We get it. Disability insurance (and really all insurance for that matter!) is boring. But as a veterinarian, your greatest asset is your ability to earn an income and a disability event can significantly impact your ability to maintain your current lifestyle and future savings. Disability income is the best way to protect yourself from this type of event.
What is disability income insurance?
Disability income insurance protects you and your income in the event you cannot perform the duties of your occupation. The majority of people underestimate their chance of becoming disabled, with 1 in 8 workers becoming disabled for five years or more during their lifetime. Surprisingly, most disability claims are not due to injury, but due to illness (90% of disabilities are caused by illness).
Short-Term vs. Long-Term Disability
There are two types of disability insurance.
Short term disability benefits typically have a duration of three to six months and provide minimal relief for a significant injury or illness.
Long term disability benefits pay a percentage of your salary until you are able to return to work or for the length of the benefit period (commonly age 65).
If you work for a large corporate clinic you may have both short-term and long-term disability plans available to you through your employee benefits. Do your due diligence but more often than not it is wise to take advantage of these benefits. Because this is a group policy with many participants, they are able to offer coverage for reduced rates as the risk is spread out amongst many. There are also typically no or few limitations for pre-existing conditions with group policies.
When reviewing your group long-term disability plan, ensure the plan is considered ‘Own-occupation’ (discussed more in the terms & definitions section at the end). Also review for any cost-of living adjustments, residual benefits, elimination periods, and future increase options.
Group policies only cover so much, usually a maximum of 60% of pre-tax earnings with a monthly cap. So for those who wish to cover more than 60% of their income or their income is too high that their group policy’s maximum is less than 60% of earnings, private insurance may be a good option.
There are no shortages of private disability carriers offering private insurance. Similar to group policies, you’ll want to check on the definition of disability (own-occupation vs. any-occupation), cost of living adjustments, limitations for pre-existing conditions, future increase options, elimination periods, and more. A reputable insurance broker or fiduciary financial planner can help determine your insurance needs and compare different options.
Private disability can be quite expensive, and so having a solid understanding of your income needs and how a disability event may impact other areas of your financial life are crucial.
Luckily, as a veterinarian you’re most likely also eligible for member benefits through the AVMA. Like a group policy, this program offers benefits from the group purchasing power of thousands of veterinarians across the country. This policy is great for those without access to employer provided benefits or those whose group policy max is less than $12,500/month.
Some key highlights of the AVMA Long-Term Disability Plan:
- For disabilities that begin before age 62, benefits continue until age 70 in most cases. This is better than the standard of age 65 for most group policies
- Waiting periods (elimination periods) to begin receiving benefits range from 30 days up to 180 days. The longer waiting period selected, the lower your premium will be. This also highlights the importance of establishing and maintaining a sufficient cash reserve.
- Monthly benefits range from a minimum of $1,000/month to a maximum of $12,500/month, limited to 60% of earnings.
- Take for example a veterinary specialist earning $250,000/year with an employer group policy. The group policy is limited to 60% of earnings up to a maximum of $10,000/month. With an income of $250,000, this veterinarian would only be covered up to 48% of their income through their group policy. If they wanted to obtain disability income insurance to cover 60% of their income, they could obtain an additional $2500/month from the AVMA policy to get up to $12,500/month coverage. You wouldn’t be able to combine both policies to exceed the 60% of earnings threshold, but this provide a great option for those high income earners that exceed their group policy maximums.
- Partial residual benefits will pay benefits if due to injury or illness you are unable to perform your work which results in 25% loss of income.
- An example of this may be due to treatment and/or rehabilitation from an injury or illness you can only work 20 hours/week, the policy will pay benefits. OR
- If you are considered totally disabled and cannot perform the duties of your current role but can work in another role and that position pays less, you may be entitled to benefits to make up the income gap.
Options (also referred to as riders) available through the AVMA:
- Future Purchase Option
- Only available to those under age 50, this option allows for those to increase their monthly disability income as their income increases without medical underwriting. While still subject to the $12,500 monthly maximum, this is a good option for those who anticipate income increases (which hopefully is everybody!)
- Own-Occupation Plus
- This option pays full benefits, as opposed to partial benefits, if your covered disability prevents you from practicing veterinary medicine, even if you are working in an alternate occupation. To qualify for benefits, your new occupation earnings must be at least 25% less than your pre-disability average earnings
- Cost of Living Adjustment (COLA)
- When you purchase this option, your monthly benefit payments keep pace with inflation (as measured by changes in the Consumer Price Index). The maximum yearly increase is 8%.
- Spouse/Domestic Partner Disability Income Coverage
- This option lets you apply for a $500 monthly benefit for your spouse/domestic partner under age 65. You, as the member, must have at least $1,000 of AVMA LIFE Long-Term Disability Income coverage in force for your spouse/domestic partner to be eligible.
If your income is under $250,000/year and you either do not have access to a long-term disability through your employer or it is inadequate, the AVMA disability program is a great option. Much cheaper than most private policies, the definitions of disability and options available just make sense, particularly for those under age 50.
There are some exclusions and limitations, and I encourage you to read the disability brochure from AVMA in its entirety to get a better idea of the policy and also monthly rate schedule. You can also view more information on the AVMA Life website.
If you are unsure about your current level of coverage, how much disability insurance you may need, or how your current policy works we encourage you to visit us at VetWorth and schedule a free introductory phone call to see how we may be able to help you.
Terms & Definitions
- “Own Occupation” – This definition provides coverage for disabled individuals who are unable to perform the material and substantial duties of his/her occupation.
- “Modified Own-Occ” – This definition provides coverage for disabled individuals who are unable to perform the material and substantial duties of his/her occupation and are not employed in any other position while on claim. The insurance company will typically reduce benefits if earned income exists.
- “Partial Own-Occ” – This definition offers “Own-Occ” protection for 2 to 5 years; thereafter, the definition broadens.
- “Any Occupation” – This definition provides coverage for disabled individuals who are unable to perform the duties of any occupation by which the individual is suited by training, education or experience. This is the most restrictive definition.
- Elimination Period – The period in time between the illness/injury and the receipt of benefit payments.
- Residual Benefit – This feature allows the insured to collect benefits while residually disabled but working in a reduced capacity. The definition commonly reads something similar to, “due to injury or sickness, the insured is unable to perform one or more of the substantial or material duties of their occupation, is working and is suffering a loss of income of at least 20%. If the insured has a loss of income of 75% or more, the insured is deemed to be totally disabled and is eligible to receive full benefits.”
- Recovery Benefit – This feature will pay a monthly benefit to make up any gaps in your pre-disability income and post disability income.
- Catastrophic Rider – This rider pays an additional monthly benefit when there is a disability with loss of “activities of daily living” or a cognitive impairment.
- Cost-of-Living Adjustment (COLA) Rider – This feature helps to make sure benefit payments keep pace with inflation. With this rider, the benefits typically increase annually once on claim.
- Future Insurability Option – Allows the option to increase coverage annually as income increases.
- Mental/Nervous Limitation – Many disability policies limit the duration of a claim for mental illness.
Andrew Langdon is a CERTIFIED FINANCIAL PLANNER™ and the founder of VetWorth, a fiduciary fee-only financial planning firm dedicated to serving the unique needs of veterinarians and their families.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.