Income Protection Vital for Medical Professionals
By ROB LACKEY
Wages for those in the medical field, particularly physicians, are among the highest of all occupations, according to the Bureau of Labor Statistics. So, whatever reason you chose to work in the medical profession, it is undeniable that the money you make will impact your lifestyle over the long term.
There are a variety of things to consider when entering the healthcare profession. There is the extended, often costly, education required to pursue a job in the medical field, which means that throughout your career, management of debt will be a consideration. With the ability to earn a higher income comes the obligation to pay higher taxes, so navigating the tax landscape and learning how to be more tax efficient is a factor - an important factor that makes income protection a key issue and one to consider here.
Let's start from the beginning. For the sake of example, let's assume you want to become a doctor in internal medicine. To do that you must graduate with a bachelor's degree, graduate from medical school, pass three U.S. Medical Licensing Exams, complete a three-year residency program, and pass an internal medicine board exam.
The estimated total classroom, training, and study time to complete that process is 33,760 hours. That equates to just over 16 years of full-time working hours. The Association of American Medical Colleges reported that the average total student loan balance for a doctor is $207,000 and for many it is much higher. It is not a stretch to say the average total loan cost, over the course of repayment, will be north of half a million dollars for the average doctor. If you lose the ability to make the income you've worked so hard for, would it impact your ability to repay that debt?
Now, let's assume you are a physician in the prime of your earning potential. Perhaps you've gotten your student loan debt taken care of but replaced it with new debt. You've bought your family home, maybe a vacation home or a boat. You've created a lifestyle that is dependent on a certain level of income. Perhaps you have ownership in a practice that would be adversely affected if you were unable to work. You've also started planning for the day you no longer want to work.
Are you willing to risk your home if you were no longer able to pay the mortgage? Do you want you or your family to change their entire lifestyle because it could no longer be financially supported? Do you want to surrender control of the ability to retire in the future?
According to the Social Security Administration, there is about a 25 percent chance of an individual becoming disabled and being unable to work for 3 month or more during their working career. With the amount of time and effort you've put in to achieving your current level of success, does it not make sense to protect your income and your ability to earn it? Given that the income you make, and your ability to make it, drives ever other financial decision you'll have to make, would you not agree that is one of the most important conversations you need to have in regard to your financial planning? Now that we agree on the importance of the conversation, let's look at how to address income protection.
When financial professionals bring up income protection, we're referring to disability income coverage. There are a variety of ways that this coverage can be achieved, and reasons to consider each option. There are a variety factors to consider, the key components are the amount of the benefit, the length of the benefit, and the type of coverage.
First, let's discuss the amount of the benefit. Generally, disability income coverage provides 60-70/ percent income replacement, but it ultimately depends on the plan guidelines and your earned income. You should review, annually, how much of your monthly expenses would be covered in the event you become disabled. At a minimum you want to cover your fixed and basic monthly expenses such as your mortgage, utilities, and groceries.
Next, make sure you understand the length of your coverage. This can range from six months up to your retirement age. They definition of disability that is used can also change during the benefit period. Some policies will pay the benefit for a period of time on an 'own occupation' basis, or the ability to do the job you had prior to becoming disabled. After that pre-set period, they revert to the definition of permanent disability which changes to the ability to do ANY job. For medical professionals, due to the specialized training, you want to make sure you're covered for own occupation for the duration of the coverage.
Finally, it's important to understand there are three types of disability coverage: employer provided group plan, individual disability income policy, and business continuation coverage. Depending on who pays the premium or how the premium is paid, there may also be tax consequences on the benefit. In some cases, it may be important to have all three policies to be adequately covered and offset any tax consequence.
These three items are by no means a comprehensive list of things to know and understand about your income protection plan. These are the three basic pieces that you need to make sure you know and help start the conversation. The next step is working with your trusted financial advisor to ensure the coverage you have in place will provide the protection you need to continue meeting your goals.
Rob Lackey has been working as a financial planner and wealth advisor for six years. He has passed the series 7 and series 66 securities exams and holds state life, health, and variable insurance licenses. He is licensed and appointed in Arkansas, Florida, Mississippi, Georgia, Oklahoma, Tennessee, and Texas.