Do we need disability insurance

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mybogledhead
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Do we need disability insurance

Postby mybogledhead » Thu Jan 21, 2016 12:26 pm

Good morning,
I recently got several quotes on disability insurance from an independent agent. They are, as you probably guessed, expensive...especially for my wife. When I talked to her about it, she felt pretty strongly that we didn't need it at this time. We looked up an article on WCI regarding "when is it ok to NOT buy disability" and she noticed that one of the reasons is when you have two high-income earners. We qualify. Given the disagreement between her and I, I'm now looking for second and third opinions.

We are both 34, and early in our careers. Our retirement savings is growing, but negligible at this point.

Her salary: $300,000/yr
His salary: $185,000/yr

Her student loans: Approx. $160,000 (most will be paid by a new employer, starting in April, over the course of five years)
His student loans: Approx. $185,000 (average interest is 2.5%, and extra payments are made with a goal of paying them off within five years)
Mortgage: $951/mo, but house is currently for sale (unintended rental property). If she likes her new job, we"ll probably buy in 1-2 years.
No other debt (cars, credit, etc), but we obviously have other living expenses like rent for our current home.

No kids, but maybe soon.

She argues that we don't need disability because we don't have kids to support, and we could live off one of our salaries. To me, whether or not we have kids is irrelevant. I argue we have other significant expenses because we love to travel, we have significant debt, we need to continue to save for retirement, we hope to have kids soon, we want to buy a permanent home in a year or two, and that losing one of our salaries (especially hers) would result in a huge lifestyle change for us.

Any thoughts? Is she right, and we should wait until we have kids to buy expensive insurance? Am I wrong to consider all those other expenses as significant? Or am I on the right track? Also, could we insure her income, but not mine (and save about 33% on the total premiums)?

Thanks!

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DonCamillo
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Re: Do we need disability insurance

Postby DonCamillo » Thu Jan 21, 2016 12:52 pm

Disability insurance is contentious, especially for well educated, high income people. The problem is a conflict between the parties over defining a disability. The insurance company may be as restrictive as possible, claiming that if you can earn an income (and many people with disabilities are able to earn an income), you do not qualify. I can think of ways that I could earn an income if I lost my sight, or my hearing, or any two of my limbs, or if I were confined to bed. Consider Stephen Hawking, who has been one of the world's top professors of physics for decades while suffering from an extreme disability.

In general, subsidized disability insurance offered through an employer is relatively safe. If there is a dispute, the insurance company will want to protect its income stream from other policies with the same employer, especially if the employer goes to bat for you. Because it is a group policy and subsidized, it is also likely to be a fair value.

Individual policies should be purchased with extreme care. Carefully examine the definition of a disability that would allow a claim. Find reviews and disputes over disability policies with that company on-line.

You are significantly more likely to suffer from a disability than premature death during your working years, so it is a serious issue.

Note that you do have some resources already. Likely you have sick pay and possibly short term disability with your employers, and workmen's compensation if the disability is job related. After a period of time, you may qualify for social security disability. Consider those resources.
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Rupert
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Re: Do we need disability insurance

Postby Rupert » Thu Jan 21, 2016 12:55 pm

If you think you're going to buy it eventually because you plan to have kids, you should go ahead and buy it now while you're young and healthy. Develop a medical condition a few years from now, and it won't be an option. Don't either of your employers offer a long term group policy? I would think a company or firm paying 300,000+ salaries would offer a group policy as a standard benefit.

HighC
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Re: Do we need disability insurance

Postby HighC » Thu Jan 21, 2016 1:29 pm

Disability insurance is one of the three insurance pillars essential for financial protection (the other two are Health Insurance and Life Insurance). To earn the money that you are earning and not have it requires a high tolerance for risk.

