It is disability insurance season, and that means lunch and learns, consults, and general confusion on what plan to pick as everyone you speak with has a horse in the race.
Below is a guide on how the policies are structured, how the discounts work, FAQ's and consult specific observations.
This is the amount the insurance company will pay you on a monthly basis should you become disabled. $5,000 is typical amount shown as you qualify for that just by being a graduating dentist.
For those of you going into residency/specializing, you might look at a $2,000/month policy to keep cost low and lock in discount. If you have children, getting a higher benefit out of school might make sense and you just need to show your employment contract.
This is the time period before your disability policy starts paying you (think of it as a waiting period). This is why we ensure you have your 6 months of emergency savings taken care of first, so there is cash in the bank until a disability policy kicks in.
90 days is the standard elimination period for your policy. A shorter time period costs more, and a longer period costs less, but puts too much stress on the cash on hand needed to cover yourself until the policy starts.
This is the time period your benefit lasts until. The policy you are looking at should be "non-cancellable and guaranteed renewable".
Meaning, as long as you pay your premium (cost of policy), then the insurance company cannot cancel or raise the rates (unless you agree to a benefit increase). Age 65 is the typical benefit period. Shorter goes down to a 5-year benefit period, and you can go up to age 70, but it gets too pricey for that time period.
This is a fancy way of saying it is an added benefit to the policy. Some riders come at an additional cost, and some are at no extra cost. If it comes with an additional cost, it is important to ensure that it is worth the cost and is just not there to inflate the cost of the policy (ie make more money for person selling it to you).
Probably the most important rider on your policy. Some include it in the base policy. This states that should you be disabled and you are unable to perform the material and substantial duties of your occupation (i.e. a practicing dentist), you can work in another occupation and not have your disability benefit reduced.
An example of this would be the professor who was a practicing dentist, became disabled, and then became a professor, who would still get his disability payment regardless of their salary as a professor.
Consider this the "part-time" rider. Should you become disabled and have a loss of earnings (typically 15% or more), but you can still work, you would receive a partial benefit.
If you become disabled and are on active claim, your policy receives a typical 3% increase every year to keep pace with inflation.
Provides an additional benefit if you're unable to perform two or more of the six activities of daily living, become cognitively impaired, or are irrecoverably disabled.
Example: If your existing benefit is $5,000/month and you qualify for your Catastrophic Rider (another $5,000/month), your total monthly benefit becomes $10,000.
Gives the monthly benefit a 3% or 4% increase annually without financial/medical underwriting. An easy way for your monthly benefit to keep pace with inflation without doing anything.
Each company is a little different in how they present this, but it is very important. This allows you to increase the monthly benefit (i.e., going from $5k/month to $10k/month) without medical underwriting, only with financial qualification, and for some, combined with a life event.
Generally, some policies require you to do this every 3 years to maintain the rider, or some allow you to do it on demand as long as there was a qualifying event (20% increase in earnings, job change, etc.). A critical rider to maintaining flexibility down the road.
This is one of the biggest reasons why you would purchase as a graduating D4. The discount stays with you for the life of the policy.
For example, if you buy a $5,000/month policy now, when you increase it to $10,000/month, the discount is applied to the additional benefit. A very large savings throughout the years. Typical discount is from 10% - 20%.
Provides an additional 10% for limiting any mental nervous/substance abuse claims to a 2-year benefit period. Meaning, if you were disabled for substance abuse, the insurance company would pay the benefit for 2 years.
Generally, you want the application in and approved before graduation to secure the discount. You don't start paying until you start working.
Be very careful here. Group policies are inexpensive, easy to get, and can have decent coverage. However, if you leave that institution, the group policy does not go with you.
For example, if you went to work at a private practice, you would have to go to the private market to buy a disability policy, and it would not have the discount, and you would have to go through medical underwriting. Always purchase your private policy as a D4 to avoid this trap and create flexibility.
You can purchase a smaller policy (typically around $2,000/month) to lock in the discount, medical insurability, and then you would increase the policy once you finish your program.
The commission is built into the product, so the individual selling you the policy will be paid directly by the insurance company.
You are being shown policies with the "supplemental benefit term" rider. Be cautious with this; it is only for a set time period.
If you become disabled in the 8th year of the 10-year period, then you only receive the benefit for 2 years. Generally, it is more efficient if you put your extra dollars towards an additional monthly benefit.
It has been observed that you are shown a particular company that does not include a discount. You are overpaying in this case. All of the policies you are looking at should have the student/multi-life discount.
Ask yourself:
Our core offerings include student loan planning, overall financial planning, investment management, practice owner retirement plans (401k), and more.
Just because an agency has been selling disability insurance to D4s for 20+ years doesn't mean they're showing you all options.
Ask around to individuals who have already met with us, and if they received value beyond a typical consult.
Virtus Financial Partners is an investment advisor registered with the U.S. Securities and Exchange Commission. Any statement of past performance is not indicative of future returns. Virtus does not provide legal or tax advice. You should consult with your attorney or tax professional for any advice pertaining to legal and/or tax questions you have.
