Insuring your income by purchasing a personal disability insurance (DI) policy is one of the first steps in anyone’s financial plan. Our income supports our lifestyle, investments, well-being, and families. Without it, we have few options as our new occupation will presumably provide significantly less income in the event that we become sick or hurt. When you consider the high earning potential of a dentist or specialist, protecting yourself against this event becomes even more critical.
So, what is the best DI policy?
Simple, the one that PAYS YOU in the event of a claim.
The problem is, disability insurance has so many moving parts that determine how clients receive benefits and each one could increase or decrease the cost significantly. It is imperative to have a basic understanding of how each option works to purchase a policy that fits your budget and needs.
Own Occupation
The “true own occupation” definition of disability has long been the gold standard of DI. Only a limited number of companies specifically recognize your dental specialty as your own occupation. Under this definition, if you cannot perform the primary duties of your regular occupation, you would be considered totally disabled, even if you choose to work in another occupation and regardless of how much you earn.
Unfortunately, many companies have stopped offering own-occupation policies to dentists. Many insurers now offer occupation specific coverage for a limited number of years, and limit monthly benefits depending on if you have income from outside sources (i.e. social security and group policies). With the “modified own occupation” definition, benefits may be reduced by such earnings, or even terminated if the policy does not include a residual disability feature. With a “transitional own occupation” policy, benefits may be capped once the combination of disability benefits and other earnings exceeds your pre-disability earnings. Typically, DI policies that include these definitions are much less expensive than true own occupation coverage.
Waiting Periods
Waiting periods also play a role in how much you will pay. Consider this to be a deductible on your DI policy. Once you satisfy a certain number of days of not being able to work, the insurance company begins to pay you a monthly benefit. One way to reduce your disability premiums is to choose a longer waiting period before benefits kick in. Most policies default to a 90 day waiting period. The 60 day option might cost 50% more than the 90 day period, but the 180 day may only reduce your premium by 10%. Keep in mind, that disability payments typically don’t begin until 30 days after the waiting period ends. Therefore, step two of financial planning: making sure that you have emergency reserves to get you through this time.
Because insurance is a long term promise, dentists need to make sure that their insurance provider is financially secure enough to foot the bill when a disability occurs. With monthly benefits of up to $16,000 per month and higher, some insurance companies might not be able to properly compensate their customers over a long period of time. Every dentist and specialist needs to do research on whichever company they choose to ensure that their finances will be protected in the event of a claim.
Final thoughts
When you’re ready to purchase disability insurance, consider using an insurance broker who specializes in this coverage. It is important to compare quotes across multiple insurance companies to ensure that you purchase a policy that is customized to your particular situation, at the lowest cost available. When it comes to creating a financial strategy, few decisions are as important as choosing the right disability insurance policy.
At the end of the day, the person who has never purchased a DI policy and never gets “sick or hurt” has made the best financial decision. For the rest of us, I prefer spending about 2-3% of my income to purchase a disability insurance policy that will potentially cover 90% of my pre-tax income.
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