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Two points worth checking on your disability coverage
In my last blog, I wrote about the valuable role disability income coverage plays in a healthy financial future. While 77 percent of physicians recently surveyed believe disability coverage is essential and nearly that number carry it*, there are two finer points to this type of insurance that are worth a closer look. The first is checking for 'own-specialty' coverage, and the second is understanding if your disability benefit is taxable and what you can do about it. Paying attention to these points now will help you safeguard your personal finances in the future.
Why 'own-specialty' coverage is important
When we reviewed the findings of our national 2013 Report on U.S. Physicians' Financial Preparedness© , we found that while 75 percent of physicians believe their policy is 'own-specialty' or 'own-occupation,' 20 percent of the respondents were not sure if their disability policy included this coverage.
'Own-specialty' coverage is very important because it specifies that if you cannot perform the duties of your particular medical specialty, you are considered totally disabled and eligible to receive benefits even if you can practice outside of your specialty. This type of disability insurance is readily available, and can make a big difference in your benefits should something happen that prevents you from practicing.
Disability benefits may be taxable
Another key finding in our national survey was that 40 percent of the respondents across all age groups didn't know if the disability benefit they would receive is taxable. (Note: For physicians under age 40, that number is higher at 61 percent.) Being clear about this issue can give you a more realistic view of the actual benefit you would receive should you become disabled. The major factor is based on whether your premium is paid with pre-tax dollars or after-tax dollars.
* 2013 Report on U.S. Physicians’ Financial Preparedness© by AMA Insurance Agency, Inc.
In general, if an employer pays your disability policy premium, your benefit would be subject to tax. If you purchase a policy yourself, be that individual or association group, and you pay for the premium, the benefit would not be taxable. This can make a significant difference in your monthly income.
To illustrate, if your employer pays your premium and your monthly disability benefit is $7,500 per month, at a 30 percent tax rate, the actual after-tax benefit you would receive would approximate $5,250. However, if you purchased your own policy and pay the premium with after-tax dollars, you would receive the full $7,500. Please consult your tax advisor for more information.
Non-employer or personal disability policy can protect benefits
In our survey, we found that 75 percent of the physicians have disability coverage through their employer. However, survey findings also showed that 35 percent supplemented an employer policy with a personal policy they purchased shortly after residency. Owning a supplemental policy in addition to any employer-paid policy is a good way to protect and maximize benefits that you may need for yourself and your family. This coverage mix also has the extra-added benefit of portability should you change jobs.
Talk to your financial advisor
A core strategy for having a healthy financial future is having a clear picture of your coverage at all times. If you are unsure about either of these two areas of your current disability coverage, check with your financial advisor. He or she can help you calculate the potential difference in benefits with and without these two products, and help you make the choice that’s right for you and your family.
Let me know what you think – as always I welcome your comments and questions. If you are interested in more results from the survey, I invite you to view the 2013 Report on U.S. Physicians’ Financial Preparedness©
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