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Disability Insurance


As a doctor your most important asset is your future income.  In order to help ensure your income many doctors purchase disability insurance. It is important when purchasing disability insurance that you know there is no such thing as a better insurance company, it is most important to find the right product that works for you. Here are some common questions that you may have about disability insurance. 


Do I need disability insurance?


Everyone who works and earns a living probably needs disability insurance. If you suddenly became disabled and were unable to work, could you still meet your financial obligations? Could you get by without having to use savings or borrow from relatives? If not, you'll want to make sure that you have adequate disability insurance coverage that is designed to pay your expenses while you are disabled and cannot work.

Because you have to meet a strict definition of disability to qualify for benefits from government programs (e.g., Social Security), you shouldn't rely on them as your only sources of income if you became disabled. Instead, find out if you have group disability insurance through your employer. It may be paid for by the company, or you may pay part of the premium. If disability coverage is not available at work or if you are self-employed, you should consider purchasing an individual policy from a private insurer. Generally, most policies pay between 50 and 70 percent of your gross income and can last anywhere from a couple of months to age 65.


Can I get disability insurance if I’m self-employed?


Yes. In fact, if you're self-employed, disability insurance is even more important for you than for the average employee. If you are injured and are unable to work, you don't have the built-in luxury of paid sick leave to tide you over. So you'll want to take a serious look at your financial situation and decide whether your cash reserves are sufficient to carry you through an extended disability. If not, disability insurance is a good idea for you. At any age before 65, you are statistically more likely to suffer a disability of more than 90 days than to die unexpectedly.

If you purchase it, disability insurance could be the only thing that prevents you from losing things such as your home or your business. When you're unable to work for an extended period of time because of an injury or illness, disability insurance provides a financial safety net by paying you monthly benefits until you are able to return to work. Since your business is likely your only source of income, your disability insurance policy should have as short a waiting period as possible. Most disability policies offer waiting periods of 30 to 180 days after the onset of the disability. When applying for the insurance, you can choose a policy with the waiting period and benefit period you want. Keep in mind, however, that your premium will increase as the waiting period gets shorter and the benefit period gets longer.

Being self-employed, you'll have to purchase this insurance on your own. The availability of coverage will depend on factors such as your occupation, whether you work from home, and whether you have any risky hobbies


I receive disability insurance payments. Are they taxable?


Federal income taxation of disability insurance benefits depends on what type of benefits you receive, whether the premiums were paid with pretax or after-tax dollars, and who paid the premiums (you or your employer).

The disability proceeds are taxable to you if your employer paid all of the disability premiums for you and did not include the amount in your gross income, or if your employer paid you directly while you were disabled. If you paid all of the premiums with after-tax income, or if your employer made the contributions and included the amounts in your gross income, any disability insurance benefits paid to you are exempt from tax.

If your employer pays part of each premium and you pay the balance with after-tax dollars, you won't owe income tax on any disability benefit that can be attributed to your portion of the premium. However, you will owe taxes on the portion that can be attributed to your employer's contribution.

For example, Mike contributes $30 per month (after tax) to a disability plan. His employer also contributes $30 per month to the same plan. Mike becomes disabled. Under the terms of the disability insurance contract, Mike receives $3,000 per month for each month he is disabled. Since Mike's employer paid 50 percent of the disability premiums, 50 percent of the benefits will be subject to tax, and $1,500 per month will be subject to income tax.

Different rules may apply if you receive disability benefits through a government disability program, such as Social Security, Veterans Administration, or the military. In addition, different rules apply to workers' compensation. For more information, consult a tax professional.



How can I reduce the cost of disability insurance?


Start by finding out if you're eligible for disability benefits from a group disability insurance plan. For the most part, group insurance is less expensive than individual policies. Keep in mind, however, that group insurance offers fewer and less flexible benefits. You'll want to check with your employer, insurance agent, professional association, or state insurance department to find out what group plans you're eligible for.

If group disability insurance is not available to you or if you need additional coverage, there are several strategies you can use to make individual disability coverage more affordable:

• Lower the monthly benefit you would receive if you became disabled. Most disability income insurance policies offer a range of benefit amounts that you can choose from.

• Increase the waiting period before benefits begin to match up with a short-term disability policy. Waiting periods can range anywhere from one month to several years. If you decide to lengthen the waiting period, commit yourself to establishing an emergency cash fund that will cover your expenses during that time.

• Check your policy to see if you're paying for any optional coverages you could do without and can omit from your policy.

• Shorten your benefit period. Typical benefit periods include one, two, five years, and up. However, exercise caution. This strategy may be the least cost effective if your benefits stop before your disability ends.

Note: Before you make a decision on disability insurance, review your financial situation to see how much coverage you need. One of the dangers in trying to reduce the cost of disability insurance is that you'll end up with a policy that doesn't adequately protect you. We recommend you buy the best coverage you can afford. Sometimes, however, it comes down to this: Either you buy no disability insurance or you buy a low-cost policy. In this case, any coverage you buy is better than no coverage.

Guarantees and benefits provided by life insurance products are subject to the claims-paying ability of the issuing insurance company.