Why disability insurance is crucial

Excerpted from page 42 of the March/April 2023 edition of AOA Focus

Do you know how to apply for disability insurance? How much do you need? What should you look for in your coverage?

Christopher Burke, president and CEO of AOAExcel®-endorsed business partner AGIA, Inc., discussed with AOA Focus why it may be crucial that every doctor of optometry has disability insurance—and why it could be easier to obtain than you might think.

First, let’s start with the basics: What is disability insurance, and why might it be important for doctors of optometry?

In short, disability insurance replaces a portion of the eligible person’s income when that insured person is unable to work due to a covered accident or sickness. And accidents are not usually the culprit; back injuries, cancer, heart disease and other illnesses cause most long-term absences, according to the Council for Disability Awareness. It is important for doctors to consider disability insurance to protect their income and ensure they can still provide for their loved ones in the unfortunate event of an accident or illness.

Think of disability insurance as your paycheck protection insurance. Your paycheck is essential in multiple ways, including supporting your regular monthly living costs—such as mortgage and utility bills and paying down debts—such as car and student loans, funding your savings and growing your retirement nest egg. What happens to all these bills, expenses and obligations if you’re faced with an unexpected injury or illness? Disability insurance can assist doctors with all these financial responsibilities.

What is the process to start an application for disability insurance?

Starting the application process can be quite easy and may be completed within a few minutes. AOA members can apply online, which allows them to see an estimated monthly cost by simply answering a few questions. Members also can choose different options and see in real time how this would affect their monthly cost. Of course, members also have the option to fill out a paper application and mail it in as well.

What are some terms AOA members should become familiar with before applying for disability insurance?

Three aspects that will affect the monthly cost of disability insurance are the monthly benefit amount, benefit duration and waiting period.

1. The monthly benefit amount is the amount of money a doctor will receive on a monthly basis once they are eligible to receive benefits. The higher the monthly benefit, the more your disability insurance will cost. However, keep in mind most financial professionals recommend replacing 60-70% of your gross pre-disability income when determining your monthly benefit amount.
2. The benefit duration is the length of time a doctor is eligible to receive disability insurance income, which can range from a few years to until you reach retirement age. Costs will increase as the benefit period increases.
3. The waiting period is the amount of time the doctor is disabled before they are eligible to receive benefits. You can think of it as a deductible in the form of time. Most doctors select a waiting period between 90-120 days. The longer the waiting period, the lower the cost of the coverage.

How does a doctor determine how much disability insurance coverage they should consider?

They will want to use their current income as a guideline. First, determine your annual income. Then, decide how much of your income you will need to cover your annual financial responsibilities if you were unable to work. As I stated before, most financial professionals recommend replacing 60-70% of your gross income, but that exact number will differ, as everyone’s financial situation is different. Once you come to a decision on the percentage, multiply that number by your annual income. This will be how much you will receive in a year. Now, divide that number by 12 to determine how much coverage you should consider applying for. For instance, if a doctor has an annual salary of $110,000 and wants to replace 60% of their income, they will want to apply for a monthly benefit of $5,500 ($110,000 *.60 = $66,000/12 = $5,500). Keep in mind that your disability benefits can be tax-free income if you pay your premium with after-tax dollars. Be sure to double-check your account for complete details.

Are there ways in which a doctor could lower their monthly premium amount?

One possible way for a doctor to lower their monthly premium most likely lies within the waiting period chosen. If an individual has a large emergency fund already available and can support themselves financially for a period without assistance, they could choose a longer waiting period (120 days instead of 90 days for instance), which would lower their monthly premium. If a doctor has a large emergency fund or additional coverage through work, for example, they also could lower the monthly benefit amount, which would in turn lower their monthly premium. You just want to be careful that your combined finances—emergency funds, insurance coverages, etc.—can support you and your family in the event of an accident or illness.

What is one important feature of disability insurance members should look for in their coverage?

An important aspect to look for in disability coverage is an own occupation benefit. This essentially allows someone to qualify for coverage if they cannot perform their current occupation, as a doctor of optometry. Policies that do not include this benefit may not cover an individual if they are capable of working in another field for which they are adequately trained or educated.