Risk Management

Disability Insurance Works When You Can’t

By Geri Layne Craddock, CLU
Vice President at Seabury & Smith, Washington, DC

[Digest, Summer 2001]

Have you ever stopped to consider how you would maintain your income if you were to suffer a disabling accident or illness? Many people believe that Social Security would be enough to protect them if they could not work. In fact, Social Security contains a very narrow definition of disability under which many situations are not covered. Additionally, Social Security benefits often are considerably less than private or group insurance benefits.

Workers’ compensation insurance should not be confused with disability insurance: workers’ compensation covers only disabilities that occur on the job. Disability plans offered by employers vary considerably in coverage length and percentage of salary that is covered. Many employers do offer disability insurance, but often it’s short-term coverage-generally one to five years-and may be grossly inadequate for those who suffer a long-term disability, such as paralysis or back injury.

At first glance, the cost of disability insurance might seem high. But it is important to remember that this is basic and essential insurance protection for people who rely on their regular income. According to the U.S. Census Bureau, one in five Americans were disabled in 1997.¹ The American Council of Life Insurers maintains that a 35-year-old is six times more likely to become disabled than to die before he or she reaches age 65.² Clearly, disability insurance may be even more essential than life insurance.

If you are interested in securing disability insurance, shop around and compare plans. Remember to weigh the cost against the potential benefits you would receive if you were unable to work for two, five, or twenty years. Examine these key elements as you compare policies:

Definition of “total disability.” This could be the most critical feature of your policy. Under many policies, you must be unable to perform any job for which you are qualified. One way to protect the educational investment you’ve made in your career is with own occupation coverage. Own occupation policies pay benefits if you are unable to engage in your own occupation even if you are able to return to work at a lower paying job that is not in your field. Some policies even consider a recognized medical specialty, such as ophthalmology, to be your occupation.

Length of benefits. Ideally, you should look for long-term coverage that protects you until age 65 even if you have to opt for lower benefits to keep the premiums more affordable.

Amount of coverage. To ensure that you have incentive to return to work, most plans set limits on the percentage of income you can insure, usually 50% to 60% of your total gross annual earnings. If you have an employer-provided plan that provides only limited coverage, consider purchasing supplemental coverage from another source.

Waiting period. The elimination or waiting period is the amount of time you must be disabled before your benefits begin-the shorter the waiting period, the higher the premiums.

Taxation of benefits. Benefits may be tax-free if you pay the premiums out-of-pocket, so check with your tax advisor.

Residual benefits. After a serious disability, many people return to work on a part-time basis for part-time pay. Residual or partial benefits can allow you to receive a combination of income and disability benefits until you fully recover. Without this feature, your benefits would most likely stop as soon as you return to work.

Financial strength of the insurance company. Find out as much as you can about the insurer. High ratings from A.M. Best Company, Standard & Poor’s, Moody’s Investors Service, or Fitch Ratings are good indicators of financial strength. Each of these independent rating companies have web sites where you can access information about various insurance companies.

Portable coverage. Having your own policy outside of your employee benefits allows you to move from practice to practice without fear of losing your coverage. Association-sponsored insurance is an excellent resource for that reason.

A valuable benefit of your Academy membership is your access to its many sponsored insurance programs, which have been individually tailored to meet the specific needs of ophthalmologists.

If you would like an information kit sent to you on the Academy’s Group Disability Income Plan,³ including plan features, cost, eligibility, renewability, limitations, and exclusions, call Seabury & Smith, the Academy’s life and health insurance administrator, at (888) 424-2308.

Notes:

1. Taken from www.census.gov.
2. Taken from www.insure.com/health/longtermdisability.html.
3. Underwritten by New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010.