Make Sure You’re Fully Covered for a Partial Disability
Most physicians understand how important it is that their disability policy includes a true “own occupation” definition of total disability with specialty wording because it’s not just their income they’re protecting; it’s also their specialty which generates the income. Many people do not understand the importance of being covered for a partial disability.
Under an “own occupation” total disability definition, a physician is considered totally disabled if he or she is unable to perform the specific duties of the occupation he was doing prior to the time of his disability; What about a situations in which you become only partially disabled?
Would your disability policy replace your lost income if you had to reduce your work hours or were unable to perform some of the duties of your occupation?
Many disabilities are classified as “partial” when a person can do some of the work he was doing prior to the injury or illness, but not all, or not full time. Physicians are especially susceptible to a partial disability. In some cases, they may initially be totally disabled, but then, after a period of recovery, they may be considered partially disabled as they regain the ability to perform some of their job duties.
In typical disability insurance policies, a person who is partially disabled would receive a proportion of their monthly benefit relative to the percentage of lost income while they remain partially disabled.
In real terms, if a young physician earning $120,000 a year lost half of his income during a period of disability, he would receive half of his maximum monthly benefit. If his maximum monthly benefit amount was $6,000, he would receive a benefit of $3,000 per month or $36,000 annually. When added to his remaining income of $60,000, he would have $96,000 of total annual income (80% of his pre-disability income ($96,000 / $120,000). While this could definitely be a hit to his lifestyle, he will hopefully be able to make adjustments. The strongest policies on the market will pay a partially disabled physician the actual amount of income lost for the first 12 months of the partial (sometimes referred to as residual*) disability. These policies can pay a benefit sufficient enough to replace all of your lost income.
At the end of the 12 month period of receiving the actual loss of income benefit (up to the maximum monthly benefit for total disability), these policies will then begin to pay a benefit that is proportionate to the percentage of lost income, like the example shown earlier:
Consider our prior partial disability example. Our partially disabled physician qualified for a $3,000 partial disability benefit for his 50% loss of earnings. With a loss of income benefit, this physician would have instead been eligible for a monthly benefit of $5,000 during the first 12 months of partial disability – substantially more. The greater your income, the larger the difference is between a proportionate benefit and one that replaces lost income.
There are a lot of moving parts in a disability policy; each part needs to be thoroughly understood if the policy is going to provide the level of protection you need and expect.
It’s important to have your policy reviewed by a highly qualified disability insurance specialist. Take a close look at the wording in your existing policy or in the quotes that you receive if you are considering purchasing disability insurance. A partial, or residual, benefit is very important, and so is your income.
The best way to know that you will have the strongest plan in place if you become sick or injured is to work with a specialist that understands the fine nuances of disability insurance policies, especially for those that will protect high income earning physicians.