Do I really need a long-term disability policy?

Q. The hospital where I practice only has a modest long-term disability policy. I just got a quote for supplemental long-term disability insurance and the cost was higher than expected. Is long-term disability really worth this added expense?

A. In general, the simple answer is usually YES! Long-term disability is often worth the added expense. Physicians’ most valuable asset is their ability to work and earn income in their specialty field for an extended period of time. Physicians can generate millions of dollars of income throughout their working lives and it is important to protect this earning potential.

Without the income generated from practicing medicine, a physician may need to forfeit many of his or her financial goals, such as purchasing a new home, paying for children’s college education, or even retiring comfortably. Long-term disability can ensure that many of these goals are reached even in the event of a long-term sickness or disability.

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You may be asking, “But what are the chances of actually becoming sick or disabled and needing a long-term disability policy?” The answer is higher than you may think. A typical male who is age 35, 5’10", 170 pounds, non-smoker, with some outdoor physical responsibilities, and leads a healthy lifestyle has a 21% chance of becoming disabled for 3 months or longer during his working career. A typical female who is age 35, 5’4", 125 pounds, non-smoker, with some outdoor physical responsibilities, and who leads a healthy lifestyle has a 24% chance of becoming disabled for 3 months or longer during her working career. A long-term disability is a legitimate concern and one worth protecting against.

Next: How does long-term disability insurance work?

How does long-term disability insurance work? Typically, a disability insurance company is willing to insure up to 60% to 70% of a physician’s pre-disability income. In the event of a disability, the policy will pay out a monthly benefit amount. These funds can be used to pay for necessary expenses and save for financial goals such as retirement. When considering a disability insurance policy, there are a few key terms to pay attention to:

Elimination period. This term refers to the amount of time the insured must be sick or disabled and not working before the policy will start paying out a benefit. Common elimination periods are 90, 180, and 365 days.

Benefit period. This is the length of time the policy will pay out a benefit in the event a claim is made. A physician should always consider a policy that lasts until retirement age.

Definition of disability. Physicians should consider True Own Occupation definitions to safeguard their specialty skill set. True Own Occupation ensures that if a physician is unable to work in their specialty field, but still capable of working in another field, the policy will still pay out a benefit because the physician is unable to work in their specialty field.

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Insurance can sometimes be seen as an annoyance and something that is rarely used. However, most of us have car insurance and health insurance to protect ourselves from a severe financial loss in the event that something unexpected happens. Disability insurance works the same way except it is protecting your most valuable and profitable asset-your ability to practice medicine in your specialty field. But not everyone’s circumstances are the same. Some physicians may be in the fortunate position of not needing disability insurance, such as those who can afford to retire today. Speak with your financial adviser or insurance agent to determine if long-term disability insurance is appropriate for you.

Next: What are the current limits for annual and lifetime gifting?

Q. What are the current limits for annual and lifetime gifting?

A. The annual gift tax exclusion allows you to make gifts up to the exclusion amount to as many people as you wish in a given year without incurring a gift tax. Additionally, the recipients do not have to pay any tax on the gifts received. For 2017, the annual exclusion amount is $14,000. If you are married, the annual gift tax exclusion can be doubled if your spouse joins in the gift. This would allow you to gift each individual $28,000.

The lifetime gift tax exemption applies to the amount of gifts you make during your lifetime, not including any gifts made that count toward the annual gift tax exclusion. For 2017, the lifetime gift tax exemption is $5,490,000 and again this amount can be doubled to $10,980,000 if you are married. This may be subject to change depending on the policies the new presidential administration enacts.

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