After four years of undergraduate, four years of medical school and a minimum of three years of training, you’ve put a lot of time and likely money into your craft.  It’s important to consider protecting the biggest asset you have that doesn’t show up on paper…yourself!  Your future income is the largest asset on your balance sheet and one you probably haven’t accounted for.  After all that training, if you were to become disabled tomorrow, you would likely earn only what your employer provides which is typically 50% or 60% of your base salary up to some threshold such has $10,000 per month pre-tax. 

Similar to life insurance, disability coverage is a want not a need. Meaning it’s not required like your homeowner’s or auto insurance is.  Determining how much coverage to get is a personal decision and ultimately comes down to how much of your income you would like to protect. 

Let’s say you make $300,000 annually before taxes and your employer provides a long-term disability benefit of 60% of salary up to $10,000 per month pre-tax.  You would be eligible for up to ~$9,000 of monthly after-tax benefit.   

If you make $300,000 per year, you are likely taking home after-tax in the ballpark of $19,000 per month depending on what state you live in, how many children you have, marital status, etc.

If you were to become disabled, what would you do?  Would you be willing to reduce your standard of living significantly? How would you save for retirement? Pay for loans?   These are all questions to consider when determining how much, if any, additional coverage to buy. 

If you do decide to purchase individual disability coverage, there are few things to keep in mind.  First, make sure the contract has specialty specific language included so if you can’t do the duties of your specialty, you can go on to claim and work in another capacity.  This is called true own occupation coverage. Additionally, some carriers allow you to add a future increase option which allows you to purchase more coverage in the future without going through medical underwriting again.  Other add-ons (also called riders) are available such as a cost of living adjustment and student loan rider if that’s important to you.

We run a disability program for the house staff at one of the hospitals in St. Louis.  My business partner has been in charge of the program since 1999.  Interestingly, here are the actual claims data from everyone who kept their individual disability coverage from training.  

My biggest takeaway after seeing this was the ages skewed younger than I thought, and the causes were more random than I anticipated.  Most people think about a disability as a physical injury when claims data shows it’s an illness 90% of the time.

Spend some time educating yourself on the topic and determine whether it makes sense for you and your family to supplement your group coverage.

WM

Weston is a Certified Public Accountant, Certified Financial Planner^TM, and holds the Chartered Financial Analyst designation. Weston earned his master’s degree in accountancy from the University of Missouri – Columbia. Weston is active in the St. Louis community and board member of the Anti-Defamation League.

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