Approximately 30% of all people 35 to 65 years old will suffer a disability for at least 90 days, and about one in seven can expect to become disabled for 5 years or more (New York Times, February 2000).

The average duration of recovery from a disability for a person 40 to 54 years of age is more than 4 years (Transactions, Society of Actuaries 1981 Reports).

What would a physician do 4 to 5 years after suffering a disability? If he owned a practice, it would be gone. If he worked in a group, the group would have replaced him. Loss of practice actually occurs in a much shorter period of time—probably fewer than 2 years. What now?

The table below illustrates a physician’s potential income to age 65. Practically speaking, retirement, death, and disability are the only things that can prevent the physician from earning this money.

As shown below, a 40-year-old physician with a monthly income of $15,000 (assuming no increases) will earn $4,500,000 to age 65.

Can the physician engage in his regular occupation and still receive benefits?
Even if the physician can resume his normal workload, he still would be starting all over again and a loss of income would be the result of his “recovery.” Quality policies will cover this scenario under the “Residual Benefits Provision.” (You should always have this benefit added to your policy.) Premiums during disability period probably will be waived, as well.

What are the real-world scenarios for a disabled physician?

• Disabled and cannot do “regular occupation”
• Disabled and working in regular occupation
• Disabled and working in another occupation
• Disabled and cannot work

The second example above is the most intriguing. Obviously, a physician suffering a short-term disability will return to his regular occupation. Quality policies would provide residual benefits (loss of income benefits) during this recovery period. It is understood that it will take awhile for things to get back to the way they were before the disability.

Quality disability policies consider “income” only after business overhead expenses are paid. For example, before the disability, income was $15,000 per month and business overhead was $15,000 per month. After returning to work, practice income is $15,000 in a given month and personal income loss is 100%. The policy will provide 100% of Total Disability Benefits. Typically, a 75% to 80% loss of income will result in 100% of benefits. This loss could continue to age 65.

Few physicians realize this. Physicians typically run a 50% ratio of business expenses to income. Thus, a 50% disabled physician will have a 100% loss of income and be paid 100% of his disability benefits. So, although a disabled physician is trying to recover, he may find that recovery takes quite a while.

A Clause Rarely Noticed: Presumptive Disability Benefits
Most quality disability policies include the Presumptive Disability clause—commonly called a “Specific Loss”—and more physicians should be aware of it. Typical policy language: “If you suffer a loss of (some carriers require that these losses be irrevocable; some do not) Sight, Speech, Hearing, One Arm and One Leg, Both Arms, Both Legs, the benefits will be paid from the first day of such loss and continue for the full benefit period” (even for life, in some contracts). Typically the medical care requirement needed to qualify for benefits is waived. Also, benefits will be paid regardless of ability to work in “Your Regular Occupation.” Regardless of income or ability to work, Total Benefits automatically are paid.

Catastrophic Disability Rider
The latest addition to this concept (Presumptive or Specific Loss) is the Catastrophic Benefit Rider. This rider will pay additional monthly benefits for stated covered losses within the policy (such as examples above), in addition to normal monthly benefits. These benefits can be as high as $8000 per month. Some carriers add conditions (with stipulations) such as Alzheimer’s and dementia. Presumptive and specific loss normally are included in the policy, but Catastrophic Disability usually is added as a rider with an additional cost.

Conclusion
Disability insurance carries a simple and serious message: Protect your most valuable asset—your ability to earn income. It is simply a matter of economics and good planning. You don’t have to be permanently disabled or unable to perform your “regular occupation” to benefit.
Typically, all the premiums you pay the insurance company to age 65 usually will be less than you would receive in benefits for a disability that lasted 1 year. That does not account for residual benefits, presumptive benefits, or the possibility of becoming totally disabled.

Ron Cohen is a registered health underwriter and can be reached at ron@roncohenrhu.com or 800-398-0571.