Tag Archives: benefits

Disability Insurance: What Residents Need to Know – Part 4

 

Previous posts in this series discussed why residents should secure disability coverage sooner rather than later and examined some important terms and provisions to look for in choosing a policy.  In this final post, we’ll be discussing some provisions that allow you to increase your monthly benefits.

As a medical resident, you likely will not be able to obtain a high amount of disability coverage at first, due to your limited income.  Consequently, it is important to look for a policy that offers a way to increase your benefits in the future, as your earning capacity and expenses increase.  You can also, of course, just purchase an additional disability policy if you want to increase your monthly benefit amount, but there can be certain advantages to building benefit increases into your policy from the start.  For example, if your policy has a future increase option provision, you can typically increase the monthly benefits without undergoing any additional medical underwriting (which could otherwise result in exclusions being added to your policy if you have recently suffered from a new medical condition).

Here are a few of the most common methods of increasing the monthly disability benefit of an existing disability policy:

Automatic Benefit Increase

The automatic benefit increase rider adjusts your monthly benefit on an annual basis to account for anticipated increases in income after you purchase your policy.  The annual increases are typically for a term of five years, after which you will generally be required to provide evidence of your increased income in order to renew the rider.

Future Increase Option Rider

This policy rider guarantees you the right to purchase additional coverage at predetermined dates in the future without going back through the long and tedious process of reapplying for a policy. These riders can be attractive because often no additional medical underwriting is required.  Most insurers will not allow you to purchase this rider after age 45.

Cost-of-Living Adjustment (COLA)

A COLA rider automatically increases your benefit amount by a certain percentage every year to account for increased cost-of-living due to inflation.

Assuming that you will not face a short or long-term disability until you are older is not a risk you want to take. An individual disability insurance plan is a key component in making sure you are financially stable in the event you are no longer able to practice medicine in your chosen field.  However, not all plans are created equal.   Take the time to evaluate your financial goals and look carefully at the benefits provided by the basic terms, provisions, and riders of the policy you are considering.

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Disability Insurance: What Residents Need to Know – Part 3

In our previous posts in this series, we examined why residents should not wait to acquire disability coverage and discussed some key provisions to look for when selecting an individual disability policy.  In this post, we’ll be taking a look at a few more provisions you may want to look for when selecting a policy.  More specifically, we are going to look at some policy provisions that can help you meet your monthly expenses in the event of disability, along with some policy provisions that can help you plan for your retirement.

Student Loan Coverage Rider

If you are like most residents, you have accrued a significant amount of student loan debt.  The time it takes to pay off student loan debt varies widely based on income and other expenses.  Many doctors must practice for several years before they are able to pay off all of their student loans, and student loan obligations can be a significant monthly expense to meet if you are disabled and no longer able to practice.  Although not as common as other riders, a student loan coverage rider allows policy holders to insure their student loan for an additional amount each month, on top of their benefits.

Waiver of Premium

This provision allows you to forego paying your policy premiums while you are receiving disability benefits, freeing up a substantial portion of the monthly income you would otherwise be paying back to the insurance company.

Return of Premium

This provision, while not as common, entitles the policy holder to receive a refund of all premiums if he or she does not become disabled before the expiration of the policy term.  This can be appealing to residents, whose plans will be in effect for a long time.

Maximum Benefits

This important provision in a policy controls the period of time the insured is eligible to receive benefits.  Most plans pay benefits until age 65 or 67, some pay lifetime benefits, and others pay for only a limited amount of time, even if a claim is filed decades before the policy terminates.

Retirement Income

The majority of doctors under 40 list preparing for retirement as their top financial goal.[1]  There are several different disability policy riders directed towards this goal, including the following.

Graded Lifetime Benefit Rider:  This provision, based on its terms, extends some or all of your disability benefits past the normal end date of age 65 or 67.

Lump Sum Rider:  This rider provides for a one-time payment once the policy expiration age is reached.  Typically, policy holders must have received benefits for at least one year and the lump sum payment is typically a percentage of the aggregate sum of benefits received during the policy term.

Retirement Protection Insurance Depending on the insurer, this may be offered as a rider or a stand-alone policy.  If you become disabled and your claim is approved, your insurer will establish a trust for your benefit, where benefits are deposited and invested (similar to an employer-sponsored 401(k)), with funds likely becoming accessible after the age of 65.

