Career Development

4 disability insurance details physicians often overlook

Kevin B. O'Reilly , Senior News Editor

Compared with other professionals, physicians generally have a strong understanding of the critical importance that disability insurance plays in their overall plans for financial well-being and security.

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But research from AMA Insurance Agency, Inc., finds there are some disability insurance details—ones that can make a big impact on covering your bottom line should the need arise—that lots of doctors may overlook. Mike Hegwood is assistant vice president of brokerage marketing at AMA Insurance, an AMA subsidiary that is licensed as an insurance producer in all 50 states. He took time to review four of those fine points, and why they matter.

How you get your insurance makes a huge difference to your potential disability insurance benefit, Hegwood explained. If your disability insurance premiums are paid by your employer, that is done with before-tax dollars. So if and when the time comes to pay out, your disability benefit will be considered taxable income—and subject to taxes at both the federal and state levels.

Depending on your circumstances, that could add up to a difference in the tens of thousands of dollars. But if you buy and pay for your own disability insurance with after-tax dollars, then the disability insurance benefit is typically not considered to be taxable income and you’d receive the full benefit—though, of course, you should consult with your tax adviser on the specifics of your situation.

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Not all disability insurance policies are created equal. For doctors, it’s extremely important to have an “own occupation” definition that pays benefits if you cannot perform the work in line with your medical specialty, Hegwood said.

Without that “your medical specialty” stipulation, you could be denied benefits if you’re able to work in another job within medicine that you can physically perform.

Recently introduced coverage options available from AMA Insurance and underwritten by New York Life Insurance “can be tailored to their particular situation and income levels” and linked to the income of the physician’s specialty,” Hegwood said.

“As a cardiologist, for instance, you might go from making $60,000 as a resident to earning $400,000 in practice. That ability to earn a living as a physician, in this case as a cardiologist, is extremely valuable and should be insured,” he noted.

One downside to employer-provided disability insurance coverage is that you may not be able to take it with you, without interruption, if you decide to join forces with another health care organization or physician group.

“The disability insurance that you buy individually will stay yours, with no interruption, regardless of whether you decide to strike out on your own or change employers. That gives you another layer of protection as you move through life in medicine,” Hegwood said.

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Most physicians are assuredly aware of the amount of coverage offered with varying disability insurance plans, but there are some nuances to even this part of the disability insurance puzzle. Usually, disability insurers will cover as much as two-thirds of your current income before taxes.

So if you’re earning $250,000 a year, you could apply for $166,650 in disability income insurance, or $13,887.50 a month before taxes.

But there’s another limiting factor, which is the maximum monthly benefit an insurer is willing to offer. Those differ by carrier, but typically vary between $12,000 and $20,000 a month. That adds up to between $144,000 to $240,000 before taxes on an annual basis.

You may have thought you took care of this years ago, so why worry? Well, the level of protection you put in place back when one of the Bushes was president may not cut it in today’s economy. You’re going to need occasional bumps in total coverage, so understanding whether your disability plan allows for guaranteed future increases can be another important factor to consider when selecting coverage.

Learn more with the AMA about evaluating your physician disability insurance policy.