What is Disability Insurance?

Disability insurance is an insurance policy that will cover much of your salary if you are unable to work. Money is necessary to live, so this type of insurance will give you some income. It basically protects you financially if you become disabled.

Why do you Need Disability Insurance?
You do not want to think about becoming disabled, but there are a large number of people in this country who cannot work because of a disability. Having disability insurance can keep you from having severe financial hardships in the future. If you do not have disability insurance, there are many reasons as to why it could really cost you:

1. Loss of Income: Paid sick leave only goes so far. The cost of the diagnosis, treatment and recovery can be significant. You also need to make sure that you have the money to pay monthly expenses. You might have the necessary medical insurance to cover your medical bills, but the other expenses can leave you in a financial bind. When you cannot work, you will not receive any income, but your bills continue. If you have disability insurance, you will be receiving some money to help offset your loss of income.

2. Medical Expenses: Even though you might have medical insurance, the cost of heath care is increasing. Even with medical insurance, there could still be a significant cost for your treatment and recovery. You might need specialists or even physical therapy to aide in your recovery. The gas money also adds up. You will need to travel to the hospital or doctor’s office while you are recovering.

3. Miscellaneous Expenses: If you are not receiving income, you cannot do the things that you enjoy. In other words, your quality of life would decrease. You cannot go out to dinner or rent a movie. You could not spend money on your family at Christmas time or for their birthday. It would be a very boring and stressful way to live.

Types of Coverage
There are basically two types of disability insurance coverage:

•Short Term Disability: This type of disability is coverage that does not last long, usually for about a year. If you are not able to work because of a disability, you need to return to work within that year. This is usually less expensive.

•Long Term Disability: Long term disability is insurance that will take longer than a year. You have a serious problem in which you cannot recover from within 52 weeks. Long term disability insurance usually begins after your short term insurance has expired. Some employers provide short or long term disability benefits. Other employers offer it as a payment option. It is a needed benefit if you do not want to go without income because of a disability.

Advantages of Disability Insurance
Since you will not receive a paycheck from your employer, you will receive income through your disability insurance provider. You will need money to pay your monthly expenses, such as utilities, mortgage, groceries, etc. Having a paycheck could even prevent you from facing foreclosure. Normally, disability insurance is a percentage of your salary. The amount that you will receive depends on your type of insurance plan. It might be half of your income, or it could be up to 3/4 of your salary. Although it will not be all of the income that you are accustomed to receiving, it could keep your head above water during this difficult time.

Getting Disability Insurance
If your employer does not provide disability insurance, you can purchase it on your own. You need to search around to find the best options for you. An insurance quote comparison site is your best option when comparing policies. There are a few things that you need to look for when getting disability insurance:

• Get one that cannot be cancelled: This is a contract that will secure you a rate for a certain amount of time, and your provider cannot cancel it. Another non-cancelable plan is a renewable plan that does not allow your provider to drop you. However, they could raise their fees.

• Know their definition of “total disability”: There are terms, such as own occupation and any occupation that you will want your insurance company to clarify. Own occupation normally means that you will get benefits if your disability does not allow you to do the job that you were doing before your disability occurred. Any occupation means that your disability will need to be so severe that you will be unemployed and not work at all.

• Look for Insurance Riders: Make sure that you read the terms and conditions of your plan. Riders are terms put into your policy that allows you to make changes at some point in the future.

If you should become ill, injured or otherwise unable to work for medical reasons, you may no longer be able to contribute to the success of your business. You may also no longer be able to motivate and oversee employees, and you may not be physically capable of dedicating the time to your business that it needs. Not only will this result in the decline of your overall revenue but it will also mean that your company can no longer pay you an income. This is why all small business owners must invest in both short- and long-term disability insurance policies.

Relying on Social Security

Many individuals take for granted that Social Security disability benefits will be paid to them when they are no longer able to work and earn a paycheck for their small business, however, this is not generally the case. It is notoriously difficult to get the Social Security Administration (SSA) to approve your application for disability benefits. In addition, when relying exclusively on Social Security, you are subject to their definition of disability, their waiting period and their benefit limits.

As a small business owner, you benefit from taking the risks that all entrepreneurs accept. Your drive can directly contribute to the amount of income you’re able to take from your business. Accepting the risk of Social Security taking care of you, and limiting your disability income to Social Security levels is not an acceptable risk nor is it reflective of the actual income you could have if you have your own disability insurance policy.