A few things to consider:

1) You might get divorced/one of you may pass way and then you will not have a second income to rely on
2) When your wife gets pregnant, she may develop complications that prevent her from working in the future for an extended period of time
3) The best time to get it is when you don't need it
4) You can never predict a car accident

Also please consider the huge difference between employer-sponsored disability (covered by ERISA laws) and personal policies. The rules vary state by state but in general, there are major advantages to personal policies. Also, read the details/get the right riders for your needs.

I unfortunately have significant experience with disability insurance. Suffice it to say that I am very grateful that we have it.

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Re: Do we need disability insurance

Postby BruDude » Thu Jan 21, 2016 1:30 pm

DonCamillo wrote:Disability insurance is contentious, especially for well educated, high income people. The problem is a conflict between the parties over defining a disability. The insurance company may be as restrictive as possible, claiming that if you can earn an income (and many people with disabilities are able to earn an income), you do not qualify. I can think of ways that I could earn an income if I lost my sight, or my hearing, or any two of my limbs, or if I were confined to bed. Consider Stephen Hawking, who has been one of the world's top professors of physics for decades while suffering from an extreme disability.

In general, subsidized disability insurance offered through an employer is relatively safe. If there is a dispute, the insurance company will want to protect its income stream from other policies with the same employer, especially if the employer goes to bat for you. Because it is a group policy and subsidized, it is also likely to be a fair value.

Individual policies should be purchased with extreme care. Carefully examine the definition of a disability that would allow a claim. Find reviews and disputes over disability policies with that company on-line.

You are significantly more likely to suffer from a disability than premature death during your working years, so it is a serious issue.

Note that you do have some resources already. Likely you have sick pay and possibly short term disability with your employers, and workmen's compensation if the disability is job related. After a period of time, you may qualify for social security disability. Consider those resources.


Sorry, but I have to disagree with some of the info above. The definition of disability is clearly stated in any disability insurance policy - the reason individual policies are expensive is because you are buying the best definition of disability, which is the True Own-Occupation definition. A good policy will clearly state that if you are unable to work in your own occupation due to injury or illness, the entire benefit will be paid, even if you are working in a different occupation. There are a number of other benefits in an individual DI policy which are vastly superior to group policies that I have covered in past posts about this topic.

Group disability insurance policies have many "holes" in them, most often in the definition of disability itself. Almost all group plans will have the True Own-Occupation definition for the first 24 months, and then after that they may change to something as bad as the "any occupation" definition mentioned in your post above, which can be extremely vague and leave a lot of gray area. If you sue the insurance company for failure to properly pay a claim on a group insurance policy, you can only be awarded actual damages. On an individual policy, you can be awarded actual damages and punitive damages, which makes the insurance company much less likely to play games with your claim.

Sick pay, STD, Worker's Comp, and SSDI will not pay anywhere near what a good DI policy would pay out for any reasonable period of time, especially for someone earning $185k+.



OP - I think your wife is thinking about this in the wrong terms. Yes, disability insurance is expensive....but so was your education and how valuable is your future earning potential for the next 30+ years? You have worked hard to get to the point you are at now, and how would it feel if all of that was ripped away from you due to an injury or illness? Would you prefer to have 100% of your current income while healthy and 0% of it while disabled, or would you prefer to have 97-98% of your current income while healthy and 60-70% of it tax-free while disabled? If price is an issue, maybe consider a policy with a shorter benefit period, longer benefit period, or lower monthly benefit to help reduce the cost.
Last edited by BruDude on Thu Jan 21, 2016 1:39 pm, edited 1 time in total.

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Qtman
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Re: Do we need disability insurance

Postby Qtman » Thu Jan 21, 2016 1:39 pm

Disability insurance is important, your chance of a disability is higher than many other probabilities.
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mrc
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Re: Do we need disability insurance

Postby mrc » Thu Jan 21, 2016 1:40 pm

Everyone has life insurance, right? During a financial checkup 15 years ago, we discovered we were statistically more likely to become disabled and/or to need extended care than to die. That meant we needed to insure ourselves against loss of income (LTD) until we turned 65 (or 67, at which time SS and the portfolio takes over). And to obtain long term care coverage while young and healthy to obtain affordable coverage and to protect the portfolio on old age. The LTD ends at 65/67, but the LTC does not. Something to think about...