Our next post in this series will discuss the importance of choosing a plan where benefits increase over time.

[1] 2015 Report on U.S. Physicians’ Financial Preparedness, Young Physicians Segment, American Medical Association Insurance, https://www.amainsure.com/reports/2015-young-physician-report/index.html?page=5.

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Disability Insurance: What Residents Need to Know – Part 2

In our previous post, we looked at how important it is for residents to have a plan to protect themselves financially in the unfortunate event they become disabled.  In this post we will address some critical terms to look for when comparing potential policies.

Perhaps the most important provision in your policy is the definition of “Total Disability.”  For physicians, dentists, and other highly specialized professionals who have invested both years and hundreds of thousands of dollars in their careers, a policy that defines “Total Disability” in terms of your inability to perform the specific duties of your “own occupation” (as opposed to “any occupation”) is critical.  If your policy defines “Total Disability” as being unable to work in “any occupation,” it will be much more difficult to establish that you are entitled to benefits, in the event you suffer from a disabling condition.

In addition to knowing and understanding your policy’s definition of “total disability,” it is also crucial to know how working in another profession is treated by your policy.   For instance, if you happened to be an oral surgeon with an essential tremor, you may no longer be able to operate safely on patients, but you may still be able (and want) to teach. Alternatively, if you happened to be a physician who did not take steps to increase your disability coverage to match your increases in earnings, working in another capacity may be the only way to maintain your lifestyle in the event of disability.  Consequently, it is also important to know if your policy will allow you to work in another capacity and still collect benefits.  Along those lines, here are a few other provisions you will want to watch out for.

No Work Provisions

These provisions mandate that you cannot work in another field and still receive benefits.  This can be problematic if you do not have sufficient disability coverage to meet all of your financial needs.

Work Provisions

These types of provisions require you to work in another occupation.  This, of course, can make it impossible to collect on your benefits if your disability prevents you from working.

In our next post we will look at how you can select a plan that grows with you over time, as both your financial obligations and income change.

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Disability Insurance: What Residents Need to Know – Part 1

 

As a medical resident who is just starting out, you have likely heard about disability insurance, but you may not know a lot about what it is, and why it is important.  In this series of posts, we will be discussing a few things that every medical resident should know about disability insurance.

In this post we will look at the likelihood of disability, and discuss how you can begin to protect yourself now and in the future.  In subsequent posts we’ll address some of the key provisions to look for in a disability insurance policy, ways to make sure your policy meets current and future expenses, and ways to increase your disability benefits over time, as both your earning potential and financial obligations expand.

Likelihood of Disability

As a resident, you are beginning what will hopefully be a long and successful career as a physician.  The possibility of suffering either a short or long-term disability is probably the last thing on your mind, especially if you are still young and healthy.  However, the American Medical Association (AMA) reports that 60% of surveyed physicians have a colleague who has sustained a disability accident or injury.[1]  A Social Security Administration report shows that it is significantly more likely that a worker born in 1996 will become disabled during his or her career than die,[2]  and just over 1 in 4 of today’s twenty-year-olds will become disabled before they retire.[3]

Protection Against Disability

The majority of young doctors under 40 are married, have children, are homeowners, and 75% report that they are their family’s primary breadwinner.[4]  Young doctors also face substantial student loan debt, totaling around $166,750, on average.  With a resident’s salary averaging just $50,000 a year,[5] it can be tempting to put off adding the additional expense of an insurance premium.  However, with most young doctors having less than $50,000 in an emergency fund [6], it’s never too early to start planning to protect your family and provide for care in the unfortunate event you can no longer practice.

While many residents and doctors choose to take part in disability plans offered by their employers, these plans will often not provide adequate coverage, and any benefits you do receive will likely be taxable. In contrast, an individual plan provides coverage that is yours as you move from your residency and through (potentially) many different employers. Individual plans also typically allow you to adjust your coverage as your income potential grows.[7]  However, not all individual policies are created equal and it is important to carefully choose a policy.

In our next post, we’ll examine some key provisions to be aware of when shopping for an individual disability insurance policy.

