By Eric Tiedtke, CFP, TDA Financial Services Insurance Program
No matter where you work, how old you are, or what stage your practice is in, you should have a plan ready in the event that you become unable to work because of an illness or injury. If you don’t, you risk your lifestyle and practice—everything you’ve worked hard for. This applies if you are just starting out, building your practice or beginning to consider selling your practice.
Here are some statistics to consider:
- 92% of disabilities are the result of illnesses rather than accidents.
- More than 90% of disabling accidents and illnesses are not work related. 2
- More than half of wage earners believe they have a 2% or less chance of becoming disabled during their working years. In reality about one in four Americans entering the work force today will become disabled before they retire. 3
As these statistics illustrate, if you become disabled, it’s much more likely to be because of an illness than a surfboarding accident or your occupation. (Neck and back problems will always be a part of dentistry, but new practice techniques and equipment are reducing these types of injuries.) It may seem unlikely that these statistics could relate to your situation one day, particularly if you’re young and healthy. However, having good health now doesn’t mean you won’t become ill later, and ignoring a risk does not make it go away. Happily, many diseases that once were terminal are now being managed as chronic illnesses—cancer being one of the more prominent ones. Unfortunately, side effects of treatment—such as fatigue, loss of sensitivity in extremities (hands) and tremors—are commonplace. Your life might be saved, but your practice might not be. Planning your future with this in mind is arguably one of the most important things you can do.
In the event you’re unable to work because you become disabled through an accident, injury or illness, your financial future will still be secure if you purchase disability income insurance. There are different types of disability income insurance, and you should understand them before you select coverage. The major types include the following:
Major Types of Disability Income Insurance
- Disability Income: for your income and buyouts
- Reducing Term Disability: for business loans
- Lump Sum Disability: provides a one-time payment of up to $1 million for permanent disability
- Business Overhead: for fixed expenses of a practice
- Retirement Protection: for retirement plan contributions
These policies can be used together or separately to give you the type of risk protection you need; however, disability income insurance is typically the first and most important coverage. The following is a brief overview of key features you should look at when considering or reviewing a policy.
Key Features of Disability Income Insurance
- Guaranteed non-cancelable policies are owned by the individual. The insurance company cannot change the premium or policy provisions as long as the premiums are paid.
- Guaranteed renewable policies are individually owned. The policy provisions cannot be changed, but the insurance company reserves the right to increase the premium.
- Guaranteed issue policies, typically offered through an association or employer group, are usually guaranteed renewable and based upon one continuing to be a member of the group. These policies can be cancelled at any time as the group, rather than the individual, controls the policy.
Definition of Total Disability
Dentists should look first for a true, specialty, own-occupation definition of total disability for the entire benefit period. Under this definition, a dentist’s benefits will not be reduced or eliminated if he or she works in another occupation (which could be a different dental specialty). This means a dentist is not penalized or forced to change careers because of a disability. This type of definition gives a dentist the best opportunity to achieve a reasonable income again.
Lifetime benefits are best, and just as critical for new dentists as they are for older dentists; however fewer insurers are offering them. Benefits paid to age 65, 67, or 70 should be the minimum option. Significant life events such as a second marriage, the purchase of a bigger house, buying or constructing an office building, purchasing newer equipment, or paying college education expenses for children often occur much later than they did with previous generations. These life changes coupled with higher debt loads often mean dentists have higher monthly expenses at a time when retirement is not far away. This can result in the need to work longer, because one’s planned retirement age is becoming “flexible,” which often means later. You want your disability coverage to match this flexibility if possible.
The following are policy options:
This is one of the more complex features of a disability policy, and one of the most important. This provision covers a disabled dentist who continues to practice. A claim made by a dentist in this situation may be more likely than one for total disability. Think this is unlikely? How about accidents, surgeries, and illnesses that—because of treatment or rehab—limit the procedures one could do, or how long he or she could work each day?
The better policy definitions only require a disabled dentist to have a 20% loss of income, which allows one to continue to work and not be penalized for doing so. Some policies require proof not only of loss of income but also of time worked or duties performed. A second benefit in many policies is the recovery benefit, which can pay benefits to dentists who continue to suffer a loss of income even after they are back to practicing full time. Some polices will pay up to age 65. Most others limit such payments to 12 to 24 months.
Elimination or Waiting Period
This is the period of time before the policy starts paying benefits. Options range from 30 to 365 days. Think of this as a deductible, because you’ll need to have enough savings to cover your expenses (business and personal) during this time. Better policies don’t require that days be consecutive to count towards the elimination period.
Future Purchase Options
This option is inexpensive, very important, and unfortunately often overlooked. It allows you to increase your coverage as your income rises without going through medical underwriting. The lack of this rider could literally cost you hundreds of thousands of dollars in lost benefits because of a change in your health.
Cost of Living (“COLA”) Rider
This rider will increase disability payments to a dentist on claim if there has been an increase in the cost of living over the prior twelve months of the claim.
Student Loan Repayment Rider
This rider reimburses $500-$2,000 per month to cover student loan payments in the event of total disability.
Catastrophic Benefit Rider
This pays an additional lump sum based upon inability to perform “activities of daily living.” This could replace 100% of your pre-disability income in the event of severe total disability.
Some policies don’t cover disability caused by extreme hobbies you may choose to undertake, such as hang gliding, racing, parachuting. But there are also exclusions on coverage for expenses incurred as a result of events you have no control over, such an act of war or terrorism (for example, the Boston Marathon Bombing or 9/11). Preferably these events would be covered.
Another area of exclusions is related to the leading causes of disability (approximately 18%) in the United States: mental/nervous disorders (e.g. depression, anxiety) and substance abuse. Some policies have a two-year limitation on this type of claim, or don’t pay benefits at all. If you have a history of these conditions, most companies will exclude them from coverage. Therefore, it’s critical you don’t allow an incomplete diagnosis or a trial prescription to relieve a temporary condition to be a part of your medical history. Feeling depressed because of a death in the family or feeling stressed is common. Don’t let something minor be viewed in your medical history as ongoing treatment for depression or anxiety. This could cause these conditions to be excluded from coverage or your application to be denied.
After seeing the statistics and insurance options in this article, you might feel overwhelmed. But if you have the proper type of disability coverage in place as part of a comprehensive financial plan, you won’t need to be concerned at all. These policies will ensure that if you become disabled, you could have one or all of the following:
- A guaranteed increasing, tax-free, income for the rest of your life
- The ability to pay the staff, rent, and overhead expense—even if you can’t work
- The freedom to work part-time or in a new occupation, if you choose to, without jeopardizing your benefits
- The ability to pay off your business loans
- The ability to pay off your student loans
- The ability to continue to accumulate retirement savings
You can control some of the uncertainty of the future by planning to protect your lifestyle if you are too sick or injured to work. Disability income insurance provides you the assurance of knowing your income and practice will continue even if you can’t work.
CDA 2012 Consumer Disability Awareness Survey
2 JHA 2002 U.S. Group Disability Rate and Risk Management Survey
3 Social Security Administration Fact Sheet, January 2012.
For information regarding TDA Financial Services Insurance Program, to discuss disability or other types of insurance options, or receive a proposal, please call: 800-677-8644, or visit tdamemberinsure.com. For information regarding other TDA Perks programs, please visit tdaperks.com, or call 512-443-3675.
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What’s the definition of “Total Disability?”