Insuring your income? The ins and outs of disability insurance for physicians

Between home, car and practice-related insurance policies, many physicians have quite the pile. But when it comes to insuring what is likely the biggest financial asset in your lifetime—your income—it’s important to choose the right product and options. “No one plans to become so sick or disabled that you can no longer do what you’re trained to do,” says Jarrett Holmes, a Winnipeg-based financial planner. “But it can and does happen, so it’s important to be prepared.” One of the best ways to protect against loss of income from a disability is with disability insurance. If you’re still on the fence about this, it’s time to make up your mind, says Alan Acton, portfolio manager at Polaris Wealth in Ottawa. “The 1% who shouldn’t take it already have it,” he says. “If you’re with the federal government or with big pharma, then you have group coverage. But otherwise, if you’re a regular physician running your own practice or working for someone who does, then you should have disability insurance.” There are a number factors to consider in choosing a policy, or updating the insurance you already have. Read: Financial fables: The importance of disability insurance Association plans versus individual contracts Group plans, such as those offered by provincial medical associations, deliver great value, but typically change in cost and coverage over the years, says Acton. That’s because these group plans are based on so-called age-banded premiums, where group members pay a rate based on their age–usually the younger you are, the cheaper your premiums. “Private company plans have level premiums to age 65, so the cost is the cost and it will not increase." Holmes says another key difference between individual and group plans is their policies on cancellation and renewals. Individual plans are non-cancellable and guaranteed renewable. By comparison, most association policies are guaranteed renewable but can be cancelled or changed. Your choice of group or individual insurance could also affect whether or not you’ll need to pay taxes on disability benefits. It’s a good idea to talk to your financial advisor or accountant before making a decision. Read: Financial essentials for mid-career doctors Is ‘own occupation’ worth the extra cost? Own occupation is a provision or rider that allows you, if you become disabled, to work and earn income from another occupation while also collecting disability benefits. The key proviso in an own occupation rider is that you have become unable to carry out the duties in your current role because of a disability, notes Holmes. Depending on the policyholder’s income, own occupation could add a few hundred dollars or as much as $1,000 a year to disability premiums. “I think it makes sense for many physicians to take own occupation given the likelihood of them being able to work in another occupation, for example, as a professor,” he says. “But if you really don’t foresee the likelihood of doing anything else if you become disabled, then obviously you wouldn’t need own occupation.” In addition to own occupation, disability insurance providers usually also offer riders such as cost-of-living adjustment—which aim to ensure payouts keep up with inflation—and a future income option that lets you increase your benefits as your income goes up without having to go through a medical exam. Some plans also offer return-of-premium, which allows policyholders to get back a percentage of their premium if they don’t make any claims against the policy. “I always recommend the gold-plated option,” says Acton. “They do cost more but they offer more, particularly in terms of tailoring the product for you.” Read: Doctors need sick pay too Read the fine print Costs, coverage and benefits can vary from one insurer to another. In addition to comparing premiums, make sure you pay close attention to how each provider defines disability. It’s also important to look at whether a provider only covers disability from an injury or also includes disability from an illness. Some also offer reduced or residual disability benefits, which would apply if your condition does not meet the insurer’s definition of total disability. Another important detail to consider is how the benefits are calculated. Some providers, for instance, will base payouts on your last five years of income, while others will only look at the last one or two years. Physicians might also want to take into account the duration of the payout period, and whether or not you can also collect benefits from another similar program. One size does not fit all Every case, every physician is different, says Holmes. That’s why it’s important to take the time to sit down with your insurance provider or financial advisor to look at the offer on the table and compare each component to what you want and need. “If you’re only reviewing your insurance policy when you become disabled, you might be in for a few unpleasant surprises,” says Holmes. “Insurance can be complicated, which is why it’s often misunderstood.” Read: Six financial essentials for doctors just starting their careers

Insuring your income? The ins and outs of disability insurance for physicians

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