The medical profession is remarkable in many respects, but in particular, the one aspect that sets it apart from all most other professions is the meteoric rise in earnings most medical professionals experience beginning the day they complete their residency. And, unlike most other professionals, physicians are especially aware of the need to protect their ability to generate their income. But, when it comes to protecting their unusually high income potential, they need to know that their disability coverage will continue to protect them at the next level and beyond. More specifically, they need to know what their future increase options are for increasing their disability coverage.
Physician Disability Income Protection Diminishes with Higher Earnings
According to the 2013 Report on U.S. Physicians’ Financial Preparedness, 86 percent of physicians purchased their disability coverage while in residency or soon after beginning their career. And, nearly 50 percent report not having reviewed their coverage in the last five years or since it was purchases. Yet, it is not uncommon for newly minted physicians to see their income triple or even quadruple within a matter of years. With disability income benefits providing just 60 to 70 percent of their income, they can very quickly become deficient in protecting a physician’s most valuable asset.
For example, resident physicians might qualify for a $5,000 monthly benefit which is often higher than their earnings amount. But once in practice, their earnings can quickly climb to where that monthly benefit might only cover a third of their actual income. New physicians who complete their specialist training will often see their income double or triple depending on their specialty and the region in which they’re practicing.
What’s Your Future Increase Option?
Most physician-specific disability insurance policies offer a policy rider that provides for future benefit increases based on actual earnings. These Future Increase Options (FIO) or Guaranteed Insurability Option (GIO), are especially valuable because they allow for benefit increases without evidence of insurability, just evidence of earnings. Some policies include these options as part of the contract while others offer it as an additional rider. Most group plans don’t offer an FIO.
If your policy doesn’t have the option or you did not elect to add it to your coverage, your only alternative to increase your monthly benefit is to purchase an additional policy. The real risk of purchasing additional coverage to cover future income increases is that you could develop a medical condition that could disqualify you for coverage or, at the very least, increase its costs dramatically.
So, it is vitally important to know whether your disability policy has an FIO or offers it as a rider, and then know when and how to exercise the option. Most policies provide opportunities to increase coverage at certain policy year increments. Some offer more flexibility and frequency for exercising these options than others.
The unusually fast rate of income growth is but one more reason why physicians shouldn’t settle for the least expensive or expedient disability coverage. And, it’s also the biggest reason, why they shouldn’t just toss their policy in a file and forget about it. For physicians, disability income planning should be viewed with same level of importance as investment management or any other aspect of financial planning with constant reviews and adjustments as necessary.