For the LTD, be sure to obtain "same work" and not "any work" coverage. It costs more but if you can't do the jobs for which you were educated and which command the salaries you mention, you need all that income made up. If, after a closed head injury you could flip burgers, you still want that higher income replaced. Coverage through ones employer isn't portable, and may have stiffer qualifications/limits than what you can purchase on your own. And after tax premiums (many companies pay your premiums pre-tax) means you don't owe income tax on benefits.

For years now, we have felt comfortable knowing both our life and our livelihood were protected, and that the burden of any long term care for one of us would never fall on the other.

Personally, we feel that LTC/LTD is every bit as important as life and home/auto coverage.

mybogledhead
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Re: Do we need disability insurance

Postby mybogledhead » Thu Jan 21, 2016 1:47 pm

Group disability is an important consideration I forgot to include. My wife and I are in medicine, and her new job will be with a private practice that does not offer group disability (each of her new partners buys their own, but they are all men so its cheaper). I work for a state university that offers group disability up to 60% of my salary, but it is pre-tax and thus would be taxed upon distribution.

Regarding the definition of disability, both individual policies are "own-occupation." So then the question becomes, will my group policy pay out if I lose my hands, can't do my current job, but could potentially do general medicine? Would my income be anywhere near what it is now? How much do I want to protect myself, my current income, and our lifestyle? Even if my group policy does pay, a >50% reduction in salary due to taxes on the disability payments is a significant paycut.

Obviously a disability for my wife would affect our income the most, and she will soon be completely unprotected. If I am interpreting her comments appropriately, however, she thinks my salary provides that protection. I don't agree with her on that and I think she is grossly overestimating our ability to cut back. Only we can really decide this, of course, but I was wondering what others thought given our debt load, future plans, and lack of significant retirement savings.

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JDCarpenter
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Re: Do we need disability insurance

Postby JDCarpenter » Thu Jan 21, 2016 1:58 pm

OP--do insurers still offer "own specialty" policies--maybe something on WCI about that? We got that for my wife when she was first out of residency and maintained it through her career (probably dropping it this year, as we are likely retiring by end of 2017). For her, probably like your wife, losing fine motor function of hands would force her into less desired (and rewarding) specialty, so that was critical for us.

As pointed out above, if you are seriously planning on kids, it is likely better to get the insurance first (although we didn't think of that). I am big proponent of individual policy....
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smackboy1
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Re: Do we need disability insurance

Postby smackboy1 » Thu Jan 21, 2016 2:04 pm

mybogledhead wrote:We are both 34, and early in our careers. Our retirement savings is growing, but negligible at this point.

Her salary: $300,000/yr
His salary: $185,000/yr

Her student loans: Approx. $160,000 (most will be paid by a new employer, starting in April, over the course of five years)
His student loans: Approx. $185,000 (average interest is 2.5%, and extra payments are made with a goal of paying them off within five years)
Mortgage: $951/mo, but house is currently for sale (unintended rental property). If she likes her new job, we"ll probably buy in 1-2 years.
No other debt (cars, credit, etc), but we obviously have other living expenses like rent for our current home.

No kids, but maybe soon.


Disability insurance, like most insurance, can be seen as shifting the risk of loss of many years/decades of cashflow.

Analyze your family like a business with income and expenses, assets and liabilities. Then play "what if".

Partly it will depend on you and your wife's skill set and occupation.

Some people have very narrowly defined skills and occupations. Example, a neurosurgeon loses a finger on their dominant hand and their chosen career is over. They would have to take a pay cut and perhaps re-train for an alternative career.

What if one spouse became seriously disabled and needed around the clock long term care in a facility? Double whammy, income decreases and expenses increase.

