As allied health professionals, long-term disability insurance is one of the many financially-oriented subjects critical in our career but often not sufficiently explored in our graduate school education.
Fortunately, I’ve already gone through the process of thoroughly researching and subsequently purchasing a private long-term disability insurance policy for myself, so I can now draw from that experience to best assist you through this process.
Because there is so much to cover, all of the information you need to know will be broken down into two separate articles.
In this article, we’ll look at what long-term disability insurance is and why you, as a allied health professional, should consider purchasing your own private policy.
Then, in How Allied Health Professionals Should Purchase Long-Term Disability Insurance, we’ll figure out how to best go about purchasing your own policy while avoiding common pitfalls.
As I am physical therapist and my wife is an occupational therapist, I hope this information aids you in obtaining your own disability insurance so that, no matter what does or does not happen, you will be prepared accordingly.
Let’s get started.
WHY DO I NEED DISABILITY INSURANCE?
As allied health professionals that help patients recover from injuries and attempt to return to life as they previously knew it, we should be the first to appreciate the benefits of having disability insurance.
If you are early in your career, you may think that being prepared for a potential disability does not apply to you. However, more than 25% of today’s 20-year-olds can expect to experience a disability before they reach a retirement age of 67.
Given that musculoskeletal disorders are at the top of the list for causes of long-term disability claims and that our professions can be a physically grueling one, we should be well-positioned to understand the risks of disability and prepare accordingly.
So, what type of disability insurance should you look into purchasing?
SHORT-TERM DISABILITY INSURANCE VERSUS LONG-TERM DISABILITY INSURANCE – WHICH ONE DO I WANT?
Short-Term Disability Insurance:
Short-term disability insurance generally kicks in one week after a disability occurs. After short-term disabilitycoverage begins, it typically lasts around 3-6 months and replaces 50-80% of your income depending on the policy.
A common use of short-term disability insurance is to replace income during maternity leave. The insurance company The Standard uses this situation as an example when advertising their short-term disability policy.
While many employers provide short-term disability insurance for pregnancy, be aware that your benefit will then be taxed. This is because your employer pays for your policy. If your employer does not provide short-term disabilityinsurance for maternity leave, you can either consider purchasing your own private policy or just make sure that you have at least a few months of expenses saved up as an emergency fund.
If you do decide to purchase your own private policy, the premium for short-term disability insurance will be determined using multiple factors such as age, gender, health, occupation, location, income, and the amount of coverage desired. More on these later.
Long-Term Disability Insurance:
Long-term disability insurance generally kicks in 90 days after a disability occurs. This can be around the time short-term disability insurance ends. Therefore, if you do not have short-term disability insurance, you will need to be prepared to go 90 days without collecting a benefit.
After long-term disability insurance kicks in, it typically lasts until recovery or until the end of the policy. Policies most often end at age 65, when typical retirement is anticipated.
Long-term disability insurance provides 60% of your annual gross income with the goal of replacing the take-home pay you would typically be receiving from your job.
Long-term disability insurance is crucial to have for just about anyone relying on an income stream that can no longer be counted on long-term. The Standard uses a situation of a car accident to describe a potential scenario in which having a long-term disability policy can greatly impact your financial standing in a positive way despite going through a traumatizing event. This particular potential scenario especially hits home with me as I work home health as a side hustle.
One of the great aspects of having long-term disability insurance is that it will provide you with a benefit no matter if the cause of your disability took place at work or not, just as long as it affected your ability to perform your job in a substantial way.
Since, to my knowledge, no one has a crystal ball to predict what injury you may or may not experience whether inside or outside of your allied health job(s), it’s best to be prepared by having long-term disability insurance.
Now that you have a better understanding of what disability insurance is and why you need it, you will need to understand the benefits of having your own private policy versus just relying on a policy provided by your employer.
WHAT’S THE DIFFERENCE BETWEEN AN EMPLOYER’S LONG-TERM DISABILITY POLICY AND A PRIVATE LONG-TERM DISABILITY POLICY?
You can have long-term disability insurance either through your employer or you can purchase your own long-term disability policy privately.
There are instances in which an employer’s policy can be great to have.
For one, an employer’s long-term disability insurance policy does not require an investigation into your medical history, which can increase the cost or even prevent the attainment of a policy.
