John makes a good living as an anesthesiologist, earning more than $300,000 a year. His wages are the main source of income for his family of five. John’s job is to administer the right and safe amounts of anesthesia to his patients. It requires a high degree of concentration and a steady hand.
There could be significant implications to John’s ability to conduct his job if he were to suffer from a permanent or even temporary bodily injury, or experience future difficulties with his mental facilities. Such disabilities during his career may jeopardize his ability to do his job and thus his income. The longer the potential loss of income, the more it could not only impact John’s career but the rest of his family.
For these reasons, disability insurance is a necessity to protect John’s future earnings and his family’s wellbeing throughout his career.
The Odds of Disability Exceed That of Dying
Most people — in any profession — do not realize how high the odds are of a disability during their careers. The average person in their 20s has a 1-in-4 chance of becoming disabled before they reach retirement1. This probability of disability is far greater than the probability of dying. Data shows how the equivalent probability of dying (25%) is only reached in the 90s. Specifically, a female has greater than 25% probability of dying at age 97 while a male has greater than 25% probability of dying at age 952.
The disability numbers are higher because of the wide variety of potential injuries or impairments that could prevent you from being able to perform in your profession. The definition of a disability varies widely, and it does not have to be a life-threatening illness — something as simple and common as chronic back pain, for example, can be quite debilitating and leave you unable to do your job for a long period of time.
With a disability, you may be out of work for a time, but you still must pay your mortgage and other recurring living expenses. Health insurance will cover most of the immediate medical bills related to an injury, but medical insurance does not supplement your income if you cannot work. Income replacement is a dilemma that is particularly problematic for higher earners who work in highly specialized roles like anesthesiology as no disability insurance will be able to replace all earned income.
Social Security disability benefits can also help, though qualifying can be challenging if you are experiencing a disability not deemed to be long term or life-threatening3. But even if you do qualify, the most you can receive in 2021 is $3,148 per month4, or 37,776 per year — not much if you are a high earner like an anesthesiologist.
A more critical injury has the potential to unwind years of sound financial planning, which is why we at Modera suggest having a financial plan that includes and addresses your disability insurance needs and doing so as early in your career as possible.
What to Look for in a Disability Insurance Policy
Here are some key considerations when examining your options in a disability insurance policy:
Future Purchase Option: Also known as a future increase rider, this option allows you to increase your coverage as your income increases during your career. This is an especially attractive feature if you are buying a policy when you are new to your profession
Guaranteed Renewable: Make sure the disability policy that you buy is a guaranteed renewable policy. This will ensure that the insurance company cannot change the terms or cancel the policy if you continue to pay your premiums (the premiums will still rise as you get older).
Residual Disability Benefit Rider: This can be a helpful option if you are injured but still able to work on a part-time basis. For example, in a situation where you may be losing 50% of your potential income from a disability, a residual disability benefit rider may offer you the ability to earn up to 50% of your total available disability benefit.
Another nice potential benefit is that disability insurance proceeds are not taxable if you paid for the policy premiums yourself. If you are part of a group disability insurance plan, then the proceeds may be partially or fully taxable to the extent that your practice group or employer paid the policy premiums. Since taxable benefits replace a smaller portion of your net earnings, you may be able to add another disability policy to supplement your group plan.
Modera Can Assist You with Planning for Potential Disability
As a fee-only advisor, Modera Wealth Management does not sell insurance or earn any commissions on products. This allows us to assess your disability insurance needs as a practicing anesthesiologist more objectively and determine how it fits into your overall financial picture.
We offer you a coordinated team of financial planning professionals, such as Patrick Runyen, CPA/PFS, CFP® and Karl Graf, CPA/PFS, CFP® who can work with anesthesiologists like you to assist with disability and income protection planning. To learn more about what Modera can do for you, please get in touch.
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