It's possible that in later years after all the debts and repaid and a sizable nest egg is accumulated you can forgo DI and self insure.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

smackboy1
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Re: Do we need disability insurance

Postby smackboy1 » Thu Jan 21, 2016 10:01 pm

mybogledhead wrote:My wife and I are in medicine


Off topic but insurance related: Make sure to have adequate medical malpractice coverage if either one of you leaves your current practice. Some practices only purchase "claims made" coverage instead of "occurrence" coverage because it's the only coverage they can get and still stay in business. In which case you want to purchase "tail" insurance - another expense.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

itstoomuch
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Re: Do we need disability insurance

Postby itstoomuch » Thu Jan 21, 2016 10:15 pm

For physicians, yes.
My sister's husband's father (orthopedics) diagnosed with Alzheimer's at 55. Lived to 75.
You really won't need much in terms of DI but enough to keep family in the green.
3 other physicians in our family lived to their 90's.

Odd, that as one becomes wealthier the more important insurance becomes. Yet the absolute monetary need for that insurance is lessened. :|
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Dulocracy
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Re: Do we need disability insurance

Postby Dulocracy » Fri Jan 22, 2016 11:14 am

What percentage of income are they quoting you?
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

afan
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Re: Do we need disability insurance

Postby afan » Fri Jan 22, 2016 12:09 pm

Your wife needs disability insurance.

She should get it now, before she becomes pregnant.

It is "expensive" compared to some things, but at her age, it should still be relatively cheap as DI goes. As you accumulate assets, you will reach a point where she can Reduce her coverage and eventually drop the insurance altogether, but that will be years from now.

One could consider you adequately covered. Your 60% taxable will leave a gap in your family income if you could not work, but you are not that far below the maximum that companies will sell you. If you are getting a lot of push back about the cost, get her insured up to the max and leave yourself covered only by the policy at work.

If I were in your situation, I would get an individual policy to cover the gap for you, but I could see the argument against it.

Make sure your policy at work is portable if you leave for another job. The premium for portability likely will be high, since the only people who do that are those who are uninsurable when it comes up.

Other factors to consider: You cannot know for sure, but how many kids do you expect to have? Are there grandparents who are going to help pay for college? The answers could have a big impact on how much money you need to live the lives you anticipate.

Read the White Coat Investor series on disability insurance. It is great. He has a fixation on early retirement and limiting work hours that many doctors do not share, but his DI information is terrific.
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mybogledhead
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Re: Do we need disability insurance

Postby mybogledhead » Fri Jan 22, 2016 2:22 pm

Dulocracy wrote:What percentage of income are they quoting you?


The numbers between the policies are a bit different, but generally we are looking at $12,000 monthly income for a bit over $8,000 in yearly premiums. So that comes out to 5.5%, if I'm not mistaken.

I tried to get one her current partners (she has a female partner at the job she is leaving) to also sign up, which would have cut the premiums almost in half for both of them but the partner wasn't interested. An additional caveat is that, evidently, we can make the policy guaranteed renewable in which case the company could potentially change the premiums at some point. This would drop the yearly premium to about $4,500 if I remember correctly (It was given to me over the phone, I didn't write it down, and I don't have the policy quote yet). In that case, it would be about 3% of income.

This whole conversation started when I went to sit down with my wife to determine how much disability income we think we would need, which is when she told me she didn't think we needed any. So, we could also get a cheaper price by lowering the benefit, as was mentioned above.

Also, FYI, here is the definition of disability from my current benefits. It makes me want to get my own as well, considering that after 24 months I would not be able to work anywhere in order to keep the benefit.
For the purposes of these policies, total disability means "a person is unable to perform any and every duty of
his/her occupation during the first 24 months of disability due to bodily injury or sickness." After 24 months
permanent disability means "a person is unable to engage in any work or occupation for which he/she is
reasonably fitted by education, training or experience and while disabled does not engage in any employment
for wage or profit."
Last edited by mybogledhead on Fri Jan 22, 2016 2:30 pm, edited 1 time in total.

afan
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Re: Do we need disability insurance

Postby afan » Fri Jan 22, 2016 2:26 pm

That seems very high, but I have not shopped DI in a long time. Perhaps that is what they do with young women, many of whom they expect will get pregnant?