Another good time to take advantage of having an employer’s long-term disability insurance policy is when it’s free. Why turn down a free policy?!
But what are the less appealing factors you need to be aware of in regards to an employer’s policy?
First, employer policies are typically not true own-occupation policies. We’ll discuss the various definitions of own-occupation later on. However, to briefly summarize, if you became too disabled to perform your own job but you were able to work in a different occupation that the insurance company considered you reasonably suited for based on your education, training, and experience, then you would not be able to collect your benefit.
Another aspect of an employer’s long-term disability policy to consider is that, if you were to become disabled, the benefit that you would collect would be subject to income taxes and thereby dramatically reduce the income you have to live on.
An employer’s long-term disability policy is also a policy owned by your employer. This means that the employer can make changes to the policy or even cancel it whenever it is convenient to them. If they do decide to cancel it and you did not purchase an additional private long-term disability policy, you could find yourself without any long-term disability insurance.
Additionally, since the employer owns the policy, if you decide to leave that job then you cannot take that long-term disability policy with you. This is especially important for those allied health professionals just beginning their careers and may be changing jobs a few times before settling down into the right fit for the long haul.
In comparison, if you were to purchase a private individual long-term disability policy, you would own that policy no matter how many times you decided to change jobs.
Additionally, the benefit would be tax-free since you are paying for the private policy with after-tax dollars.
Most importantly, you can purchase a private true own-occupation policy. The significance of having a true own-occupation policy will be discussed in greater detail in How Allied Health Professionals Should Purchase Long-Term Disability Insurance.
The downside to a private long-term disability insurance policy is that it can be difficult to obtain. This can be the case if insurance companies decide that you have a pre-existing medical condition they deem serious enough to risk insuring you.
When attempting to purchase a private policy, you will also be asked if you participate in any extreme sports. Common examples of what insurance companies will classify as extreme sports are scuba diving, rock climbing, and flying an aircraft. If you answer “yes” to this, purchasing a private policy can become more expensive, sometimes prohibitively so.
To recap, good reasons to rely only on an employer’s policy are
- If it’s free
- If you are unable to obtain a private policy due to medical history
However, purchasing your own private long-term disability policy allows you to
- Have a policy with a true own-occupation clause
- Own the policy in the case of a private individual policy
- Obtain a benefit tax-free in the instance of being disabled
Overall, owning a private long-term disability insurance policy can be a safer bet.
Now that we’ve examined the ins and outs of an employer’s long-term disability insurance policy, let’s take a closer look at what factors determine the cost of a private long-term disability insurance policy.
HOW DO INSURANCE COMPANIES DETERMINE THE COST OF A PRIVATE LONG-TERM DISABILITY POLICY?
As with short-term disability insurance, the pricing for long-term disability insurance is based on multiple factors such as age, gender, health, occupation, location, and income.
When considering age, insurance companies want to know your exact age. Typically, the younger and healthier you are, the less expensive it will be to purchase a policy.
In regards to gender, long-term disability insurance typically costs more for females than males.
When applying for an individual policy, your health will be considered as well. Certain medical conditions can increase the cost of a policy or even make it impossible to obtain.
This is why it can be helpful to obtain long-term disability insurance early on in your career before you potentially experience any serious medical conditions.
Your location is also a consideration since prices for long-term disability policies can vary between states.
Sometimes, an insurance company may decide not to offer you a policy simply because of your location. I experienced this when I found out that one insurance company does not offer long-term disability insurance to physical therapists located in California. This decision does not have anything to do with you, but more to do with the number of insurance claims being made geographically.
In regards to income: you make more, you pay more.
This is generally the case because the more income you make, the more income you will want to have replaced if you were to become disabled. Therefore, the insurance company will charge you more to replace more income.
Each insurance company will come to its own determination on how to best classify the risk of insuring a physical or occupational therapist and will place the profession of physical or occupational therapy into an occupational class. The take-home message here is that simply being a physical or occupational therapist may be considered a greater risk by one insurance company compared to another.
FINAL THOUGHTS. . .
The last aspect of cost to be aware of is that you should not be required to pay your insurance agent for anything other than the purchase of the policy itself. This will be covered in more detail in the following articles:
- How Physical Therapists Should Purchase Long-Term Disability Insurance
- How Occupational Therapists Should Purchase Long-Term Disability Insurance
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