Part one in a series by John Moakler. In this three-part series, John Moakler looks at the concept of putting bumper guards around doctors’ financial plans. Today, in the first post of the series, he answers the question: what would happen to your financial picture if you became disabled for any period of time?
Doctors: if and when life throws you a curveball, we want to make sure your financial plan will survive. So when we build plans for physicians here at Moakler Wealth Management – always a comprehensive, holistic financial and retirement plan – we put what we call “bumper guards” around it. In the form of risk management products, for example.
The planning process begins with a needs analysis, which takes a 360-degree view of your life. As just two key things among many, it takes into consideration whether you have children, for example, and the eventual need to pay for university. We also look at the mortgage you may have on your primary home or any other real estate.
Then we take a look at what it would mean if there was a loss of income to the family for the next 20 years – which as a physician will be significant – due to death, disability or critical illness. That gets us to the appropriate amount of insurance needed, both from a term and permanent perspective, if you were to suffer any of those three outcomes.
The most important thing for any doctor: disability insurance
The most important thing for any doctor is disability insurance. Compared to the chance of you dying before age 65, there is a 400% higher probability that you will become disabled. In the event that happens, your normal income will evaporate – but disability insurance (DI) will step in and become your paycheque.
At this point we should differentiate between disability insurance and critical illness insurance (I will write about the latter insurance in my next post in this series). Disability insurance provides a monthly income if you’re unable to work due to a serious injury or illness.
In contrast, critical illness insurance is a type of insurance policy that pays out a lump sum once you have been diagnosed with one of more than 25 covered conditions (including life-threatening cancer, heart attack, stroke, and many others) and you have survived for at least 30 days since the diagnosis.
Doctors need to make sure they have the right features, called “riders,” in their disability insurance policy. The most important for high-earning physicians is the “own occupation” rider, which not all policies have. Those doctors whose policy does not include this rider can, after a two-year period of disability, be forced back to work in another occupation, if they are physically and cognitively able to perform that occupation.
In other words, if after two years of disability you are still unable to work as a physician, but you are indeed able to work a more menial job, you can be forced to work as a Walmart greeter. The own occupation rider will prevent this from happening: it will ensure that you are paid because of the disability until you are able to return to work as a doctor, full stop.
A second crucial rider for physicians is the cost of living rider, or COLA, which will protect your paycheque by increasing it in lockstep with any rise in the consumer price index.
The third important element we want to see for doctors is the return of premium feature, under which you will receive 50% of your premium back, tax-free, every eight years – assuming you have not made a claim during that time period. So, you will receive half of your premium back at eight years, and then again at 16 and 24 years and so on, provided you have not made claims in those timeframes.
John Moakler is a nationally recognized financial planner specializing in financial health care for medical professionals. He rigorously diagnoses your financial condition and then prescribes a customized, written Financial Treatment Plan. If you’re a dentist or doctor and want to learn more – or get started on a plan just for you – contact John Moakler today.