A reduced amount of coverage for a lower price is way better than none at all.

Obvious questions- Have you shopped multiple companies? Have you investigated group policies through professional associations?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

mybogledhead
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Re: Do we need disability insurance

Postby mybogledhead » Fri Jan 22, 2016 2:35 pm

afan wrote: Obvious questions- Have you shopped multiple companies? Have you investigated group policies through professional associations?


I think a female who is healthy but advanced maternal age, with a high salary, unfortunately gets to pay a high premium. The person I've been working with on this looked up quotes from 5-6 different companies, and a few different benefit amounts. I'm ashamed to say he and I started talking several months ago, and for a number of reasons I haven't pulled the trigger. He's been very patient and helpful, and has run the numbers several different ways.

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Watty
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Re: Do we need disability insurance

Postby Watty » Fri Jan 22, 2016 2:40 pm

Rupert wrote:If you think you're going to buy it eventually because you plan to have kids, you should go ahead and buy it now while you're young and healthy. Develop a medical condition a few years from now, and it won't be an option.


Another factor is that not all marriages make succeed so you can't depend on always having the other spouse's income.

One option would be to get the disability insurance but then drop it then drop it in ten years or so when the student loans are paid off, you have a paid off house, and a nice nest egg built up.

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Re: Do we need disability insurance

Postby BruDude » Fri Jan 22, 2016 3:49 pm

mybogledhead wrote:
Dulocracy wrote:What percentage of income are they quoting you?


The numbers between the policies are a bit different, but generally we are looking at $12,000 monthly income for a bit over $8,000 in yearly premiums. So that comes out to 5.5%, if I'm not mistaken.

I tried to get one her current partners (she has a female partner at the job she is leaving) to also sign up, which would have cut the premiums almost in half for both of them but the partner wasn't interested. An additional caveat is that, evidently, we can make the policy guaranteed renewable in which case the company could potentially change the premiums at some point. This would drop the yearly premium to about $4,500 if I remember correctly (It was given to me over the phone, I didn't write it down, and I don't have the policy quote yet). In that case, it would be about 3% of income.

This whole conversation started when I went to sit down with my wife to determine how much disability income we think we would need, which is when she told me she didn't think we needed any. So, we could also get a cheaper price by lowering the benefit, as was mentioned above.

Also, FYI, here is the definition of disability from my current benefits. It makes me want to get my own as well, considering that after 24 months I would not be able to work anywhere in order to keep the benefit.
For the purposes of these policies, total disability means "a person is unable to perform any and every duty of
his/her occupation during the first 24 months of disability due to bodily injury or sickness." After 24 months
permanent disability means "a person is unable to engage in any work or occupation for which he/she is
reasonably fitted by education, training or experience and while disabled does not engage in any employment
for wage or profit."


Usually, the percentage of income as a premium calculation is cited as the percentage of income being covered, not the percentage of DI benefit. For example, a $300k income with an $8k premium would be 2.67%, not 5.5%. Generally, you will find that a maxed out comprehensive DI policy will cost 2-4% of the income amount being covered depending on age/occupation/benefits chosen. The higher your income is, the less of a percentage of that income that any one insurance company will cover. Someone earning $100k can get a benefit amount of ~$5,000/month, while someone earning $300k can get a benefit amount of ~$13,500/month.

I can't imagine any policy would have a ~50% premium reduction just for losing the non-cancelable provision, and Standard should be the only "first tier" company that offers the non-can benefit as an option instead of built into the policy. It sounds like maybe you were being quoted policies from two different companies, one non-can/guaranteed-renewable top tier policy at $8k and one guaranteed-renewable-only second-tier company for $4500. When it comes to DI, you generally get what you pay for.

