For a physician, purchasing an individual long-term disability policy to replace or supplement group disability through your employer can be fundamental to the financial planning process and a basic asset protection tool; in brief, the policy protects one’s ability to earn an income.
As you transition from school to residency or fellowship, you may see that your employer offers a group disability policy. Although you may have access to long-term disability coverage at a nominal cost or even no-cost, the differences between group and individual coverage can be vast and the policy offered should be reviewed by your advisor before enrolling in the coverage. You may want to consider an individual policy, and here’s why:
- Definition of own occupation: Oftentimes, an employer-sponsored policy will protect an insured in their specialty for 24 months, after which the definition is even broader—basically, if you can work, you are not considered disabled. With an individual policy, an insured can obtain a definition of disability, what I call “True” own occupation coverage; meaning, if the insured cannot work in his/her specialty but can work in another capacity, say teaching at a medical school, the disability benefit will continue.
- Portability: Some employers do offer long-term disability coverage that can be converted to an individual policy when an employee leaves the employer. This is not always the case and, even if the coverage is portable, it is typically subpar to the long-term coverage an insured can obtain individually. Individual policies are owned by the insured and cover the individual at any employer.
- Taxability: If the employer pays for the coverage, the benefits received are taxable to the insured. If the insured pays for the coverage with after-tax dollars, the benefits are not taxable.
Despite some of the benefits of individual coverage, group disability offered through an employer may be necessary for those physicians unable to obtain individual coverage due to pre-existing health conditions. And depending on the employer type, the coverage may provide the physician’s needs at a lower price. Be sure to review with your advisor to get all the relevant information before making a decision.