The medical profession is remarkable in many respects, but in particular, the one aspect that sets it apart from all most other professions is the meteoric rise in earnings most medical professionals experience beginning the day they complete their residency (or fellowship). And, unlike most other professionals, physicians are especially aware of the need to protect their ability to generate their income. But, when it comes to protecting their high income potential, they need to know that their disability coverage can and should continue to protect them at the next level and beyond. More specifically, they need to know what their future increase options are for increasing their disability coverage. These options can also be referred to as “benefit update rider”, “future purchase options”, “benefit purchase rider”, etc. Below is an initial discussion of the mechanisms in a disability contract that will assist you in protecting future income as a medical professional.
Protecting future income as a medical professional
Physician Disability Income Protection Diminishes with Higher Earnings
According to the 2013 Report on U.S. Physicians’ Financial Preparedness, 86 percent of physicians purchased their disability coverage while in residency or soon after beginning their career. And, nearly 50 percent report not having reviewed their coverage in the last five years or since it was purchases. Yet, it is not uncommon for newly minted physicians to see their income triple or even quadruple within a matter of years. With disability income benefits providing benefits for roughly 60 percent of their income, they can very quickly become deficient in protecting a physician’s most valuable asset.
For example, resident physicians might qualify for a $5,000 monthly benefit which is often higher than their earnings amount. But once in practice, their earnings can quickly climb to where that monthly benefit might only cover 40 or 50 percent of their income. New physicians who complete residency or fellowship often see their income quadruple (depending on their specialty and the region in which they’re practicing).
What’s Your Future Increase Option?
Most physician-specific disability insurance policies offer a policy rider that provides for future benefit increases based on actual earnings. These Future Increase Options (FIO) or Guaranteed Insurability Option (GIO), are especially valuable because they allow for benefit increases without evidence of insurability, just evidence of earnings. Some policies include these options as part of the contract while others offer it as an additional rider. Most group plans don’t offer an FIO rider.
If your policy doesn’t have the option or you did not elect to add it to your coverage, your only alternative to increase your monthly benefit is to purchase an additional policy with full medical underwriting. The real risk of purchasing additional coverage to cover future income increases is that you could develop a medical condition that could disqualify you for coverage or, at the very least, increase its costs dramatically or lead to specific body parts or illnesses being excluded from future claims payments under the terms of the policy.
So, it is vitally important to know whether your disability policy has an FIO or offers it as a rider, and then know when and how to exercise the option. Most policies provide opportunities to increase coverage at certain policy year increments. Some offer more flexibility and frequency for exercising these options than others.
The sudden rate of income growth that is seen upon graduation from training is but one more reason why physicians shouldn’t settle for the least expensive or expedient disability insurance policy. It’s also the biggest reason why they shouldn’t just toss their policy in a file and forget about it. For physicians and dentists, disability income planning should be viewed with the same level of importance as investment management or any other aspect of financial planning with constant reviews and adjustments being considered.
Next time you see your annual disability insurance policy statement, don’t just file it away. Remember, you may have options within your policy that can help to protect a growing income.
*Restrictions and limitations apply. While medical information is not required when exercising a future increase option, applications to exercise an increase option will be financially underwritten, taking into consideration both the applicant’s then current income, as well as all disability insurance which is then in force, or for which the insured has applied or is eligible to receive.
** Optional riders are available for an additional premium.