I don't know what your wife's specialty is (if she has one), but my guess would be that MetLife has the best overall value considering price and benefits, and Guardian has the best benefits but will be priced higher. MetLife has a 10% discount available to anyone that is a member of the AMA. A 10% discount with Guardian has recently been made available that any physician can get, but it has to go through one specific brokerage so not all agents can offer it. There also may be discounts available through local associations depending on where you live.

IMO, the definition of disability on your group policy is awful. The "any and every duty" line for the first 24 months leaves A LOT of gray area and will make it much more difficult to ever actually qualify as disabled under those policy terms.

mybogledhead wrote:
afan wrote: Obvious questions- Have you shopped multiple companies? Have you investigated group policies through professional associations?


I think a female who is healthy but advanced maternal age, with a high salary, unfortunately gets to pay a high premium. The person I've been working with on this looked up quotes from 5-6 different companies, and a few different benefit amounts. I'm ashamed to say he and I started talking several months ago, and for a number of reasons I haven't pulled the trigger. He's been very patient and helpful, and has run the numbers several different ways.


Females in general get higher premiums than men, usually about 30% higher for the same age and occupation. Statistics show that women are more likely to become disabled than men and the policies are priced accordingly. As mentioned above, a unisex rate and discount could be available if a multi-life policy with at least 3 applicants can be done, but it can be difficult to have 3 people apply, be approved, and place the policies in force at the same time (Principal requires that it be done within 12 months, others at the same time).

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Strayshot
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Re: Do we need disability insurance

Postby Strayshot » Sat Jan 23, 2016 11:38 am

IMO this is a no-brainer. Get solid own-occupation disability insurance. When you have a sizable nest egg and want to self-insure against disability you can reconsider, but right now with the debt and lack of a nest egg you both need DI end of story.

Sure you could life off one of your salaries, but what if you were both disabled simultaneously (car accident). You have plenty of income and DI is not an area to skimp particularly for physicians (and particularly particularly for physicians in surgical specialties).

Not sure what kind of patient population you serve, but all it takes for me is hearing the stories from patients who had some unfortunate incident, were not insured, and now scrape by on SSI (lost home, can't work, constant pain, eat cat food, on and on and on). The world is your oyster now, but that can still change in the blink of an eye.

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Re: Do we need disability insurance

Postby dc81584 » Sat Jan 23, 2016 11:57 am

Nope.

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Re: Do we need disability insurance

Postby BruDude » Sat Jan 23, 2016 3:05 pm

Strayshot wrote:IMO this is a no-brainer. Get solid own-occupation disability insurance. When you have a sizable nest egg and want to self-insure against disability you can reconsider, but right now with the debt and lack of a nest egg you both need DI end of story.

Sure you could life off one of your salaries, but what if you were both disabled simultaneously (car accident). You have plenty of income and DI is not an area to skimp particularly for physicians (and particularly particularly for physicians in surgical specialties).

Not sure what kind of patient population you serve, but all it takes for me is hearing the stories from patients who had some unfortunate incident, were not insured, and now scrape by on SSI (lost home, can't work, constant pain, eat cat food, on and on and on). The world is your oyster now, but that can still change in the blink of an eye.


Agree with all of this. Any experienced insurance agent has plenty of stories about things that people never thought would happen, and then they happened. For some, it was too late, for others, they planned for it in advance. My neighbor was a very healthy guy in his 50's, bought a life insurance policy at Preferred Plus, had a brain aneurysm and died at age 54 with no other health problems. Another one of my clients bought a policy with Preferred Plus rates three years ago, he died about 6 months ago from cancer that kept recurring and eventually spread. One of my dad's clients was an OBGYN that was kicking and screaming about the cost of DI coming out of residency but bought the policy anyway. 6 months later he was diagnosed with a brain tumor and was out of work for over 10 years collecting $15k/month tax-free, which could have been $0 if he balked. He's still collecting residual disability benefits to this day. I could go on, but you get the idea.

