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Establishing Effective Disability Policies

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Readers of “Rx for Disability” (Investment Advisor, July 2011) may come away with the mistaken impression that it is difficult for today’s medical and dental professionals to obtain individual disability income insurance coverage that meets the article’s so-called “gold standard.”

In fact, true own occupation disability policies are offered to these highly trained professionals by several major insurance carriers. Moreover, some insurers take the own occupation concept a step further by protecting a doctor’s or dentist’s ability to earn a living in an individual specialty. In other words, they pay a total disability benefit even if the doctor or dentist is able to practice in another occupation, with no reduction in benefits.

The purchase of a personal disability income insurance policy is not a life or death decision, but variations in contract provisions can result in significantly different benefits at the time you file a claim. Therefore, it is certainly a “quality of life” decision. By this measure, the most effective disability policy will be the one that pays the most benefits over a period of disability, regardless of whether a person is totally or partially disabled.

To identify the most effective policies, there are a few contract features that should be carefully evaluated:

  • The definition of disability
  • The provisions related to a residual (or partial) disability
  • Inflation protection

The policy’s definition of disability should protect your clients in their regular occupation. Ideally, it should explicitly recognize their particular medical specialty as their regular occupation. If they cannot perform the principal duties of their regular occupation, they should be considered totally disabled, even if they choose to work in another occupation.

Indeed, the so-called “true own occ” definition of disability may best meet the requirements and realities of the medical practitioner. As the gold standard of disability protection in the medical field for over three decades, it has proven to be a flexible and durable approach to this all-important policy provision.

Residual disability benefits are another critical element of disability protection, since not all disabilities will be total disabilities. Regardless of the severity of an injury or illness, getting back to the practice of medicine as soon as possible is likely to be a high priority. The purpose of a properly structured residual disability feature is to financially support clients’ efforts to return to their practices as soon as they are able—even if it can only be part-time.

Qualification for residual benefits is based upon a minimum income loss, expressed as a percentage of pre-disability earnings. The lower the “loss requirement,” the better, since it will determine how soon clients will qualify for a payment of benefits. In addition, a lower loss requirement will result in benefits being paid longer.

Generally, residual disability benefits are a percentage of the benefit that would be payable for total disability, based on the percentage of lost income. However, most policies will pay a minimum benefit of 50% or more for the first six to 12 months. A few will pay up to the actual dollar loss for as long as 12 months, subject to the minimum loss requirement.

The practice of medicine in general and the duties of those who work in specialty areas have changed over time. It is vitally important that you review all aspects of a disability income insurance policy to determine its efficacy in protecting the investment your clients have made in their education and career.

Mark Ameigh
Senior Competition Analyst
The Guardian Life Insurance Company of America