Most physicians we speak with understand the need for at least some individually-owned disability insurance. But there’s another important form of insurance protection that is growing more and more popular as physicians and employers see the need: Critical illness insurance for doctors.
For proper insurance planning, it’s important to grasp both types of coverage, and to understand their different roles in a physician’s overall protection strategy.
Both types of coverage provide compensation in the event of a severe illness. But there are some cases in which a critical illness policy will provide a benefit and a disability policy will not, and vice versa.
To have the broadest protection, it may make sense to own both kinds of coverage in tandem.
What does critical illness insurance cover?
Critical illness insurance provides a lump sum cash benefit in the event you are diagnosed with any of a specific list of medical conditions. Individual policies vary, but these plans typically pay a benefit if you are stricken with cancer, a heart attack, or a stroke.
Other covered conditions may include:
- Multiple sclerosis
- Vision loss
- Paralysis
- Organ transplant
- Heart valve replacement
- Kidney failure
Here are some important differences:
Specific diagnoses
Critical illness insurance pays a benefit if you get a specific diagnosis – typically cancer, heart attack. Conversely, a physician disability insurance policy pays a benefit only if your medical condition knocks you out of your livelihood. Therefore, it’s possible for you to get a type of cancer that does not knock you out of the work force long enough to qualify for a standard disability insurance policy.
But you may have some significant short-term disruption to your ability to earn an income, and some substantial out-of-pocket expenses as a result of your condition. A critical illness policy will quickly provide an immediate cash benefit to allow you to cover these expenses.
And in the event of a disabling medical event that does impact your ability to work, you may well qualify for both benefits – a monthly income from your physician disability policy and a lump sum payout from your critical illness policy. This lump sum payment may make it easier for you to adjust to your new medical reality. For example, many beneficiaries use the lump sum to pay for things like these:
- Pay for a family member to relocate to help provide care
- Tuition for a new specialty or profession
- Remodeling a home to accommodate a wheelchair
- Travel for treatment
- Costs not covered by medical insurance
- Long term care/nursing home care
- In home care
- Assistance with housekeeping
- Costs incurred by your private practice due to your disability
Taxation
Payouts from individually-owned critical illness insurance policies are tax-free. Benefits from individually owned disability insurance policies are also tax-free; benefits from employer-paid disability plans are taxable to the extent the employer pays the premiums.
Survival Periods
Critical illness policies often have a “survival period,” or waiting period, before the policy pays a benefit. They are not replacements for life insurance planning.
Often, these policies make especially good sense for those with a family history of specific diseases, heart attacks or strokes. However, you should apply for critical illness insurance when you are relatively young and/or in good health. Unlike medical insurance, both critical illness insurance and disability insurance are medically underwritten.
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