4 Things You May Not Know About Disabillity Insurance
Submitted by McNeely Financial Strategies LLC on March 31st, 2015
Do you have disability insurance at your practice? Did you begrudgingly throw in long-term disability insurance when you set up group benefits for your staff? You may think that having group disability insurance offers sufficient protection. However, the truth is, you may not be as protected as you think you are.
Many dentists underestimate their potential disability risk. They don't fully grasp the job's health risks, particularly when it comes to carpal injuries, arthritis, and other conditions related to heavy hand use. In fact, nearly a third of all dentists at some point suffer injury or illness that's so severe that they have to take extended time away from work.
They also fail to understand the limits of Social Security disability and group disability insurance. While those two programs provide some protection, they're usually not sufficient to fully support a dentist's lifestyle.
Individual disability insurance provides added protection and can be customized to meet a dentist's needs. However, it can be complex and many dentists don't take the time to understand the details.
There are a number of misconceptions that many dentists have about disability insurance. Here are four of the biggest:
1. Your group policy probably has a limit.
Many dentists believe that they're fully covered by their practice's group policy. The truth is that group policies usually have a maximum benefit. A common maximum is 60 percent of regular income. Ask yourself whether you could live with a 40 percent pay cut if you had to stop working tomorrow.
With individual policies, you can vary the maximum benefit. In fact, you can choose to have no maximum benefit at all. Raising or eliminating the maximum will impact your premium, but it could also help you live a more comfortable lifestyle should you become disabled.
2. Benefit taxation differs based on policy type.
In addition, to benefit maximums, there are also differences in the way group and individual policies are taxed. Group insurance benefit payments are taxable. Benefit payments from individual policies are not taxable.
The reason for this is because of the way the premiums are paid. Group policy premiums are taken out of your check on a pre-tax basis. Individual policies are usually paid with after-tax dollars. The difference between taxable and tax-free income could have a huge effect on your quality of life should you ever become disabled.
3. "Own occupation" vs. "any occupation"
There's a major difference. Most group policies have a payment standard based on "any occupation." That means that to receive benefits you must be so disabled that you cannot work any occupation.
Individual policies can be structured to cover "own occupation." That means that to receive benefit payments you only need to be disabled to the extent that you can't continue your career as a dentist.
This is an important distinction. Assume that you suffer arthritis in your hands and are unable to properly handle your instruments. You may be too disabled to continue as a dentist, but an insurer may feel that you're healthy enough to pick up a new occupation. Of course, that new occupation probably won't pay as much as being a dentist. With "own occupation" coverage, you'd get a benefit regardless of whether or not you're health enough to get a new job.
4. You can use disability insurance to fund your buy-sell.
If you have a partner, you probably have a buy-sell plan to protect each other in case either partner passes away. What happens, though, if you become disabled? Your partners may want to buy you out, but how can they compensate you?
You can use individual disability insurance to fund your buy-sell agreement specifically for that scenario. If any partner becomes disabled, the other partners receive benefits to compensate that partner for his or her share.
Disability is a very real risk and one that you should take seriously. Group disability insurance may be sufficient for many people. It's usually not sufficient, though, for high earners and for business owners. Review your disability insurance and see if you need to add individual coverage to the mix.