Long-term disability coverage is important for many occupations, but for physicians it’s particularly critical. Even a relatively minor accident or illness can interfere with their ability to practice medicine or perform surgeries. Many high income earning doctors are finding a serious gap between the benefits of traditional disability and the replacement of their true income
A physician at the prime of his earning potential has usually created a plan for growing his wealth; has a lifestyle dependent upon a certain level or income; and may have ownership in his practice. All are financial obligations that make the protection of income a crucial consideration.
Identifying the Gap
The first step is to measure the gap between the physician’s current income and the benefits their disability policy provides. A basic individual disability policy typically covers 60 to 65 percent of the current monthly income when a doctor starts practicing, but these policies also place a cap on monthly benefits — usually the most they may obtain is between $5,000 and $15,000 per month. As their income grows, their disability may not be able to continue to insure all of their after-tax income. Thus, there will be a gap in protection and exposure.
How Traditional Group LTD Plans Discriminate Against the Highly Compensated
Example shown: Group LTD covers 60% of earnings up to $10,000 per month.
It’s also important to consider taxes. Generally, benefits received under an employer-paid plan are taxable, but if you pay the premiums using after-tax dollars, the benefits are tax-free. A 65-percent tax-free benefit would likely come close to duplicating after tax income (assuming the monthly limit is high enough).
High-end disability programs can fill the income gaps left by standard policies. These high limit contracts have features that include benefits of up to $100,000 per month, $1,000,000 lump sum payout and a key feature of guaranteed issue when obtained for more than 3 physicians in a group.
When you weigh the coverage options, here are the most important policy provisions to consider: