How to outsmart your disability insurance policy

Your hands are your livelihood. In a flash, a career that took decades to achieve can come to an end. Meanwhile, the monthly bills keep rolling in and financial obligations mount as you’re out of work. This is an unpleasant but important topic for all dentists.

The OJM Group, based out of Cincinnati, Ohio, has roughly 800 dentists and physicians with disability insurance policies. At any given time they have 20 to 30 physicians making a claim. Generally speaking, there are two types of disability claims: short term and long term. Short term disability is used for when a physician will be out of work for a short period of time, for example, six months. The longer term disability is used when you cannot return to work in your current position. 

“I have a dentist right now who is in the midst of filing a claim. It will more than likely be a long term claim. He has carpel tunnel release and numbness all through his arm and into his fingers. I am not the doctor, but talking with him, there is probably a 90% chance he is not coming back to practice,” said OJM Group Managing Partner Jason O’Dell.

Related: Are you prepared for life after dentistry?

Filing a disability claim can be a grueling process. Be prepared when the insurance company requests a lot of information; for example, when the incident occurred and all medical records from the attending physician. The insurance company will also want financial documentation including, past tax returns and updated financial records for the current year.

“It is a long, cumbersome process to get a disability policy to start to pay, said O’Dell. “There is a waiting period before your benefit would kick in. As soon as you think there is a chance of going out on a claim, there is no sense in waiting before you file a claim.”

Exclusions and Definitions

If you purchase a disability policy, you still may not be fully covered. If you scuba dive on occasion that may not be a big deal. If you scuba dive in caves at night, 100 times a year, insurance companies are likely to exclude you or decline you all together. Other exclusions may include: active war, airline pilot and frequent indulgence in risky hobbies.

“I had a maxillofacial surgeon loose four fingers in a wood working activity; therefore, he couldn’t perform surgery anymore,” said O’Dell. “Make sure the policy has very specific definitions to protect you and your own occupation.”

When you sit down with a disability insurance carrier, examine their definition of disability. There are variables.

“You want it to say ‘the inability to perform the substantial material duties of your occupation’ period, end of story, nothing else,” O’Dell said.

Then you have residual definitions. Will your insurance carrier pay you in the event that you can work part time? Is there a cost of living adjustment? The value of a dollar changes over time. You want to make sure that monthly benefit increases with the consumer price index which is the cost of living adjustment

Insure within your means

Be cautious of policies that state that even if you are not capable to continue doing your current occupation, you could work in another field. This type of insurance policy will offset payment to you by the new income you are receiving from the new occupation. Typically, you don’t want this kind of definition because if you can’t do your job, you want to be paid no matter what job you’re going to do. A policy specific to your occupation can increase the cost. Look at the monthly benefits the policy will provide you based on your income.

“The higher your income goes, the less percentage of it you can get insured,” O’Dell said.

The insurance company mentality is that the more income you’re making the more you should be saving. For those oral and maxillofacial surgeons with incomes in the six and seven figure range, they have the ability to get their income insured through companies like Lloyds of London once they outgrow traditional markets.

“The philosophy that we use at our firm is to insure what you have in terms of expenditures on a monthly basis, not what you earn,” explained O’Dell. “What is your budget on monthly basis, not what you earn. Let’s insure your budget.”

Taxes and Filing a Disability Claim

Filing a disability claim can be taxing. The self-proclaimed Tax Goddess, Shauna Wekherlien of Scottsdale, Ariz., says one of her favorite things is learning how to play chess with the IRS’ rules to get that maximum deduction. Wekherlein says if a practice takes the disability policy as a deduction at the business level, meaning they are paying for all of it, and the employee/dentist is not paying for any of it, then the company can deduct the premium as an employee benefit. It is not taxable income to the employee. However any benefits from employer paid disability is taxable to the employee to the extent of the medical expenses.

“Place the onus on each individual person, this is one of the best ways to try and deduct the premiums but not necessarily pay tax on the income when you use it,” said Wekherlien.

Wekherlien says you are allowed to create a plan to really describe the disability insurance that you are going to be giving your employees as a company. In the plan, you are allowed to state each year if the individual is allowed to elect whether or not they are going to be paying these premiums pretax or post tax. You are allowed to choose in each year whether or not you are going to deduct those benefits or not. If in a year an employee becomes disabled he or she has elected to pay the coverage with his or her own funds meaning post-tax, then any benefits of that are tax free.

“If you have a dentist that is at a 40% rate and their insurance premiums for the year are 10,000 dollars,” said Wekherlien. “That is a 4,000 dollar tax shelter for them. Because you are allowed to elect annually which way you want to go, what you really want to do is hold your annual meeting on December 31^st.  That way you will know in that year if you have become disabled or not.”

Conclusion

Do you find all of this complex? You should. It is. Here is the bottom line: You need to decide if you need disability coverage. Be careful of the terms, conditions and definitions in the policy because they vary. There are major tax considerations when buying disability coverage. Get quality, professional assistance. Disability policies come with a lot of moving parts. It is worth your time and effort to get the right policy in place for your protection.

Michael J. Sacopulos is the CEO of Medical Risk Institute (MRI) and serves as General Counsel for Medical Justice Services. Additionally, Mr. Sacopulos is the Legal Analyst for several national publications, including Dental Products Report. He may be reached at msacopulos@medriskinstitute.com.