Disability Insurance

Insure your greatest asset. You buy a $30,000 car, and purchase automobile insurance. You buy a $300,000 house, and purchase homeowner's insurance. You have a career that will bring in more than $3 million dollars over your lifetime. Do you insure it? Unfortunately, most physicians don't. However, disability insurance may be the most important financial product that you purchase.

In any given year:

• 1 out of 106 people die
• 1 out of every 88 homes catches on fire
• 1 out of every 70 vehicles is in a serious auto accident
• 1 out of every 8 people becomes disabled.

Although people are most likely to need disability insurance than any other type of insurance coverage, many are less likely to purchase a disability policy than other less frequently utilized policies.

A physician's ability to earn could be his or her greatest asset. Disability insurance protects that asset. Following are some common questions about this kind of insurance.

"Do I need Disability Insurance?"

"Doesn't Social Security cover me?"
Yes, under very specific circumstances, but the Social Security Administration's definition of disability is extremely narrow. If you do happen to qualify, you will more likely than not receive an adequate amount of income from your Social Security Disability to maintain your lifestyle and meet your financial needs.

"I don't need to buy it. My employer provides it."
That's a good start, but it may not be adequate protection, and it depends on the definitions and features in the group policy. Purchasing an individual policy with excellent features will provide you the most protection for the longest period of time.

"I'm young and healthy. Can't I just wait until I'm earning more and then purchase it?"
Yes, you could. Policies change continuously. Typically they become more restrictive each year. But as a physician you're probably more aware than most people that individuals don't anticipate illness, injury or accidents. They can happen at any time regardless of your age. Buy coverage now and feel confident knowing that if anything should happen to you, your income is well protected.

Choosing a Disability Insurance Policy

Because choosing the right insurance is a difficult task, Reiman Financial helps physicians choose the best disability coverage by carefully evaluating their goals and current coverage.

• Occupation-Specific
  
  For a physician this is the most important feature of disability coverage. An occupation-specific policy pays a benefit if the insured becomes disabled and cannot work in the specific occupation at the time of disability. An occupation-specific contract is more expensive than the alternative ("any-occupation" coverage), but the extra cost is worth every dollar spent.

• Residual Benefit
  
  A policy that offers a residual benefit pays benefits after a partial loss of income. The residual benefit is calculated differently for each contract, and the time period for each residual benefit carries from contract to contract as well.

• Graded Lifetime Benefit
  
  Many policies will pay a benefit to the insured up to a certain age, usually 65. Since individuals are living much longer than 65, a policy that pays a graded lifetime benefit guarantees that the insured would receive some level of benefits until his or her death. If the insured lives to 85 without a graded lifetime benefit, he/she would receive no benefit for twenty years. That's a significant loss of income. A lifetime benefit gives greater protection and greater peace of mind.

• Cost of Living Adjustment
  
  Should a policy holder qualify for and collect policy benefits, a cost of living adjustment feature increases the benefit amount annually to keep pace with inflation. In ten or fifteen years, a benefit amount that seems adequate now would amount to very little if not adjusted regularly.

• Non-cancellable, Guaranteed Renewable
  
  A guaranteed renewable policy cannot be canceled as long as you pay the premiums on time. Regardless of how your health changes, such a policy will continue to afford you protection. When a policy is also non-cancellable, an insurance company cannot change any policy provisions, and it cannot increase the premiums.

• Guaranteed Insurability/Future Increase Option
  
  This feature allows physicians to increase the amount of their coverage without requiring additional medical underwriting (although in most cases financial underwriting is required). This feature is well worth the expense because it allows the insured to add to his/her coverage limits as they move through stages of life and goals change. As a young, single physician, purchasing a less expensive policy that includes this feature makes tremendous sense. When he/she's at the beginning of his/her career, he/she may not have as much money to put toward insurance premiums and probably doesn't have dependents yet. As he/she begins to gain income and grow a family, the guaranteed insurability allows him/her to add coverage even if he/she becomes ill later.

For more information on this topic, see Chapter 3 in "Financial Fund of Knowledge" by Michael Reiman and Max Adams.

LIFE INSURANCE

Many people find the array of available life insurance products confusing. This is why we recommend you enlist the guidance of a financial advisor. Reiman Financial offers the following tips about purchasing life insurance to help physicians with their insurance planning.

The most important aspect of life insurance is not which product an inidividual chooses, but how much the individual purchases. If the beneficiaries need $2,000,000 upon the death of a loved one and they receive only $1,000,000, whether the insured had term or permanent insurance is not important. The beneficiaries simply don't have enough.

When we advise our clients about their insurance needs, we begin by assessing their needs. Insurance planning should always begin with this step. To determine how much insurance is required, we ask our clients and their families some important questions including:

• If you die, would paying off existing liabilities be a priority of your survivors?
• Would you need money to set aside for college expenses or to pay off existing student loans?
• Would your loved ones want to continue to fund wealth accumulation accounts?
• Would your death lead to increased childcare expenses? If so, for how many years?
• Would your spouse seek employment or work more hours after your death?
• How much income do you estimate that your spouse could earn?
• Would your spouse work beyond his/her target retirement age or keep the same goal?

The answers to these questions can be used to determine what types of insurance and what amount of coverage are best for you and your family. Use our Life Insurance Calculator to determine how much insurance you should purchase.

For an insurance consultation or to verify that you have the correct insurance products in place, contact Reiman Financial.

Term vs. Permanent Life insurance

The difference between term and permanent life insurance is not always clear to individuals who are shopping for insurance. Here are a few of the major differences between the two types of policies. A financial advisor or insurance representative can help clarify the differences.

Term

Term Life Insurance usually costs less and has a high face amount. Physicians can purchase a policy that offers a guaranteed benefit upon the insured's death for a specified period of time.

Permanent

Permanent Life Insurance includes Whole and Universal life insurance products. These policies offer permanent protection throughout the life of the insured.

The chart below summarizes some of the main features of these types of insurance.

Do You Need Life Insurance?

The answers to the following questions help physicians determine if they need to purchase life insurance now.

1. Do you have dependents that would not be able to sustain their quality of life if you died today?
   
   
   Yes
   No
   Not Sure
   
   

   Do you have adequate funds set aside to provide for the educational needs of dependents?
   
   

   Yes
   No
   Not Sure
   
   

   Would your loved ones have enough money to cover your funeral and burial costs if you died today?
   
   

   Yes
   No
   Not Sure
   
   

   Are your current assets great enough to pay for all of your liabilities and debts?
   
   

   Yes
   No
   Not Sure
   
   

If you answered no or not sure to any of these questions, you probably need to purchase life insurance. Contact Reiman Financial today for an insurance consultation.

For more information on this topic, see Chapter 4 in "Financial Fund of Knowledge" by Michael Reiman and Max Adams.

One of the biggest obstacles most physicians face in insurance planning is procrastination. Just like patients who postpone visits to their doctor often find after the visit that their condition is much worse than they expected, physicians who postpone meeting with a financial advisor often learn that they should have begun planning much earlier for better financial health. Maximize your financial strength: contact Reiman Financial today for a complimentary consultation.

Sources:

• National Safety Council
• American Society of Actuaries
• Commissioners' Disability Table
• National Center for Health Statistics