Many doctors choose medicine as a career, at least initially, out of a commitment to healthcare and serving others. Hard-working, ambitious people who train for years to push through exhaustion and stress, doctors are not accustomed to letting a physical disability hold them back.
Because doctors are virtually the sole source of income for a practice, this often leads to unspoken pressure from administrators and colleagues to return to work as soon as possible. Add the personal investment of time and money it takes a doctor to establish a practice, and it’s no wonder physicians are ten times more likely to return to work 1 than the overall population. However, physicians often return to work in a different, lower paying specialty, or even part-time work if they are unable to work full-time in their chosen specialty following a disabling incident.
What Happens after the first year?
Most physicians know the amount of their full-time disability benefit. But many are unaware of the crucial nuances of partial disability. They assume the benefits are the same, and for the first year, that’s usually true. But that assumption can lead to a nasty surprise come month 13.
Second Year Secret vs. Shocker:
Imagine a surgeon who has become partially disabled. He has been diagnosed with a hand tremor, but despite the fact that he can no longer perform surgeries, he still wants to actively practice in some capacity. Now he’s working part time as a consulting physician. After all, his family, and the staff at his practice count on him. He’s sure it’s okay though, because he has great disability coverage. Or so he thinks. Every month for the past year he’s walked out to the mailbox to pick up a check for $10,000. Now in month 13 he opens the envelope to find a check for only $1,000.
That can’t be right…but it is.
Keith Mangrum, Senior Regional Vice President of Sales, MGIS:
“Here is an analysis of a medical practice with a policy from a major group LTD carrier, assuming a 40% loss of income, over a 5 year period. This is typical of many cases I see from carriers who don’t specialize in physician group coverage.Our Physician Group LTD and the comparison policy both pay the same benefit during the first 12 months of partial disability benefit payments; however, after the first 12 months, the comparison policy uses a 50% Offset formula — which for a highly-compensated physician produces only a $1,000 benefit in this example. 2”
Keith points out in the High Percentage Selling podcast (listen here), that many physicians may not be aware of the fact that after 12 months the typical group LTD carrier switches to either a 50% offset, or proportionate loss formula for those who return to work. Knowing which is best for your scenario is important. In some scenarios the 50% Offset formula can produce benefits as low as $1,000 per month.2
Best of Both Worlds
Beginning in year two, some group LTD policies utilize either a 50% offset or a proportionate loss formula. The proportionate loss formula pays a benefit proportionate to the physician’s lost income. The 50% offset formula does just what it says, and reduces the benefit by 50% of the claimant’s return to work earnings.
Because individual circumstances can vary, it’s important for physicians to understand the difference and know which formula their carrier uses. In some scenarios the 50% Offset formula can produce benefits as low as $1,000. 2 Which one is best for you depends on a number of factors and specific circumstances.
With the “Best of Both Worlds” Dual Residual formula used by MGIS/Sun Life a physician doesn’t have to worry about which formula will best suit their situation, because benefits are calculated each month using both of these formulas. MGIS/Sun Life then pays the higher of the two as a benefit. This can result in a difference of as much as $48,000 per year. 2
Partial Disability Matters
For physicians, a disabling incident can be one of the worst professional experiences they will face. With so much responsibility, the drive to return to work and support the people that count on them is strong. But many don’t realize that their partial disability payment could be substantially less than the full disability benefit they are expecting. With one in ten disabled physicians returning to work, many will be in for a nasty surprise if they haven’t selected a carrier who knows and specializes in providing for the unique needs of physicians.
Brokers and their clients should carefully analyze the partial disability fine print of their policies to avoid the “worst of all worlds” surprise faced by far too many physicians.
Physicians need a carrier who understands that “doctors love to work” and offers a return to work benefit plan that rewards docs who return to partial employment with features like paying the full disability payment for 24 months, instead of just 12.
1 MGIS analysis of MGIS and Sun Life Financial data over a 10 year period from 2004 to 2014
- Proportional Loss Formula = (1 – (Current earnings / indexed pre-disability income)) X Total Disability Benefit. MGIS/Sun Life indexes at flat 5% per year compounded
- 50% Offset Formula = Total Disability benefit – (Current Work Earnings X 50%). MGIS/Sun Life’s minimum policy benefit of the greater of 10% or $100 Typical Group LTD plan with a a $100 or 10% Minimum net monthly payment
- Monthly total Disability Benefit of 60% to $10k
- Assumes no other income offsets
- Assumes income while working stays constant
- Does not include additional 10% benefit for claimants participating in an approved Rehabilitation program
Group disability insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York under policy form 93P-LH. In New York, group life and disability insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Windsor, CT) under policy form 13-GP-LH-01 and 13-LTD-C-01. Administration for physician products is provided by Medical Group Insurance Services, Inc. (MGIS), in all states, except as follows: in CA by MGIS Insurance Agency, Inc; in NY by MGIS Insurance Agency. Product offerings may not be available in all states and may vary depending on state laws and regulations. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada. Visit us at www.sunlife.com/us. For producer use only. GGEL-PHY-490 SLPC 26345 01/15 (exp. 01/16)