The Benefits of Disability Insurance

One of most important benefits of having a disability insurance policy as a small business owner is that you can buy a policy with a looser definition of disability than the SSA allows. The SSA considers individuals to be disabled when they’re no longer able to conduct the duties of any occupation. With your individual disability insurance policy, you can choose a definition of disability that is reflective only of your ability to do the work of your current occupation.

In addition, the SSA does not cover any short-term disabilities. Your disability must last at least one year or be expected to result in death in order to qualify for benefits.

Another concern when you rely on Social Security is not only will you have to wait for your application to be approved but you must also go through the SSA’s waiting period of five months before benefit payments begin. When you buy your own disability insurance policy, you can determine what waiting period you’re comfortable with. The longer your waiting period, the lower your premium will be as a long waiting period reduces the overall amount that the disability insurance policy must pay out.

Inflation can work against the value of your disability insurance payment. A cost-of-living adjustment, or COLA, added to your disability insurance policy will adjust your benefits annually in order to keep pace with inflation.

You also get to determine your own limits when buying a disability insurance policy. You may not be able to get full income replacement from insurers but you may be able to replace up to 80 percent of your income. The closer you want your benefit to be in terms of your actual income, the higher your premium will be.

Another benefit you can add to your disability insurance policy is guaranteed insurability benefits. This will allow you to add additional insurance amounts without going through underwriting again as this benefit guarantees your continued insurability. That means as your small business income goes up, you can mirror that increase through your disability insurance policy without worrying about how your health or age might affect your rates.

Begin by looking for a disability insurance policy that is noncancelable and guaranteed renewable. This type of policy renewability guarantees that the insurance company cannot cancel your policy, increase the pricing or change the provisions until after age 65, so long as you continue to pay your premiums in a timely manner.

Next, you should look for a disability insurance policy that provides benefits specific to your veterinary specialty. To do this, you must understand and review the policy’s definition of total disability, which describes the circumstances in which an insured will receive benefits for total disability. The best definition a Veterinarian can obtain is the true own-occupation definition of total disability, which defines disability as the inability, solely due to illness or injury, to perform the material and substantial duties of your occupation, even if you are able and/or working in a different occupation. It is this definition that allows you to continue receiving benefits, even if you decide to work in some other capacity.

To expand on the definition of total disability that your disability insurance policy provides, you also need to include residual disability benefits, which provide benefits for partial disabilities. The standard definition of disability included in your policy only pays benefits for TOTAL disability claims. If an illness or injury causes a 15% or greater loss of income, the residual disability benefit may provide you a partial benefit to cover some of the loss experienced. Every insurance company has a different qualification requirement and method of paying this type of benefit. The differences between these options could be the difference of tens of thousands of dollars at claim time, so be sure to evaluate these details closely.

Depending on your age and specific circumstances, there are other riders that you may want to consider as well. Younger Veterinarians should consider the future increase option, which guarantees your eligibility to increase your policy’s monthly benefit as your earnings increase. This rider eliminates the risk of your health impacting your ability to purchase additional disability insurance in the future. For a young Veterinarian whose income is likely to increase throughout his/her career, this rider makes perfect sense.

The cost of living adjustment rider is also a policy rider worth considering and for Veterinarians of all ages. The cost of living adjustment rider increases your monthly benefit after every 12-month period that you remain on claim receiving benefits. For anyone considering a long-term disability policy, this maybe an essential piece to properly protecting your future and maintaining the purchasing power of your policy’s monthly benefit. If you are considering a policy with a 5-year benefit or less, this rider may not be so critical.

I recommend that any Veterinarian interested in obtaining disability insurance work with a financial professional who is experienced with disability insurance. Although it is important for you to have a solid understanding of the various definitions and provisions, an experienced professional can assist you in better understanding your options and ultimately selected the best disability insurance policy for your circumstances.

Luckily there are many alternatives available to help young professionals keep the cost of coverage affordable and allow them to put coverage in force while they are young and healthy. One of the best strategies for young professionals to use is the Graded premium schedule.

A Graded premium schedule can be found in many policies offered by the top Disability insurance carriers in today’s market. As its name implies, a Graded premium is structured to start with a low premium that will gradually increase every year. The idea behind purchasing a Graded premium policy is to keep premiums as affordable as possible for the first 2-7 years of a professional being in the work force. The savings is often substantial during the years it is needed most. Since the premium continues to increase each year, it is recommended that a person convert the Graded premium schedule to a Level premium schedule within the first 5-8 years of owning the policy – hopefully enough time to get established within one’s career and be capable of handling the higher premium.

