How to Shop for Disability Insurance
Leslie Franklin
Three years after graduating from dental school, Ruchi Nijjar, DDS, was having the time of her life on a well-deserved vacation in Cabo San Lucas, Mexico. But fun changed to near disaster in the span of a moment when the ATV she was riding hit a ditch. She hurt her hip and ended up in an orthopedic surgeon’s office.
“Fortunately, I was okay, but the first thing I did when I got back to my office was dig through my files for my disability insurance contract to make sure I knew exactly what I had,” the Fremont, California, dentist says. “The accident made me realize that my fervor for having fun comes with risk, and how quickly an injury could jeopardize my ability to practice dentistry. That’s why disability insurance is so important—it would help pay my monthly bills if I was disabled due to an injury or illness.”
A Need at Any Age
Dr. Nijjar is right. Even though you may be perfectly healthy now, dentists have about a one in three chance of becoming disabled at some point during their years in clinical practice. We know this from analyzing disability claims from American Dental Association (ADA) members covered by the ADA’s disability income plan, which is underwritten and administered by Great-West Life & Annuity Insurance Company.
Young dentists are not immune to a disabling injury or illness either. In fact, more than 15 percent of dentists currently receiving disability benefits from Great-West Life are under age 45. And nearly half of them were 40 or younger at the time of their disability.
Think of your own situation: What risky activities get your adrenaline up? What precautions do you take to avoid physical injury? And, equally important, how long could you survive financially if you were sidelined by an accident or illness and could not work? Because you can never predict what the future may hold, disability insurance is critical coverage for you to have from Day One of your career.
The challenge is finding the best disability coverage for your needs and budget. Policies vary in quality and price, so take time to understand what you’re getting before you sign on the dotted line. These 10 tips can help you feel more confident when shopping for disability insurance:
Tip #1: Insist on “Own Occupation”
The definition of disability can differ dramatically from plan to plan. Insist on a policy that defines disability as the inability to perform the normal duties of your own occupation—i.e., clinical dentistry or any specialty recognized by the ADA. So, for example, if a back or wrist injury prevented you from working as a dentist and you have an “own occ” plan, you would be eligible to collect benefits even if you could work in another profession.
With an “any occupation” definition, in contrast, the insurance company is only obligated to pay benefits if you are unable to perform any occupation. It’s a more difficult standard to meet, because those “any occ” policies won’t pay you a penny as long as you could still teach, consult, or perform any another reasonable job.
Tip #2: Get Long-Term Benefits
A disability income plan should pay long-term benefits in case your disability lasts several years or is permanent. Keep in mind, this money needs to replace your income for as long as you would otherwise work as a dentist. Specifically, find out if the plan will pay own occupation benefits to a high age (like 65). Furthermore, be wary of policies that pay “own occupation” benefits for a few years then switch to “any occupation” (a higher standard to meet) for the duration of the benefit period.
Tip #3: Avoid Benefit Reductions
Even if disabled from dentistry, you may still want to work. You’ll have the most flexibility if the income from your new job is independent of your disability income (some policies actually offset, or reduce, monthly disability benefits based on other income the doctor earns while disabled). The best policies will continue to pay full benefits if you are totally disabled from dentistry and choose to pursue another career, regardless of how much you earn.
Tip #4: Include Residual (Partial) Benefits
Fortunately, not all disabilities are total or permanent. If a disabling condition means you can only work as a dentist on a part-time or restricted basis, you’ll want your insurance to supplement your reduced earnings. The most generous policies pay benefits for a partial disability whether you return to practice part-time after a total disability or were never totally disabled. This can be particularly meaningful if you develop a degenerative condition like arthritis and have to cut back on your hours even if you never become permanently disabled.
Tip #5: Purchase an Adequate Monthly Benefit
The monthly benefit is the amount of money you’ll receive each month from the insurance company if you are disabled. Your monthly benefit should approximate 60% of your net monthly earned income (after expenses, before taxes). In other words, it should reflect approximately how much you pocket each month. Anything less and you could be forced to deplete savings or your retirement fund just to make ends meet.
One of the most common mistakes made by dentists is not keeping their coverage amount current. As your income and responsibilities grow, so should your insurance… unless you expect to be earning today’s level of income throughout your career.
Tip #6: Choose the Right Waiting Period
Also called the elimination period, the waiting period is the time that must elapse from the date you first become disabled until benefits can be paid. New dentists often choose a short, 30-day waiting period because they would be unable to survive financially for more than a month without income. Most policies will let you switch to a longer (and less expensive) waiting period later, after you’ve accumulated savings and regular receivables you could rely on during the first months of a disability.
Tip #7: Customize Your Basic Plan
Options (or riders) are extra features you can purchase to customize a basic plan as your needs and budget dictate. Rather than buying an off-the-shelf policy with everything automatically built in, you may prefer to pay only for the features that you want and can afford, such as:
• A residual, or partial, benefit option (described above).
• An option that allows you to increase your coverage in the future without having to provide proof of good health.
• A cost of living adjustment (COLA) option that increases disability benefits to keep pace with inflation.
Tip #8: Cover Your Practice
If you own a practice, your disability coverage is not complete until you own business overhead insurance. This type of disability insurance reimburses you for certain expenses related to operating your business, such as rent, payroll, and utilities so that your practice could continue to function during your disability. Business overhead policies generally cover principal and interest on practice loans (including your student loans) and provide benefits to hire a replacement dentist who can treat your patients in your absence.
Tip #9: Use Open Enrollment Opportunities
Take advantage of opportunities to purchase a basic amount of disability income insurance without having to go through medical underwriting or show proof of income. These “open enrollment” offers make it convenient to get coverage, and usually include a guarantee that you can’t be turned down. The ADA, for example, offers dental students up to $2,000 in disability insurance on an open enrollment basis, which makes it easy for students to establish ground-floor protection. After graduation, plan participants have the right to renew coverage without ever taking a medical exam.
Tip #10: Work with a Reliable Company
Insurance is only as good as the company that stands behind it. Before you buy, check the financial stability of the insurance company with independent rating services, such as A.M. Best, Standard & Poor’s, and Moody’s Investors Service. Also, seek recommendations and referrals from your peers and mentors, whose personal experiences with insurance companies and/or policies could influence your own decisions.
Finding the right disability coverage for your needs takes time, but it’s time well spent. If a disability ever strikes, you’ll be glad you insisted on the right plan for your needs and budget.
Editor’s Note: This article does not constitute legal, tax, or financial advice. Please seek professional input as appropriate to your situation. ■
Leslie Franklin is Director of New Dentist Markets at Great-West Life & Annuity Insurance Company. She meets regularly with new dentists and dental students across the country to help them understand how to use insurance to attain personal and professional goals. Great-West Life underwrites and administers the ADA Insurance Plans and is the sole provider of ADA-sponsored life and disability insurance to ADA members. For more information, call 888-463-4545 or go to www.insurance.ada.org. You also can contact Leslie directly at leslie.franklin@gwl.com.