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  • Why should I get disability insurance

    Hello all, I have a question regarding disability insurance.  I am in the process of applying with Guardian for own occupation disability insurance. I am an internist at a large hospital.  My hospital offers disability insurance and this is what I have. I have a short term which would start paying out after being 5 days off work  and will cover up to 90 days with 60% of monthly income with a 5k max. I also have a long term which would start paying out 90 days after i'm out with 60% up to 17500. Now I spoke with guardian and they sent me an illustration of a disability insurance.

     

    here is what they said

     

    19k in current monthly earning

    11750 will be from my hospital

    4000 dollars is what the proposed DI benefit. The total annual benefit would be 47280.

    4000 dollars in proposed catastrophic DI.

    The base policy would be 4000 dollars a month, true own occupation. I have a future increase option of 8000 dollars a month, residual disability benefit rider, cost of liver adj of 3%, catastrophic benefit of 4000 a month, and an automatic benefit enhancement rider for a total premium of 2000 dollars a year

     

    Now here are my questions

     

    1. I would essentially be paying 2000 a year to cover 4000 dollars a month.  This is what Guardian would provide me.  The rest I would get from my employer.  I have a very modest lifestyle and dont see why I would nee an addition 4 grand a month. Am I missing something here?  My employer would probably give me 8K following taxes a month, this is plenty to live off.

     

    2. Now another consideration is that I may not stay with my current employer.  If I leave I obviously will not get the proposed disability benefit from my current employer.  I dont know what my future hospitals DI plan is.  If I were to sign with guardian and the hospital does not have a good disability policy would I be stuck with only 4K a month beneft from guardian?  Could i get more from Guardian?

     

    This is all very confusing. Term life was so much easier.  I just dont see the need for DI at this time with my current employer.  But I must be missing something but i'm not sure what? Any ideas?

  • #2
    Is the hospital provided insurance also True Own Occ?  That might be a reason to consider getting your own policy.

    Otherwise, it's really not that complicated.  I carried my own policy until 8 or 9 years after residency, then dropped it when I was able to consider myself (and family) financially independent.  I also a relatively modest lifestyle, which helps immensely on both the ability to save and the reduced size of the required nest egg.

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    • #3
      Establishing some level of individual disability insurance is important due to how group policies are designed. Even without getting into the contractual provision differences between your employer provided LTD and the Guardian plan, it would be wise to establish a certain level of individual coverage with a future increase rider. As you are aware, if you leave your current hospital, you will lose your employer provided LTD. That is why it is critical that your Guardian policy includes the future increase option (FIO) rider. It will allow you to increase your monthly benefit from Guardian without medical requirements in the event the scenario you outline in question 2 occurs. I recommend maximizing the FIO option. I also recommend including the residual disability benefit rider.

      Depending on your age, the cost of living adjustment (COLA) rider may not be mathematically cost-effective. You might want to explore what the premium would be without that rider on the policy. You can also do the same in regards to the Catastrophic benefit rider. However, those benefits do provide an additional layer of protection unavailable from employer provided LTD plans.

      Ultimately, I recommend settling on a premium amount you feel comfortable allocating for the security of having more comprehensive coverage that you can increase in the future should your current situation change. Ask your agent/broker to adjust the illustration accordingly.

       

       

       

      Comment


      • #4
        1. Group LTD policies are not true "Own-Occupation". Meaning, if you are disabled and can no longer practice as an Internal Medicine Physician, full benefits would be paid under an individual policy - regardless of the income that you earn in another occupation or medical specialty.



        Under the best of group LTD polices, you must be unable to do some or all of your job duties AND have a loss of income of at least 20% compared to your pre-disability income. As a result, if you are disabled out of Internal Medicine, work in another occupation and earn 81% or more than what you were earning as an Internal Medicine Physician, NO BENEFITS would be payable!



        2. Benefits under a group LTD plan are taxable (unless your employer adds the premiums that they pay on your behalf back to your taxable income) or you pay the premiums yourself with post-tax dollars. If your policy covers only 60% of your income and it is taxable, you will receive significantly less in the event of a disability.



        3. Generally, group LTD plans have limitations for claims related to mental/nervous and/or substance abuse disorders.



        4. Generally, group LTD plans do not include a Cost Of Living Adjustment (COLA) Rider.



        5. Generally, group LTD plans are covered under ERISA. As such, the claims process is much more daunting and you give up many of the legal remedies available to you with an individual disability policy.



        6. Group LTD plans are typically not portable, therefore, as you stated, if you change employers and you new employer does not provide you with coverage, you will then need to purchase an individual policy and hope that you qualify medically as you do today. Premium rates will also be higher as you will be older at that time. With the Future Increase Option (FIO) Rider on the Guardian policy, you can potentially increase your coverage, regardless of your health. The only factor will be your then current income and disability insurance inforce at the time of the exercise (both individual and employer provided/sponsored group LTD).



        Keep in mind that depending upon how long ago you completed your residency, you may qualify for a higher amount than the $4,000 month under the "New In Practice" Limits for Internal Medicine Physicians.

        Comment


        • #5
          I agree with gadoc that he has enough coverage already. It does not seem reasonable to get his own disability insurance especially if he lives below his means. If he does not plan to stay with his current employer, he should make sure that his group disability insurance is as good if not better with the next employer. Also what retirement matching does his employer offer and what are the cost of the retirement plan? This are serious considerations and may be more important  to the your ability to retire than disability insurance ( Hopefully there should be room to negotiate if he plans to change employers).

          Physician in Fire makes an excellent point and to become as quickly financially independent as quickly as is reasonable. The return on investment of not needing insurance is tremendous.

          Lawrence Keller makes an excellent point as to paying premiums by your employer are taxable and that it is much harder to collect for group LTD. It is disturbing that it has become is harder to collect on disability claims as I understand especially for doctors. Any good articles regarding this?

          I would greatly appreciate if Lawrence Keller or any other poster would share data how hard it is to collect on group LTD as to individual LTD and how it may vary among  the different companies,

          Comment


          • #6
            Hi gadoc,

             

            I agree that you have enough disability insurance already. I applaud you living a modest live style and not needing more insurance.

             

            Physician in Fire makes an excellent point as to becoming financially independent and then not needing any LTD.

             

            Lawrence Keller makes a great point as to pre and post tax premiums as to if your payout will be taxed and that group LTD are limited and are harder to collect on.

            I would greatly  appreciate if Lawrence Keller ( or any poster)  would share any data/articles as to how disablity rates/paid premiums and pay outs may have changed over time especially in respect to group LTD versus individual LTD.

             

             

             

            Comment


            • #7
              I was covered by my medical group, but I still paid for a very expensive private policy for all the reasons cited above.  I was primarily concerned about portability.  I never used my policies, and have since dropped them as they are no longer necessary for me, but I have no regrets.

              A good friend is collecting on his policy. He became disabled unexpectedly  2 years out of residency, and fortunately had an excellent policy with the maximum possible benefit.  His disability made him unable to practice his procedural specialty, although thus far he is able to do almost everything else.

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