"I get disability insurance through my employer. Do I even need to look at getting my own disability income insurance? If yes, why? How much do I need, and what kind?”
Have these questions been on your mind, too? We frequently get questions identical to this from doctors, many of whom work for a large employer, and who receive some form of disability insurance as part of their benefit package.
I thought I’d sort out some common sources of confusion and address several of the top questions we receive about disability income insurance for doctors.
First, I don’t know what kind of insurance your employer offers. However, I’d say don’t mistake your employer disability coverage with individual disability income coverage.
The first thing that confuses almost everyone has to do with terminology: your employer most likely offers a kind of disability insurance called Long Term Disability coverage (or “LTD” for short). Unfortunately, this is often simply called “disability insurance” which is what confuses people when they realize you can also buy individual disability income insurance (called “DI” or “IDI” for short).
LTD is a benefit that is purchased at the group level by employers for the employees of that organization. Basically, it offers employees access to long term disability benefits should you have a need for income protection while you are an employee at your current place of employment.
IDI on the other hand, is sold to individuals (physicians, dentists, or other professionals), and while group long term disability insurance may be offered as an employee benefit, IDI may have much more robust benefits.
Ultimately, it’s impossible for anyone to say whether the specific LTD policy that your employer offers is suitable, good/bad, or to qualify it in any way. One would have to read the contract to get a good sense of what it covers.
But one thing to consider about employer-provided group long term disability policies is that often it is not portable. In other words, if you change employment, you may not be able to take the coverage with you.
Another thing to determine about your employer-provided group long term disability is if the premiums for the coverage are being deducted or paid with pre-tax dollars by your employer. You should consult your tax advisor, but often if the premiums have been deducted, any benefits you could receive while disabled could be taxable. That, of course, would translate to a reduction in the actual benefit amount you receive.
Here are the advantages of buying your own individual disability income policy:
One of the things you need to keep in mind is that individual disability income insurance is priced based on your age and health. The younger (and presumably healthier) you are, the more affordable it is, so there’s never a better time to get it than now. This is why we encourage doctors to buy individual disability income while they are still in residency or at the beginning of their professional career.
Even a small policy you secure as a resident can be expanded as your career evolves. Once you buy it, you can “lock in” discounts and look to enhance the coverage in the future. If you decide not to buy, and then experience some health changes, you may find it difficult to qualify for this insurance later in your career.
No, to the contrary. If your employer is providing you a good benefit at no cost or a very affordable price, you should consider taking advantage of it.
We also believe that it makes sense to have a foundation of individual disability income coverage as your primary income protection and treat the group employer coverage as a supplemental tool. This way, you have peace of mind that you are covered, even if you change your place of employment, and your employer-provided insurance may enhance or potentially fill a gap in coverage.
It is important to note that employer-provided Long Term Disability Insurance may have a number of disadvantages, thus making it better suited to supplementing an individual disability insurance policy:
It really depends. Doctors who apply for IDI are often surprised as to how much individual coverage they can obtain.
“Replacement limits” (meaning how much of your income you can “replace” with individual, and group LTD coverage combined) are always changing, but at the time of this writing (and in our experience to date) these ratios are fairly liberal. It’s worth checking out for sure.
As I mentioned, the industry is constantly changing, but you’re curious as to what is available to you, ask your insurance advisor. Hopefully you are working with an advisor who is experienced with the needs of physicians and dentists, so that they can give you the kind of guidance you need.
Your advisor should be able to look at what’s available to you in the insurance market for individual disability income insurance, and coordinate that with your employer provided group coverage. To get a better grasp on what’s in your employer-provided group policy, contact your HR or benefits department and request a copy of your policy documents.
Before you go, I want to leave you with this summary. Are you “all set” if you only have employer-provided DI? I’d say probably not. Even if you have underlying group coverage, it may not be portable, it may not be enough coverage, and it may or may not be taxable to you. That’s a lot of unknowns.
On the other hand, it doesn’t hurt to look into an individual disability income insurance policy, or to have your existing policy reviewed by an insurance advisor. A competent and experienced professional should be able to read your policy documents and point out any potential gaps. Best case scenario, you’ll identify an opportunity to augment your individual coverage, which is only to your advantage.
Most people think that a disability is not something that will happen to them, but our experience is that it happens more than you know. The power to protect your income in the face of illness or prolonged absence from the workforce is well worth the small amount of effort it takes to investigate this matter. As always, if you have any questions, don’t hesitate to contact us. We’d be happy to help you.
*This does not constitute tax advice: make sure to consult your tax advisor.
About Treloar & Heisel
Treloar & Heisel, an EPIC Company, is a financial services provider to dental and medical professionals across the country. Our insurance and wealth management divisions assist thousands of clients from residency through retirement. We strive to deliver the highest level of service with custom-tailored advice and a strong national network.
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