What is disability insurance and why you need it

What is Disability Insurance and Why Do Veterinarians Need It?

What is disability insurance

Disability insurance will pay a monthly benefit, replacing earnings lost from an accident or sickness. This coverage is meant to just help you stay afloat, preventing you from losing your home or having your car repossessed. The payout will only be to cover the essential expenses such as student loans, utilities, car payments, mortgage, etc.

Insurance companies will usually only allow you to be covered between 40% to 60% of your income for a certain benefit period selected. The benefit period options are typically 5 years, 10 years, to Age 65, and to Age 67.

You may have heard of two different disability insurance types – short term and long term. Short-term disability insurance is meant to cover you immediately after a disability and can last a short amount of time (between 9 to 52 weeks). This coverage is often provided by your employer or the state.

After the short-term period ends, long term disability insurance would kick in if you still cannot work. The claim payments would kick in after the elimination period (usually 60, 90, 180 or 365 days) and will pay out as long as you are still disabled up to your Benefit Period within the plan.

how are long-term disabilty policies offered 

Disability insurance can be purchased on an individual or group (employer) paid basis.

Employer paid long-term disability insurance plans are inferior to individual plans. These plans are taxable (ie. you'll pay taxes on the benefit shown) and may not have the best definition of total disability (see below). Most group plans will not allow you to work in another occupation while collecting disability claims.

The payouts for group plans will also adjust dollar for a dollar if you are receiving any other income such as residual pay, lawsuit settlements, and social security. Since the group plans are issued through a Certificate, not a policy, you hold no rights of ownership. The company can increase the costs, change definitions, change benefits and even cancel your plan any time they want. Choosing to be insured by only your group plan may not be the best option since these plans are also much harder to collect on. These plans cover you regardless of your health history when you begin your employment. When you go to file a claim through your group in the case of a disability, they will look into your past medical history and try to find any reason to deny your claim.

Individual private plans are superior compared to group plans because they are not taxable, have the best specialty specific (own occupation) definition of total disability, are fully underwritten (health considered making it easier to qualify for claims in the future), and they’re portable – meaning you will still have the plan even if you change employers. Individual plans complete a full medical underwriting when considering you for coverage as opposed to group plans. The individual insurance carrier will determine what they will cover you for at time of application so that they will not deny your claim in the future unless it’s fraudulent or frivolous.

An individual who has a group plan already, or who is changing employers, may have the opportunity to supplement with individual disability insurance coverage. Once purchased, an individual policy would not be affected by subsequently enrolling in a group LTD plan. If, however, an individual policy is not already at its maximum benefit level, this strategy might prohibit the insured from further increasing an individual policy. If you have both individual and group coverage and need to file a claim, you will be able to collect claims from both plans.

how much disability insurance coverage should you get?

You need enough coverage to provide you with sufficient income to live on until you are able to return to work or receive other financial resources (retirement, social security, etc.). The benefits you purchase through a disability policy is quoted as monthly income that you receive if disabled. Consider your monthly income after taxes, now and in the future, as the base amount you would need. In addition to the monthly amount, you need to consider the length of time you want to collect benefits, and when you would need them to begin. If you are a dual high income household, are financially independent or have an abundance of savings, you may not need the maximum amount of coverage.

Common riders when considering long-term disability insurance

Every disability insurance policy will have its own riders, additional features within the plans. Below are some of the riders you should consider as a veterinarian.

Own Occupation

It is important for veterinarians to consider the value in obtaining “own occupation” disability insurance coverage that protects the ability to work in their chosen veterinary field or specialty. This means if you become too sick or injured to work in your veterinary specialty, you can still work in another specialty or occupation and continue to receive disability benefits. “True Own Occupation” with Guardian, “Regular Occupation” with Principal, “Own Occupation for the Length of the Benefit Period” with Ameritas are all Own Occupation definitions defining total disability. Insurance companies will use unique language to stand out from each other. All these definitions will allow you to be gainfully employed in another occupation or specialty.

Residual or Partial Disability Benefits

Disability insurance is not black and white. A veterinarian may experience an injury that can be managed but still affects their day-to-day life. Some people may develop a disease that allows them to work but for a limited amount of time or may limit duties. The residual disability benefit rider can help bridge the gap between your pre-injury or pre-illness salary and your current expenses. This rider will pay you a partial monthly benefit if you lose at least 15% or 20% of your income, depending on the plan’s language. The percentage of your benefit paid is typically proportionate to your loss of income. Today, some plans may have a rider that will first pay your actual loss of income or at least 50% of your policy’s monthly benefit amount for 6 or 12 months.

Future Increase Rider

This allows an insured to increase their disability policy up to the stated maximum without having their health re-examined by the Insurance Company on the anniversary date. This is a very important rider for newer Veterinarians wanting to protect a projected higher income since their health status could change making them ineligible for increased coverage in the future without this rider. The insured would still need to prove their higher income through W-2s and/or tax returns to qualify for the increased coverage. There are different types of Increase Riders, such as Future Increase Option (FIO), Benefit Purchase Rider (BPR), Benefit Update (BU).

• Future Increase Options (FIO) - Allow you to increase your monthly benefit at any policy anniversary date. You pay an additional cost for this increase rider for the flexibility. You would have to request the increase and provide income documentation to determine eligibility for the increase.
• Benefit Purchase Rider (BPR) and Benefit Update (BU) - These riders work the same way as the names are just unique to the companies; Principal is BU and Guardian has BPR. They come at no additional cost as they are built into the plans. Both riders offer 1 increase at the end of each 3rd year. You would need to provide income documentation to determine the amount you can increase by. If you qualify for an increase, you’ll have to increase by at least 50% of the qualified increase amount in order to keep the rider for another 3 years. This is a continuous 3-year cycle and if at any point you do qualify for an increase but decide not to increase your policy, the rider will drop off for the remainder of the policy.

where to buy disability insurance

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