Common Sense

Ask the Expert - March/April

Joel Schofer, MD
LT MC USN, Naval Hospital

“Ask the Expert” is a Common Sense feature where subject matter experts provide answers to questions provided by YPS members. This edition features a leading authority on insurance and financial planning; Shayne Ruffing, CLU ChFC is a Chartered Financial Consultant, Chartered Life Underwriter and Accredited Estate Planner with the Potter Financial Group.

Question:

What is disability insurance, and how much coverage do I need?

(Submitted by Michael A. Bohrn, MD FAAEM FACEP, Associate Residency Program Director, Clinical Assistant Professor, Department of Emergency Medicine)

Answer:

Disability Insurance for Emergency Physicians: What you Need to Know in 2007

by M. Shayne Ruffing, CLU ChFC

As EM practitioners, the ongoing rate of disabling injuries should be no surprise to you. In the first 20 years of a career, your disability income program is one of the most vital components of your financial plan.

The following summary is intended to be a “nuts and bolts” overview of disability terms and issues. An understanding of these terms will allow you to make an informed purchasing decision.

Simplistically, disability insurance is a product that replaces your salary in the event that you are unable to work. Consider this:

  • You have just started in practice with a $200,000 salary. Even though this is four times your residency income, you have fully allocated your new monthly income between your living expenses, loan repayments, retirement contributions and savings goals.
  • Two months into your new position, you are skiing and end up severely breaking your dominant arm. The result is that you are unable to fully function for eight months.
  •  What happens to your lifestyle while you are without an income for eight months? How will you pay your student loan payments, your mortgage payments and your car payments?

In a well structured financial plan, you would have built a cash reserve to give you at least three months of expenses without loss. At the end of the three months, because you are still unable to work, one or more disability insurers will begin paying you a monthly replacement salary for as long as you cannot return to the ED.

Disability insurance is the single most important type of risk management that a starting physician can have.

To determine your liability and potential need for coverage, look at your monthly income and your monthly expenses. How much of your monthly income can you afford to lose? Whatever amount of monthly income is required to continue your lifestyle should be the basis for your insurance.

For example - You have a monthly income of $15,000. You consume $7,000 per month, save $3,000 per month and pay $5,000 in taxes. In this scenario, you need a minimum of $7,000 of disability income and perhaps as much as $10,000 if you wanted to fully protect your standard of living.

There are some terms and techniques that you should understand before developing an appropriate income protection plan. The most pertinent are:

Definition of Disability - Own Occupation:

An own occupation (Own Occ.) period (2 yrs., 5 yrs. to age 65/67) is the length of time that you will be eligible to receive FULL benefits under your contract, as long as you can not practice emergency medicine. Be aware that there are sub categories of own occupation. Some variations are:

  • True Own Occupation
  • Own Occupation and Not Working
  • Own Occupation and any Reasonable Occupation
  • Transitional Own Occupation

I advise having true own occupation to at least your age 65. There are three companies that will currently do this for you.

Residual Disability:

This is as important as own occupation. Imagine you have experienced an injury that keeps you out of the ED for eight months. If your burning desire is to get back in to the ED as soon as possible, you need to understand your residual definition more than your own occupation definition. The residual clause will determine how much you receive and for how long when you go back to work as an emergency physician in your own occupation.

Guaranteed Purchase option:

An option to purchase simply gives you the right to possibly increase your benefits in the future, if your income will justify it. It is designed to ensure that you can qualify by not having to answer medical questions. It does not guarantee that you can buy more protection. Also, understand what you have the right to buy! Is it the same quality that you have now or whatever contract the company may offer in the future? If you plan to be an academic physician for your career, you may not need this.

Cost of Living:

Every individual contract should have a cost of living (COLA) feature. This simply increases your benefit every year that you remain disabled. It protects your income from the rising cost of inflation over time.

In today’s disability marketplace, there are several quality contracts for emergency physicians that can be used to enhance or replace the benefits that you may have through your practice. A good broker will be able to advise you as to the different choices and assist you in designing the most comprehensive and cost effective program to fit your situation.

I hope that this information is valuable to you and wish you every success in your career.

Sincerely,

Shayne

Shayne Ruffing, CLU ChFC is a Chartered Financial Consultant, Chartered Life Underwriter and Accredited Estate Planner with the Potter Financial Group. Shayne specializes in corporate tax leverage and executive benefits for medical practices and can be reached at , or on the web at www.potterfinancialgroup.com.

Shayne is an Financial Advisor offering Securities and Advisory Services through NFP Securities, Inc., a Broker/Dealer, Member NASD/SIPC and Federally Registered Investment Advisor. NFP Securities, Inc. is not affiliated with the Potter Financial Group.

If you have a question that you would like to have answered by an expert in a future issue of Common Sense, please send it to jschofer@gmail.com.

The views expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Department of the Navy, Department of Defense, nor the U.S. Government.