The true benefit of purchasing a policy using the Graded premium, is to allow young adults with low to moderate incomes to obtain coverage at a time when they are likely to be the healthiest they will ever be. Generally a person is the healthiest between the ages of 25-35, which therefore allows purchasing Disability insurance to be much easier. A person in excellent health will have a much better chance of obtaining coverage without any exclusions or limitations for preexisting conditions.

Exclusions are a tool used by insurance companies which enable them to provide coverage to people who have existing medical conditions. Once you have already been diagnosed or treated for a specific condition by a health care professional, it is likely that the specific condition will be excluded from your Disability insurance contract. In other words, the policy will not pay benefits for a loss of income caused by the specific condition being excluded. Certainly a policy with one exclusion is better than not having a policy at all, but a policy that does not have any exclusions is clearly ideal.

By purchasing a Disability insurance policy using a Graded premium, a young adult can purchase a policy that normally may cost $100/month for only $20 or $30/month. This is substantially more affordable and therefore allows for more young professionals to put a policy in place to protect their future earnings.

One of the smartest things a person can do when purchasing Disability insurance, is find an insurance professional that specializes in Disability Insurance. Often referred to as Disability Income Specialists, advisors that focus on Disability insurance are more likely to be capable of helping you find the most appropriate coverage for your specific circumstances. Whether you are a young physician, accountant, engineer, sales professional or any other type of professional, it is important you think about your future and consider protecting your income with Disability insurance.

Specific to the Graded premium schedule option – ask your Disability insurance advisor whether the premiums are guaranteed. As this article has explained, there is great merit to using the Graded premium schedule but you do not want a policy that can increase by too much in any single year, as it would defeat the purpose. Guaranteed Graded premium schedules do exist and your Disability Income Specialist should be able to find one for you.

The primary reason to consider purchasing Disability insurance during medical residency is pertaining to the idea that during this time, you are young and likely very healthy. This is an interesting concept however, because all 25-30 year olds are certainly still young, and more importantly feel that their health will remain the same for years. So although you know you should consider protecting your income now, it becomes very easy to procrastinate and hold off on purchasing coverage for weeks, months and years.

The factor of age is simple – every year you delay purchasing Disability insurance will cost you about a 4% increase in premiums. In other words, the cost of coverage will increase by about 3-4% each year you wait. If a Disability policy will cost $1,000 per year today, in three years your premium will likely be about $1,125. Since Disability insurance can be designed to maintain a level premium for the duration of the policy life, it is beneficial to purchase coverage at a young age in order to secure a lower premium, for your entire professional career.

The factor of health is a bit more complex than the average person would believe. The biggest risk a medical resident will run in not purchasing coverage today, is the discovery of an illness that may prevent him/her from qualifying for it in the future. However, there is also the risk of simply discovering a smaller medical condition that still allows one to purchase a Disability policy, but requires an exclusion. Exclusions are used by insurance companies to remove a specific pre-existing medical condition from the disability contract. This means that you will not be covered in the case of a disability caused by the pre-existing condition or any complications that are a result of the pre-existing condition either. Although having a Disability income policy with exclusions is still better than not having a disability policy at all, most people prefer a policy without exclusions if at all possible.

A third reason why residents should consider purchasing Disability insurance during medical residency is in relation to the quality of coverage available on an individual basis versus that available with group coverage. Although it may be your good intention to purchase individual Disability insurance once you leave residency and become an attending, you may no longer qualify for as much individual Disability insurance as during residency. If the hospital or clinic you work for provides you with a group Long-Term Disability program, you will only be able to purchase enough individual Disability insurance to supplement what the Group coverage does not provide – perhaps half as much, if not less, than that which is available during the last year of residency.

Although this may not seem important since you will still have Disability insurance in either circumstance, the quality of each contract is significantly different. By this point you have spent nearly a decade, if not longer, training to become an attending in your specialty. Most physicians prefer to protect their hard work and unique specialty with a Disability insurance contract that will pay them when prevented from performing the duties of their specialty. Unfortunately group coverage does not typically provide this level of protection and once you are already employed and provided group Long-Term Disability, the amount of Physicians Own-Occupation Disability insurance you can purchase will drastically be reduced.

If you are interested in obtaining quality Disability insurance that truly provides income protection for your medical specialty, start by researching information about what to look for in a policy. Read articles that can be found online, but do not solely base your judgment on these. The value of reading articles and websites is to learn about the differences that exist in the various contracts available today. There are many websites providing additional resources and information about Disability insurance for medical residents and young physicians. Take advantage of the resources available over the web, find an experienced agent and work with them to find the best option for you.