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Re: Do we need disability insurance

Postby Dulocracy » Tue Jan 26, 2016 12:12 pm

BruDude wrote:IMO, the definition of disability on your group policy is awful. The "any and every duty" line for the first 24 months leaves A LOT of gray area and will make it much more difficult to ever actually qualify as disabled under those policy terms.


+1

Brain injury? Can you still dig ditches? You are not disabled. Physical injury? Can you still do a "thinking" job? You are not disabled. You want a policy that covers your specific profession.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

betterfinances
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Re: Do we need disability insurance

Postby betterfinances » Tue Jan 26, 2016 8:29 pm

mrc wrote:Everyone has life insurance, right?


No, (except for mandatory amounts provided by employer). I have college fully saved for my kids, retirement for my wife is taken care of, and enough money in a taxable account that can pay off the house. In the absence of either my wife or I, our individual salary alone would be enough to take care of the family for as long as need by, in combination with our assets.

In the event of the dual death of both my wife and I but not the kids (hard to fathom exactly how that would happen?), the kids will have more than enough to provide for them to 18 plus full college tuition.

So I don't see a reason to pay for life insurance. We do have it from both of our employers but it's not optional. I wouldn't pay for it.

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Re: Do we need disability insurance

Postby MRDI » Fri Feb 05, 2016 10:37 am

DINK households are the most difficult to gauge for disability insurance, especially when both spouses have significant earnings potential. What’s unique about physicians though, is that it takes 7+ years of additional education/training to achieve that earnings potential and typically comes with a decent chunk of student loan debt – you’re not only getting a late start but also starting in the red. I’d say that alone should be enough to warrant income protection. Like one of the other posters mentioned, the benefits of this insurance don’t just disappear as your income increases. The “need” may not be quite as substantial because you can certainly live on $185k annually, but would you really want to after living on $500k? Possibly if you were really great savers and 15-20 years into your peak earning years. At this point however, your ability to pay down student loans, pay for a house, provide for your children’s education and save for retirement would be significantly impacted. If disability were to strike, you’ll likely be working way longer than you may have wanted :)

With regard to individual policies, there are plenty of insurers currently offering the desired True Own-Occupation definition of total disability (MetLife, Berkshire, Principal, Standard, Ameritas, MassMutual, etc.). While MetLife does tend to offer very favorable pricing for a lot of specialties, it’s mainly with IM/FM/Peds (and relevant subspecialties) and some surgeons. Orthopedic surgeons, anesthesiologists, EM docs, OBGYNs, and some others are not as well priced with MetLife, particularly for women. The key is to looking at all options, like it seems you have, and evaluate based on the merits of each. Every case is different and changes based on specialty, age, gender, residence state, etc.

The pricing issue that you’re encountering is one of the primary reasons physicians should look at securing coverage while still in training (especially women). You are much more likely to find an existing discount or find 2 others who would be interested in joining efforts for the sake of securing highly discounted coverage - it can be much more difficult throughout attendinghood.

In my opinion, and it seems that of many other commenters, disability is just too big of a risk to self-insure at least until your debts are paid and retirement accounts more sizable. In order for both of you to feel good about your decision, perhaps you need to be creative with how you design your policies. Your income is not as substantial as your spouse’s and you at least have employer-sponsored disability insurance in place. Perhaps you should consider designing your policy with a 365-day elimination period and dropping optional riders other than residual. Depending on how your original quotes were structured, this could reduce your overall cost by ~30-40% or more. I would probably still buy as much of it as you can though, partially as protection in case you leave your current employer. Doing something similar for your wife could have a similar impact on pricing. I would probably stay with a 90-day or 180-day elimination period during childbearing years but you could remove some optional riders and possibly select a guaranteed renewable policy (Standard and Ameritas offer this option) if it saves you enough on premiums. Reducing the benefit period could be a fine option as well, particularly if you’re considering an insurer that offers a 10-year benefit period. I don’t know that I’d go with anything shorter than 10-year benefit period at this point though. In terms of benefit amount, I would at least secure enough to take care of all student loan payments and retirement contributions. Any of these strategies would be better than not having coverage at all.

