Why Your Disability Insurance Won’t Protect You… And How To Fix It
By Christopher Hughey
As a national leader in disability insurance solutions for doctors, my company, InsureSTAT, offers unique products to supplement existing coverages or to enhance overall program values. Why is that important to you as a physician?
We know that the typical practice will provide a group Long-Term Disability Insurance platform that typically maxes out at 60% of income up to $10,000 (or in some cases $15,000) per month. With employer-paid status, the group benefits would become taxable as ordinary income, creating a hole that needs to be filled with individual protection. If you don’t think that gap exists, ask yourself this: if you currently make $250,000 a year and you became disabled, could you live on a pre-tax income of $108,000 a year? How about $72,000 a year? Probably not.
You may be tempted to stop reading at this point and say, “Look, I am only 40 years old and I’m in great shape. This doesn’t worry me.” Think again: from age 35 onwards, your career-long risk of suffering a long-term disability is 38%, and that disability period will average 82 months. So before you dismiss the risk, ask yourself what your life would be like if you had to spend the next seven years living on $72,000 a year pre-tax. And if you own or are a key contributor in a private practice, ask yourself what that means to the viability of the practice itself and to the jobs that depend on it.
Enter LifeStyle Value Guard built, backed by Lloyd’s of London, the largest insurance carrier in the world. This is an individually-owned disability insurance policy that works differently than a traditional disability policy. It pays monthly benefits to age 65/67. Rather than the “low and slow” approach, these policies will pay large lump sums every 6 months for up to 24 months on top of any existing individual and group disability insurance. In other words, the higher income earner who is capped at 60% or below now has a way to more fully insure income in the event of a disability.
Here’s an example of how the policy works. Suppose a doctor earns $500,000. S/he may have $15,000 per month of group disability insurance and another $10-15,000 per month of tax-free individual protection. With LifeStyle Value Guard (LVG) this individual can secure a plan that would pay $250,000 if disabled after 6 months, with additional $250,000 sum paid if still disabled at 12, 18 and 24 months. This policy will have paid $1,000,000 over 24 months TAX FREE to help the surgeon continue to fund 529 plans, fund retirement, pay off other debt, etc.
One of the significant keys here is that there is no reduction in traditional benefits. In fact, the Issue and Participation rules that govern the group LTD and individual disability insurance market don’t apply here. So a practice can pull its top earners and provide this type of coverage as an executive perk or offer it on a voluntary basis. To top it all off, in many situations, we can design these programs to be issued without any medical review at all! Yes, these plans, with minimal participation, can be offered on a guaranteed-issue basis. Keep in mind that we also have access to a proprietary group Long-Term Disability insurance platform built by a major insurance carrier and offered through a group Trust for medical practices, so we can leverage the lowest possible cost for group plans and individual lump sum protections, all without medical review.
For a new practice or one that has grown over time, we can design employer-pay options for physician and admin groups at certain levels with lower lump sums available on a voluntary basis for other employees. Typically, with only three or more employer-paid lives, we can get all plans issued without medical review.
Where can one secure an individually-owned policies with specialty occupation language to protect medical duties, pay large lump sums, allow the individual to maintain all existing coverage and get the plans issued without medical exams? For practices with an older, established partner group with younger physicians, physician’s assistants, nurse practitioners, etc., the cost for traditional disability insurance or getting all individuals insured via medical review can be tricky. With LifeStyle Value Guard and its flexibility and guaranteed-issue availability, we can often find solutions for a wide range of ages, health histories, varying levels of individual coverage already in place, etc.
Christopher Hughey is the founder and CEO of Fast Layne Solutions.