 

 

 

 

[1] Robert Nagler Miller, Residents: Your disability insurance coverage may fall short, AMA Wire, April 4, 2017, https://wire.ama-assn.org/life-career/residents-your-disability-insurance-coverage-may-fall-short

[2] Johanna Maleh and Tiffany Bosley, Disability and Death Probability Tables for Insured Workers Born in 1996, Social Security Administration, Office of the Chief Actuary, Actuarial Note, No. 2016.6, October 2016.

[3] You, disabled?  What are your chances?, The Council for Disability Awareness, 2015, http://www.disabilitycanhappen.org/chances_disability/

[4] 2015 Report on U.S. Physicians’ Financial Preparedness, Young Physicians Segment, American Medical Association Insurance, https://www.amainsure.com/reports/2015-young-physician-report/index.html?page=5

[5] Kathy Kristof, $1 million mistake: Becoming a doctor, CBS Money Watch, Sept. 10, 2013, http://www.cbsnews.com/news/1-million-mistake-becoming-a-doctor/

[6] 2015 Report, Supra.

[7] Miller, Supra.

[8] 2015 Report, Supra

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Are Benefits Taxable?

 

The Answer Is: It Depends

Whether your disability benefit payments are taxable depends on what type of policy or plan you have and how your premiums are paid.  This post is not intended as tax advice—we’ve outlined some basic information below only.  You should always speak with a tax professional regarding your particular situation.

Individual Policies:  These are policies that you purchase yourself.  Generally speaking, if you pay the premiums with after-tax dollars, the benefits you receive are tax free.  However, if you pay with pre-tax dollars or deduct your premiums as a business expense, then your benefits will likely be subject to federal income taxation.

Group Policies: Group policies are those offered through associations such as the ADA or AMA.   These types of policies offer special terms, conditions, and rates to members and function much like individual policies, with similar tax consequences.  Generally speaking, if you pay the premiums (with after-tax dollars) then the benefits you receive are tax free.

Employer-Sponsored Policies: These types of policies can be less straightforward when it comes to taxes, as the payment of premiums can be structured several ways.  According to the IRS website:

  • If your employer pays the premium and does not include the cost of the premiums in your gross income, then benefits you receive will generally be fully taxable.
  • If the employer only offers a policy, but you pay the entire premium without taking a tax deduction, then the benefits you receive will generally be tax-free.
  • If both your employer and you pay the premiums then the tax liability will generally be split.

If you are unsure what type of policy or plan you have, and you think your employer might be paying the premiums, you can look at your application (there is typically a portion that states who is responsible for the premiums) or talk to your HR department.  For more information, talk to your accountant.  You can also go to to the IRS website on disability insurance proceeds to find additional information.

It may be tempting to save money by enrolling only in a plan solely paid for by your employer, paying premiums with pre-tax dollars, or deducting premiums as business expenses.  But keep in mind that, if you do become disabled, the amount of your benefits actually available to you will substantially decrease if you are required to pay income tax on them.

Selecting a policy is an important decision, and how benefits will be taxed is a significant factor to consider. With statistics showing that one in four dentists will be disabled long enough to collect benefits at some point in their careers, choosing to save now could hurt you financially down the road.

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What is a Reservation of Rights?

When a disability insurance company is fighting a claim, it will often agree to pay benefits – but with a “reservation of rights.”  This is a particular problem for doctors, dentists, and other professionals whose claims are common targets for denial.  It is important to understand what this phrase means and how it can impact a legitimate disability claim.

When an insurer pays a claim under a reservation of rights, it is essentially providing a provisional payment.  Though the insurance company may be sending you a check, it is not admitting that it actually has any liability under the policy.  Instead, it is “reserving the right” to stop paying your claim if it can find evidence to deny it later.  Once the company denies your claim, they can also demand you to repay them whatever proceeds they have distributed to you.

This practice is good for the insurance company, as it buys it extra time to investigate – and often later deny – a claim without putting it at risk of violating the laws against undue delay in payment.  However, because the insurance company can still investigate the claim and then demand full repayment at any moment, the reservation of rights provides no peace of mind for the policyholder.  Fortunately, a disability insurance attorney can protect you from this uncertainty by properly presenting your claim and thoroughly monitoring the insurance company’s actions to reach a beneficial result.

