Income protection is coverage that insures against the risk of being unable to work due to illness or injury. This type of insurance is essential for people who earn high salaries. Income protection, which is sometimes also called disability insurance or paycheck protection, is a financial planning tool that helps ensure one’s earning power will continue even if they are disabled. Healthy people can be disabled by many unexpected events – from car accidents and skiing injuries to illnesses like cancer or multiple sclerosis.
If you have an income protection policy and you are disabled, the policy pays a benefit (roughly 80% of your usual net pay). If you personally pay for the policy, benefits are typically tax-free. This enables the insured person to maintain their home and lifestyle even if they are unable to work and earn a living.
Disability injury or illness occurs
Elimination period (waiting period which is often 90 days) passes
Policy pays tax-free benefits up to the benefit amount specified
Payments continue as long as you are disabled up to a benefit period (# of years or until specified age)
You’re able to continue paying for the life you’ve built
Disability injury or illness occurs
Elimination period (waiting period which is often 90 days) passes
Policy pays tax-free benefits up to the benefit amount specified
Payments continue as long as you are disabled up to a benefit period (# of years or until specified age)
You’re able to continue paying for the life you’ve built
Thinking about income protection insurance? Wondering how it applies to you? Income protection is a smart investment for any doctor based on these disability insurance statistics. However, physicians in different career stages have different income protection concerns. Below are a few considerations for each of the major career stages.
Early-Career Income Protection Considerations
Graduating from medical school is a great accomplishment, and it marks the beginning of a promising career. At this point, you’ve already invested a significant amount of time and money into your career, so it makes sense to starting thinking about how you can protect it with disability insurance. The good news is that you don’t have to wait until you’re out of your residency program. You can lock in coverage as a resident or fellow.
Whether you’re a resident doctor or a fully licensed physician, here are some issues your income protection policy should address.
- Increasing salaries: Doctors earn attractive salaries, but you won’t see these earnings right out of medical school. As a resident, your income will be relatively modest – but still worth protecting. As your career advances, your earning potential will increase. A disability insurance policy with a future purchase option rider will let you increase your coverage to match your income – without having to go through medical underwriting.
- Changing jobs: Changing employers is more prevalent early in your career. As a new physician, you may need to try out different healthcare settings before you find the right match. You might even decide to open your own practice. Changing jobs typically means leaving behind employer paid disability benefits, most of which aren’t portable. By purchasing an individual disability insurance policy, you can secure coverage that will follow you wherever your career takes you.
- Student loans: Medical school isn’t cheap. Many graduates have a substantial amount of student loan debt by the time they graduate. Some disability insurance policies offer student loan riders that cover payments if you can’t work because of an illness or injury.
Mid-career Income Protection Considerations
By the time you reach mid-career, you’re more established in your specialty, but you also have more financial responsibilities. When purchasing an income protection policy mid-career, make sure your benefit amount is enough to cover current and anticipated financial needs.
- Building retirement savings: Experts say that people should start saving for retirement as soon as possible. In reality, however, many people get a late start. If you spent your early career trying to get established and paying off student loan debt, your retirement savings might be behind. If a disability kept you from working, your retirement plans could be derailed even further. Disability insurance retirement saving plans mitigate this risk. If you are unable to work because of an injury or illness, the policy will make contributions to your retirement plan.
- Supporting your family: At this point in your career, you might be getting married, buying a house and starting a family. This brings many additional financial obligations, including a mortgage and future tuition costs for any children. If your paycheck is interrupted due to a disability, it may be very difficult to meet these obligations as well as keep you monthly budget intact. Ask your financial advisor to complete a needs analysis with you. You will then be confident you have the amount of coverage needed to protect your current and future financial obligations.
- Maintaining a lifestyle: A medical career facilitates an attractive lifestyle. At this point in your career, you may be accustomed to annual vacations. You may also have some expensive hobbies and tastes. Even if you have some savings, if your income takes a hit because of a disability, this lifestyle may be put in jeopardy. Some disability policies, including employer-based long-term disability policies, tend to have monthly caps that leave high-income earners exposed. To avoid this, look for a policy with monthly income caps that cover a substantial amount of your income.
Late-Career Income Protection Considerations
Just like the earlier career phases have unique considerations when choosing the right income protection policy, late-career phase buyers have reason to customize their income protection policy.
- Catastrophic disability: Long-term care is a common expense, but many people fail to plan for it. If you have a disability insurance policy with a catastrophic disability rider, your policy will pay an additional benefit if you are considered catastrophically disabled, often defined as being unable to perform two or more activities of daily living.
- Lifetime extension rider: Do you expect to work after your turn 65? Many people do. Social security full retirement age is now 66 for people born between 1943 and 1954; 67 if you were born after 1960. If you expect to work after age 65, when most disability policy benefits end, talk to your financial advisor about adding a provision to extend your coverage period beyond age 65.
Like it or not, many financial surprises arise throughout your working years. One of the most devastating and often unanticipated surprises is losing the ability to earn a living due to illness or injury. An income protection policy will ease the stress an interrupted paycheck due to a disability.
In addition to the concerns covered here, you also want to consider the disability definition, the coverage period, the elimination period and other key riders and terms. Read this page for full overview of policy features to know.
Ready to Explore Your Options?
The income protection educators at TruSpecialty are here to help. Download our Disability Insurance Guide or Request A Quote to explore your options further.
