Inadequate Disability Insurance: A Rude Awakening for Many Doctors

Generally long-term disability insurance is limited to 60 percent of your gross income.  However, higher income individuals will quickly find that even obtaining this level of coverage is difficult. 

Most physicians find that they are limited to fifteen or twenty thousand dollars a month in benefits regardless of their income.  Here are some strategies to consider if this "gap" has you worried:

1. Recognize that you may already have sufficient assets (or a second income earner in the family) to allow you to purchase some self-insurance in case of a serious disability.

2. Pay Disability insurance premiums with after-tax funds.  That way, any benefits paid to you will not be subject to income taxes, essentially a 30 percent plus boost in buying power.

3. Consider specific policies that are designed to make your regular retirement plan contributions in the event you are disabled.  The benefits paid by these policies are often not considered in the maximum allowed total monthly benefit.  Most disability policies stop payments when you reach 65 years of age; having a fully-funded retirement plan at that time would be really nice.

4. Consider “excess coverage” disability policies offered by companies such as Lloyds of London.   These policies are not cheap and often have a combination of monthly income and a lump-sum distribution after several years of disability.  This is a nice choice for very high-income individuals.

5. Look for a "catastrophic rider." Many individual disability policies allow a “catastrophic rider” that provides an extra several thousand dollars of benefit a month (for a serious disability only) not subject to the usual limits.

In counseling physicians, I occasionally come up against someone having even less disability coverage than they are allowed to have.  Unless you are able to self insure, this is a terrible risk.  Every family should consider having at least 60 percent of their incomes covered by disability insurance.  If individual coverage is too expensive, check out group coverage through an association such as the AMA or your state medical association.  These group policies can make an excellent supplement to your overall coverage in the event of a catastrophic disability.

As with all disability policies, you need a trusted adviser to guide you through the choices.  Insurance agents may have some inherent conflicts in that they are paid by the insurance company (from your premiums).  Consider a carefully recommended agent, or even better, have a fee-only financial planner help you.