Shopping for coverage? These tips can help…
In the financial services business, the more things change, the more they stay the same—even when it comes to disability insurance. Although the disability insurance market has changed over the years, basic principles apply when shopping for individual coverage. This article will serve as a primer to help you find the policy or policies to best suit your individual needs in today’s marketplace.
“Own occupation” definition of disability
An “own-occupation” definition of disability means that if you, as a result of disability, cannot perform the “material and substantial duties” of your medical specialty, you would be eligible for full disability benefits—even if you are able and choose to work in another occupation or medical specialty earning the same or more income than you did prior to your disability.
For example, an orthopaedic surgeon with peripheral neuropathy of the hands who can no longer perform surgery could decide to go to law school and open a legal practice representing physicians. Even if the surgeon earns more money as a lawyer than he did as an orthopaedic surgeon, he could be entitled to disability benefits.
A policy with a true “own-occupation” definition of disability enables the insured to utilize his or her education, training, and experience to transition into another occupation and to be rewarded financially without penalty for being smart, motivated, and resourceful. Keep in mind that claimants may still be paying off educational debt and/or incurring new debts as part of the career change.
Although this definition of disability had been unavailable to orthopaedic surgeons for some time, several companies now offer this definition.
If your agent tells you that this definition of disability is “no longer available” or that you “don’t need it,” it may simply mean that the company he or she represents no longer offers it.
“Medical occupation” definition of disability
The “medical occupation” definition of disability hinges on the fact that physicians, including orthopaedic surgeons, perform several duties. To collect full benefits under the “own-occupation” definition of disability, physicians must be unable to perform all of their duties—unless they only had one principal duty at the time of claim, which, in most cases is unrealistic. The “medical occupation” definition of disability is theoretically more flexible.
The “medical occupation” definition of disability, in the case of an orthopaedic surgeon, works like this: If before disability, more than 50 percent of your time was spent providing direct patient care or services and, as a result of disability, you are unable to perform the principal procedures of your procedure-based, board-certified medical specialty and you choose to discontinue gainful employment, you would receive full benefits. If you decide to continue to work, and earn more than 20 percent of your predisability income, your disability benefits would be reduced or eliminated.
According to disability insurance attorney Mark DeBofsky of Daley, DeBofsky & Bryant, a Chicago-based disability law and employee’s rights firm, “The definition transforms a claim that might otherwise be a total disability claim into a partial or residual disability claim.”
For example, an orthopaedic surgeon injured in a plane crash who can no longer perform surgery but can still conduct office examinations and other nonsurgical medical tasks, could be eligible for benefits under an “own occupation” policy but might not receive full benefits under a “medical occupation” definition of disability.
Issue and participation limits
For many years, the maximum monthly benefit available to orthopaedic surgeons was limited to $10,000 or $15,000, regardless of their earned incomes. As a result, securing a reasonable amount of disability insurance protection was a significant challenge. Now, however, several companies will issue policies with monthly benefits up to $15,000 (one company recently announced that they will issue up to $16,000) and participate with other carriers’ individual coverage up to $20,000/month. This means that orthopaedic surgeons can combine policies from two different companies to provide this maximum level of coverage for themselves.
Monthly benefits offered to residents and fellows have also increased substantially. Depending upon the specific insurer, these young professionals can purchase up to $5,000/month and newly practicing orthopaedic surgeons can apply for up to $7,500/month—regardless of their actual earned incomes.
Other policy provisions—such as lifetime benefits, foreign residence and travel, mental and nervous conditions, and recovery benefits—may also help determine the policy or policies best for your situation.
Lifetime benefit option—Two companies still offer lifetime benefit options to orthopaedic surgeons. This means if you are totally disabled on or before age 45, you would receive full benefits for the rest of your life. Although expensive, this provision allows an insured to pay a finite premium for a potentially infinite benefit.
Policies available to orthopaedic surgeons with a lifetime benefit period, however, have a $10,000/month limit, so having multiple policies might be necessary.
Foreign residence and travel—Although some carriers allow you to travel or reside in countries other than the United States or Canada while disabled, most will limit claims payments to a lifetime maximum of 12 months. Therefore, if you would consider residing or practicing medicine in another country if you became disabled, you should carefully examine how the policy or policies you are considering would handle your claim for benefits.
Mental and nervous conditions—Some carriers will cover claims for mental and nervous conditions in the same fashion as other disabilities. Most, however, will limit these claims to a lifetime maximum of 24 months if the primary cause of disability was solely a psychiatric or substance abuse disorder or diagnosis, including, but not limited to, posttraumatic stress syndrome, anxiety, depression, and/or alcohol abuse/addiction. Although many orthopaedic surgeons will opt to purchase a policy with the fewest number of restrictions, some may willingly accept this limitation with its attendant cost savings.
Recovery benefits—Any policy you purchase should include a residual disability rider, which pays benefits proportionate to your loss of income if you return to practice with a loss of time (working fewer hours) or loss of duties (inability to perform all the duties of your occupation).
A recovery benefit continues to pay benefits (in the same fashion as the residual rider) if you return to your practice on a full-time basis with no loss of time or duties but with a loss of income. As a medical specialist, your practice may have been built on referrals from existing patients and/or other physicians. If there is a demonstrable relationship between your current loss of income and your prior disability, some companies will continue to potentially pay benefits to the age of 65 or longer as long as the required loss of income is met.
Other companies, however, may limit payments to a maximum of 6, 12, 24, or 36 months—despite your loss of income. Therefore, if your income is based upon the number of patients seen and/or the number of procedures performed, you might want to ensure that your disability policy includes a liberal recovery benefit.
Although the disability insurance industry had been stagnant, increased competition and favorable claims experience have prompted several companies to make advantageous changes to the policies available to orthopaedic surgeons. As a result, orthopaedic surgeons have the opportunity to adequately protect their most valuable asset—their ability to earn an income.
Lawrence B. Keller, CLU, ChFC, CFP®, is the founder of Physician Financial Services, a New York-based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at (516) 677-6211 or Lkeller@physicianfinancialservices.com