period, your premium will remain the same, regardless of your age or change in health. You also have the option to purchase a Future Income Increase Rider that will allow you to increase your max benefit at a predetermined rate.
Group Long Term Disability Insurance: There is no guarantee that your premium payments will remain at the same level. Group policies are known for increasing cost as your age increases. Typically around age 49 physicians start to see their policies take a substantial increase in premium cost without an increase in their potential benefit. A large portion of physicians are looking to replace their expensive group policy because of how expensive it has become.
4. Max Potential Benefits
Benefit limits are typically determined by your income level. It is no surprise that when your income level increases, spending habits also adjust. It is important to make sure your policy benefit is kept at a level that will continue to support the life style you have become accustomed to.
Long Term Individual Disability Insurance: The max benefit typically hovers around 60% of your wages maxing at about $20,000 per month. However, it is also possible to have multiple policies where you can have a participation of about $25,000-$30,000 (15,000 in one policy and 10,000 from another policy).
Group Long Term Disability Insurance: The max benefit also hovers around 60% but the ceiling here is about $10,000. There isn’t much wiggle room in this scenario.
When you are protecting your most valuable asset – your income – against loss due to accidents or sickness, don’t let the cost be the only factor in your decision. Look past the cost and assess the value of the policy. Does it offer own occupation to the end of the benefit period? Are you covered in case of a partial disability? Do the premiums stay the same for the life of the contract?
Disability insurance is designed to protect your income. Do not expose yourself and your family to great loss by not having the right disability policy. We offer free policy reviews and consultations, bringing with us over 20 years of experience. Contact us today or leave a comment if you have any questions.
