By Marsha Bertrand
We all know we'll eventually face death, but most of us never consider the possibility of becoming disabled. Statistics show, however, that the probability of long-term disability during a person's working years is double the probability of death during the same period. Of those who are disabled, one in three will be disabled for more than three months. Of those disabled over three months, the average duration of disability is more than five years, while one in three will be disabled for life.
Due primarily to high stress levels, more and more physicians are facing disability. In the past five years, disability claims from physicians have grown to such a level that insurance companies are significantly altering their coverage.
"The number of claims has been far larger than anyone expected, and it's really hit the industry hard," says Craig C. Richart, a partner in Financial Strategy Network, which is a registered representative of Cigna Financial Advisors in Chicago. "The industry's response has been to alter the product by changing both the benefits offered and the price charged, and it's been a very dramatic change."
There are four primary changes the industry is currently making in the disability coverage it offers physicians:
1. In the past, physicians who could no longer work in their specialty due to disability, but who could practice in another specialty, could receive full payouts while earning an income in the new specialty. Benefits are now based upon earnings rather than occupational title.
2. Lifetime continuation policies used to pay until death. Insurers now only provide benefits until age 65.
3. Policies with noncancelable coverage and premiums that never change have been eliminated or priced too high to purchase.
4. The maximum payout on many policies is being reduced to $10,000 per month. At the same time, the risk classification for physicians is being raised, causing the price of policies to increase.
Doctors have always had the lowest risk rating, says Richart. "In some instances, an extra-special top class was even created just for them. That's been ripped away. Some companies have even gone so far as to deny coverage to some specialties in certain states."
In the past, then, physicians held a preferred status when it came to disability insurance. But the pendulum has swung so far in the other direction that many insurance companies don't even want to do business with physicians. They are perceived as being more risky than the population in general. And if insurers do offer their products to physicians, they're now doing it based on the same standards that they apply to everyone else.
"If I work with the owner of a closely held business who's making $300,000 to $400,000 a year," says Richart, "I can get him a larger benefit than I can get a physician making the same salary. They've capped physicians."
While that doesn't seem fair, it's a fact that has to be dealt with. To take advantage of what's still being offered, physicians should review the coverage they currently have.
"If you've got good disability coverage now, don't get rid of it," says Richart. "Don't try to replace it. Don't let someone talk you into switching it, because there is no way that anything new can be better than what you already have."
If you don't have disability insurance, or if you don't have the maximum amount you can qualify for, try to buy it as quickly as possible. One possibility is to check with professional organizations such as the AMA or the association that represents your specialty. They may offer some type of group disability coverage. Often, however, group disability insurance requires you to be totally disabled and unable to do anything before you can collect any benefits.
The best option is to buy individual coverage from a reputable company with a superior product. Of course, it's difficult to compare coverage from company to company. Take two policies that pay $10,000 per month and include 4 percent cost-of-living increases. The policies may look the same on the surface, but could be drastically different if one compounds its cost-of-living increases and the other does not.
With both policies, you'll receive $10,000 per month the first year and $10,400 per month the second year. But in the third year, the policy that offers compounding will pay $10,816 per month, while the noncompounding policy will pay $10,800. That $16 difference per month isn't much, but after several years, it mounts up. In fact, after 10 years, the total differential would be $24,732.
That's only one variation that can occur from one policy to the next. When you consider all the nuances that each policy contains, and the constant changes that are taking place, trying to purchase a good policy at a good price can be mind- boggling.
"Every week I get a notice that someone has made another change," says Richart. "I'll get quotes that are as much as forty percent apart."
He recently obtained quotes for a 47-year-old woman in family practice. One company offered disability income of $7,625 per month until age 65 with a waiting period of 90 days before collecting benefits. The cost was $4,438 per year. Another quoted benefits of $7,700 per month at a cost of $5,544 per year. That's a big difference for similar coverage.
To locate the best coverage for the best price, it may be well worth finding a professional who knows who the major players are in the industry, who understands the product and what's available in the marketplace, and who can grasp the intricacies of the various policies. Of course, the best price may still be high, but you have to consider that it's your earning power you're insuring.
"It's the big mistake/little mistake," says Richart. "The little mistake is, you buy it and never use it. The big mistake is, you don't buy it and you become disabled."
If you choose not to buy while you still have the chance, or if you've found the door has already closed and it's virtually impossible to buy decent coverage at an affordable price, your last option is to consider your own financial situation and ensure that you've accumulated enough financial assets so that you can fall back on your own resources if you become disabled.
As is the often the case, the pendulum seems to have swung too far. Richart believes that insurance companies eventually will realize they've cut their offerings to physicians too much and will reinstate some benefits. No one knows when that will happen or to what extent the companies will restore their previous offerings. In the meantime, it's important for physicians to maintain the coverage they have or try to buy whatever benefits they can.
"I tell my clients that disability insurance is the most important insurance they should own," says Richart. "If your house burns down, it's a catastrophe, but you can work and earn money and at some point you can replace it. But being disabled is devastating because it takes away your earning ability."
A major disability can devastate your practice, your family, your life. Insuring against so serious a misfortune is not only smart; it's essential.
Marsha Bertrand, M.B.A., is a freelance writer based in Florida and Illinois who has written more than 150 magazine articles on investments, finance and business. In 1993 her book, The Consumer Guide to the Stock Market, was published by United Resource Press.
Population at large
SOURCE: U.S. PUBLIC HEALTH SERVICE
Insuring your house against fire and your car against collision are unquestioned requisites of modern life. But claims data show you'll be more likely to call upon the insurance that protects you against loss of income when you're disabled.
Frequency of claims, by policy type
FIRE INSURANCE: 1 in 1,200
AUTO INSURANCE: 1 in 25
DISABILITY INSURANCE: 1 in 5
SOURCE: CRAIG RICHART, FINANCIAL STRATEGY NETWORK
What has happened to the disability insurance industry in recent years is almost the equivalent of an oldtime run on a bank. If you have one of these favorable policies, hold on tight; you probably won't see its like offered again soon.
...lifetime continuation policies
...special favorable treatment for physicians
...full payouts if you're able to practice in a different specialty