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The 10 Biggest Legal Mistakes Physicians Make When Filing a Disability Claim (Mistake #8)

Next in the series of The 10 Biggest Legal Mistakes Physicians Make When Filing a Claim for Disability, excerpted from disability attorney Ed Comitz’s article of the same name, published by SEAK, Inc., 2005, is Mistake #8:

MISTAKE NO. 8:  Ignoring the Possibility of Surveillance

Insurers are likely to videotape or photograph physicians who have filed for disability insurance benefits.  Physicians who engage in any activities that they claimed they could not perform and are caught on tape are likely to have their benefits denied and the contract could be terminated.

Action Step:  Physicians should not compromise their policy benefits by submitting a fictitious claim.

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The 10 Biggest Legal Mistakes Physicians Make When Filing a Disability Claim (Mistake #7)

Next in the list of The 10 Biggest Legal Mistakes Physicians Make When Filing a Claim for Disability, excerpted from the article of the same name by disability insurance attorney Edward O. Comitz, and published by SEAK, Inc. (2005):

MISTAKE NO. 7:  Quantifying Time

Physicians should be wary of insurance companies asking them to compartmentalize in percentages what activities they were engaged in pre- and postdisability.  To the extent that there is any crossover, companies will often deny benefits or provide benefits for merely a residual disability.  It is important that physicians broadly describe their important duties—rather than their incidental duties—so that the insurer has a clear understanding of the thrust of their occupation.  For example, in response to a question about principal duties and the percentage of time spent on each duty, an anesthesiologist may be better off stating “100% surgical anesthesia” rather than compartmentalizing each and every incidental task (e.g., patient intake, supervising nurses during surgery, postoperative visits) into discrete percentages.  The reason is the insurer may erroneously consider an incidental task a “principal duty,” and therefore downgrade the amount of benefits.  For example, where a physician has duties as a businessman (e.g., supervising staff, overseeing payroll), the insurer may argue that the disabled physician can still manage his or her practice and is therefore only partially disabled.

Action Step:  Physicians should not quantify their time until after they fully understand the definitions of “principal duties,” “disability,” and “occupation” under their policy.

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The 10 Biggest Legal Mistakes Physicians Make When Filing a Disability Claim (Mistake #6)

[Excerpt from disability insurance attorney Edward O. Comitz’s article, The 10 Biggest Legal Mistakes Physicians Make When Filing a Claim for Disability, SEAK, Inc. (2005)]

MISTAKE NO. 6:  Engaging in Inadequate Communication with Treating Physician

Physicians should not discuss their claim or that they are considering filing for disability insurance benefit with their treatment provider until after they have had several visits.  Physicians are often reluctant to support claims for benefits if they question the motivations behind the claims.  A physician who has treated, without success, the physician making the claim will likely be more willing to cooperate.  It is also important that the physician making the claim communicate his or her symptoms and limitations to the treating physician in an organized and detailed manner so that all relevant information is recorded in the medical records, which the insurer will ultimately request.  When finally speaking to the treating physician about the claim, the physician should ensure that the treating physician understands the definition of “disability” under the insurance policy, so that he or she can accurately opine as to the inability of the physicians making the claim to work.

Action Step:  Physicians should fully discuss their condition with their treating physician to ensure supportive medical records and, after several appointments, work with him or her on submitting the claim for “disability” as defined in the policy.

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The 10 Biggest Legal Mistakes Physicians Make When Filing a Disability Claim (Mistake #5)

Mistake #5 in the list of The 10 Biggest Legal Mistakes Physicians Make When Filing a Claim for Disability, excerpted from disability attorney Ed Comitz’s article of the same name, as published by SEAK, Inc., (2005) is:

MISTAKE NO. 5:  Believing All Mental Conditions Are Excluded or Subject to Limitations

Most disability insurance contracts differentiate between mental and physical disabilities.  Most recent policies cut off benefits for psychiatric conditions after two or three years.  Insureds often blindly accept their carrier’s decision to deny or limit benefits based on these conditions without considering numerous relevant factors, including whether there are any physical aspects to the mental condition, whether the mental condition has a biological/organic cause, or whether another, covered condition was the legal cause of the disability.  Without exploring these issues in detail, insureds often blindly accept that certain conditions are limited or excluded from coverage when in fact they are not.

Action Step:  Physicians should understand their policy’s mental conditions limitation and work with counsel on submitting their claim in such a manner as to ensure payment of benefits.

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