Most of us don’t give much thought to insurance after the initial research and purchase. Once you buy a long-term disability policy, you’re good to go, right?
Not necessarily.
Many physicians purchase an individual long-term disability plan in residency and then forget about it. The problem is, as their income increases, many of these physicians fail to increase their long-term disability coverage along with it.
“Most people don’t think much about long-term disability — unless they have a claim,” says Scott Dial, Disability Income Supervisor for Guardian Life Insurance Company's Financial Process Group in Dallas, Texas. “Then the world changes dramatically, because their long-term disability benefit may be their only source of income. I’ve been doing this for decades, and I look at physicians’ tax returns every day. The vast majority of physicians are living month to month just like everyone else. They’re living a higher lifestyle, but if something happens, they’re in as much of a world of hurt as anybody.”
What is the future insurability option?
Typically, when you purchase a long-term disability plan, you have the option of paying a bit more premium for the option to add extra monthly coverage each year. You can add a total of up to $11,000, depending on the policy, before you turn a certain age (usually somewhere between 45 and 55) without having to pass a medical exam.
This comes in handy for physicians, who may need only $2,000 or $3,000 in monthly coverage when they’re a resident, but will need more once they are making more money. However, in any given year, even if they have purchased future insurability with their policy, Dial estimates that only 10 percent of policyholders take advantage of it.
How the future insurability option can make a difference
Here are two stories that show the importance of the future insurability option:
Scenario 1:
David Smith, a pediatric resident, buys an individual long-term disability plan from an agent he met through a friend. David’s policy provides about $5,000 a month in benefits and includes a future insurability option, which allows him to increase his monthly coverage to $10,000 per month.
After leaving residency, David moves out of state and joins a practice, increasing his income dramatically from the $35,000 he was making in residency to around $300,000. By this time, he has not been in contact with the agent who originally sold him the individual policy. Every year, David gets a letter from the insurance carrier reminding him of his future insurability option, but he either mistakes the letter for junk mail, or he opens it and puts it in a pile of things to do later. He never gets around to taking advantage of the future insurability option.
At 55, David has a stroke. He is paralyzed on his right side, and it takes him about a year to recover enough to go back to work. During that time, his disability payments are only $5,000 a month — not nearly enough to pay his bills. By the time he is practicing medicine again, he is thousands of dollars in debt.
Scenario 2:
Jane Anderson, a surgeon, buys an individual plan that has a future insurability feature. Her original individual policy offers $3,000 per month in coverage if she becomes disabled. Over the next nine years, her agent checks in with Jane annually and she uses her future insurability option to increase her monthly disability benefit an additional $9,000 without a medical exam. Her policy also has an “own-occupation” feature, so if she becomes disabled, she will still qualify for the benefit, even if she can work at a job outside of her specialty.
When Jane is 51 years old, she develops a tremor. The tremor becomes so severe that she can no longer work as a surgeon. Jane files a claim to receive her long-term disability benefit, and begins receiving $12,000 per month in benefits. A few years later, her alma mater calls and offers her a teaching position. Since the job is outside of her “own-occupation,” she is able to teach while still receiving her long-term disability benefit. (Policies without the “own-occupation” feature stop paying or reduce the benefit if you go back to work at another job with a comparable salary, but hers allows her to work at another job outside of her specialty and still receive benefits). With Jane’s long-term disability benefit and her teaching job, she has plenty of income to maintain the lifestyle she had before she left surgery.
Start out right
Jane made the right move by choosing an agent who followed up with her every year and personally reminded her of her future insurability option.
James Prescott, Associate Administrator of TMAIT, suggests that starting out with the right agent is one key to making sure you have the right coverage throughout your career. “When you’re talking with an agent about long-term disability coverage,” Prescott says, “ask him or her if he or she is going to follow up with you regularly to make sure you have the right amount of coverage.” It’s also important, Prescott says, to make sure your agent knows how “future insurability” and “own-occupation” features will affect you as a physician.
Finding a knowledgeable and committed agent, making sure you have a policy with an “own-occupation” feature, and taking advantage of your future insurability option when your income goes up, are all key in making sure you have the long-term disability coverage you need.