Best of luck.

Gemini
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Joined: Sun May 20, 2012 8:10 am

Re: Do we need disability insurance

Postby Gemini » Fri Jan 06, 2017 1:46 pm

BruDude wrote:....


A little off topic - I read that if you pay for disability insurance with pre-tax dollars, and you end up collecting, the money comes out as taxed. Is that true? How does the company i.e. Guardian verify that one did or did not pay the premium pre or post tax?

Rupert
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Joined: Fri Aug 17, 2012 12:01 pm

Re: Do we need disability insurance

Postby Rupert » Fri Jan 06, 2017 2:19 pm

Gemini wrote:
BruDude wrote:....


A little off topic - I read that if you pay for disability insurance with pre-tax dollars, and you end up collecting, the money comes out as taxed. Is that true? How does the company i.e. Guardian verify that one did or did not pay the premium pre or post tax?


You may want to start a new thread as this one is a year old. But I think what you're referring to is the rule that if your disability insurance premiums are paid by your employer, then your disability payments are taxed as income. If you pay your own disability insurance premiums outside of your employer or if you pay with after-tax payroll deductions, it's not taxed as income. If you and your employer both contribute to the insurance premiums, only the disability amount covered by your employer's payments are taxable. The insurance company knows who paid them.

MRDI
Posts: 2
Joined: Sat Jan 23, 2016 8:25 am

Re: Do we need disability insurance

Postby MRDI » Fri Jan 06, 2017 3:31 pm

My guess is Gemini was asking about deducting the premiums for an individual policy. The answer is simple, the IRS doesn't allow individuals, sole-proprietors or S-Corps to deduct individual disability insurance premiums. Only C-Corporations are allowed to deduct the premiums for individual disability insurance policies and under specific circumstances. Therefore, Guardian and all of the other insurers will assume that the premiums on individual DI policies were paid post-tax because that's all the IRS allows. I assume they would handle it differently if you specifically told them that you deducted it.
**I'm not an accountant so you should discuss the details with a tax professional. Here are some references though:

- Non-deductible, IRC Sec. 213(d)(1)(c) 162, 262 and 265 (a)(1); Non-taxable, IRC Sec. 104 (a)(3) Rev. Rul 66-262 1966-2 C.B. 105; Rugby Productions, Inc. v. Commissioner, 100 TC 531 (1993).
- https://www.irs.gov/publications/p535/ch06.html Scroll down to "Nondeductible Premiums" (3/4 of the way down) and reference #2 "Loss of Earnings".

Hope this helps.

Gemini
Posts: 836
Joined: Sun May 20, 2012 8:10 am

Re: Do we need disability insurance

Postby Gemini » Sat Jan 07, 2017 11:06 am

MRDI wrote:My guess is Gemini was asking about deducting the premiums for an individual policy. The answer is simple, the IRS doesn't allow individuals, sole-proprietors or S-Corps to deduct individual disability insurance premiums. Only C-Corporations are allowed to deduct the premiums for individual disability insurance policies and under specific circumstances. Therefore, Guardian and all of the other insurers will assume that the premiums on individual DI policies were paid post-tax because that's all the IRS allows. I assume they would handle it differently if you specifically told them that you deducted it.
**I'm not an accountant so you should discuss the details with a tax professional. Here are some references though:

- Non-deductible, IRC Sec. 213(d)(1)(c) 162, 262 and 265 (a)(1); Non-taxable, IRC Sec. 104 (a)(3) Rev. Rul 66-262 1966-2 C.B. 105; Rugby Productions, Inc. v. Commissioner, 100 TC 531 (1993).
- https://www.irs.gov/publications/p535/ch06.html Scroll down to "Nondeductible Premiums" (3/4 of the way down) and reference #2 "Loss of Earnings".

Hope this helps.


Nailed it. This was exactly what I wanted to know. Will run it by CPA just to be sure, but looks like premiums cannot be deducted in my case.


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