Disability insurance is almost a must-have for any professional – especially those whose peak earning years are ahead of them. A freak accident, a bad break with a dreaded disease, or a problematic pregnancy can all disrupt or end a career that you spent most of your life preparing for – and less than one disability in twenty qualifies for workers’ compensation insurance, according to the Council for Disability Awareness.
So getting some protection in place is a foundational aspect of any sound financial plan. But if you’re new to shopping for and comparing the different types of disability insurance, it can be daunting. Here’s a brief overview of the major types of disability protection on the market.
This coverage, frequently provided as an employee benefit, is designed to protect workers against a short-term loss of income. Typically, benefits last only a few weeks or months to two years at most. But they also feature a very short exclusion period, which means very little time has to elapse after you become disabled before you are eligible for benefits. Your benefits can begin accruing from the day you get injured, or generally within 14 days, in any case.
Long Term Disability
Long-term disability policies pick up where short-term policies leave off. They tend to pay disability benefits of between 50 and 65 percent of the insured’s pre-disability income for years, if necessary. Exclusionary periods are longer than short-term disability policies as well, typically between a few weeks to as long as a year or two. The longer you set your exclusionary period, however, the lower your premiums will likely be, all other things being equal. The longer you can afford to wait before you begin collecting benefits, the greater the income benefit you may be able to afford. However, you should have some store of funds to tap in the time between becoming disabled and the time you begin collecting benefits.
These policies pay benefits if your disability prevents you from working in your actual, documented occupation. These policies are far more likely to actually pay out a doctor’s claim, for example, than other policies that only pay out benefits if your disability prevents you from working in any occupation. For this reason they are generally more expensive – but often well worth it for our clients, who are overwhelmingly medical professionals.
If a policy is non-cancelable, that means that the insurance company cannot unilaterally drop your coverage for any reason other than non-payment of premiums. They also cannot slap you with a rate increase, unless everyone in your rating class also gets the same rate. That is, they cannot target injured or sick people more likely to file a future claim and cancel their policies or hike their premiums to force them to cancel. With non-cancellable policies, they have to take the good with the bad. We do not recommend buying any individual disability or life insurance policy that is not non-cancellable, and virtually all policies sold today are non-cancellable as well.
A guaranteed renewable clause in your policy gives you the right to renew your policy at the end of the term, no matter what your medical condition is. You may have to pay a higher age premium if everyone else in your risk class also pays a higher premium due to age. Your carrier cannot unilaterally drop your coverage at the end of the term because they don’t like the way your blood pressure is headed.
Again, nearly all individual policies sold today are guaranteed renewable and we do not recommend any disability insurance policies that are not guaranteed renewable.
Group vs. Individual
Employers often buy coverage on a group basis for employees. When they do so, they may employ a simplified or streamlined underwriting process, or they may simply offer coverage to all qualified employees, regardless of medical history or condition. The employer will typically pay some or all premiums. If the employer pays premiums, benefits are taxable to the employee.
Individual policies, on the other hand, are purchased by individuals directly from a broker – such as DoctorDisability.com. These generally require you to qualify medically, but if you are in good health, they are usually a better value and provide richer benefits than typical employer paid group plans. They are also more customizable – and they follow you, if you leave the company. Employer paid disability programs will often drop your coverage when you leave the company.
All things being equal, our recommendation is generally to own your own coverage – one that you can take with you into private practice, if you so choose, even if your health situation changes. Furthermore, with your own coverage, benefits are tax-free, to the extent you paid your own disability insurance premiums.
Need more information? Call us today at 866-899-7318 for a no-obligation consultation. Or fill out our online quote engine and you will soon have offers in hand from several different carriers. We will help you design and select the plan that best fits you.