A Practical Approach to Individual Disability Insurance
By H. William Wolfson, DC, FICC, MS and Jason Newfield, Esq
There is an old saying: there are only two things in life that are certain, paying taxes and dying. However, the first can be minimized and the second possibly delayed. What an individual does in between with their money and time is up to them but ultimately, before death, it may be the difference of protecting yourself and your loved ones or not.
Disability vs. Death
Over the years, we have seen what the statistics say about the greater chance of experiencing a disability verses dying. According to the Social Security Administration Fact Sheet, approximately one in four 20-year-olds, who often (at this age) consider themselves invincible, will experience some form of disability before retirement. In addition, the U.S. Census Bureau states 12% or in excess of 37 million of our neighbors are disabled and all before age 65.1
As practitioners, we have all seen the negative effects disability can cause individuals; especially those who had not prepared for this possibility, although statistics make it seem more of a probability. Whether patient, colleague, friend, family member or self, it seems no one is immune from experiencing this eventuality.
According to the Council for Disability Awareness (CDA) 2013 Long-Term Disability Claims Review by Diagnosis, the top three new claims categories in 2012 were musculoskeletal or connective tissue disorders 28.5%, cancer 14.6% and injuries and poisoning 10.6%. Surprisingly, only 10% of disabilities are caused by accidents and the remainder caused by illnesses.2
Knowing your ability to practice and subsequently earn a living depends on your continued capability to work. Preparation for the possibility of not being able to perform your duties as a healthcare provider may appear morbid, but it really is proactive. If you want to know your Personal Disability Quotient (PDQ), visit www.whatsmypdq.org/.
Disability Insurance vs. Social Security Benefits
Opportunities may exist to become self insured. This involves a tremendous amount of self discipline and prudent investing to ensure assets continue to grow and are available when needed. Unfortunately, this is far from the norm as 48% of U.S. households do not save and more glaring is the fact that more than 65% of American adults do not have any emergency funds (three to six months cash on hand to cover monthly expenses) set aside.3
Compounding this statistic, is false thinking as to whether Social Security disability may be available if you become unable to work, and whether it is sufficient to protect you and your family in case of disability. In theory, yes, but in reality, probably not. According to the Social Security Administration, 65% of initial disability applications were denied.4 Sadly, the average monthly benefit for males was $1,256 and for females it was $993.50. Thus, Social Security disability should not be considered any type of "safety net" to prevent your household from crashing down following a disability.
The importance of minimizing risk and maximizing returns should be the mantra and plan. Disability insurance exists with the purchaser (insured) paying a premium to a company (insurer) in exchange for a contract outlining legal responsibility of both parties prior to any claims paid and shifting the risk (all or part) to the insurer. If it was only that simple!
Remarkably, a large cross section of our populace is under the misconception their likelihood of succumbing to a long-term disability is remote. "According to the Council on Disability Awareness, 64% of wage earners believe they have a 2% or less chance of being disabled for three months or more during their working career.6
Individual Disability Insurance
Let us take a look at Dr. Health. In practice a few years, he has seen a fair share of patients experience disability - on the job, motor vehicle accidents or due to sickness. Dr. Health has also witnessed patients die due to illness, accidents or old age. Interestingly, a majority of patients seem to experience a disability more often than death. "Less than 5% of disabling accidents and illnesses are work related. The other 95% are not, meaning Workers' Compensation doesn't cover them."7 However, some states allow for workers' compensation coverage for the owner and will pay because of a work related disability. However, this may or may not affect access to benefits of any individual disability policy purchased.
Understanding the chance of developing a disability is greater than dying, Dr. Health decided to explore the purchase of disability insurance; being proactive if the ability to practice ceases or is greatly reduced. "Should you suffer a long-term disability that lasts 90 days or more, odds are that you will be disabled for more than three years."8 However, prior to investigating the purchase of this policy, the proposed insured should be on stable financial footing. A smart approach is to have your financial situation secure and consistent with your ability to pay all personal and business expenses in a timely manner. It is suggested excess income (positive cash flow) be used to pay for the policy. The upside to owning a policy pales when compared to the financial difficulty and accompanying stress if unable to make the annual payment. Policy costs vary depending on a host of factors when the application is first submitted-age, health, occupation, benefits selected, type of coverage, monthly benefit, elimination period, etc.
Dr. Health is surprised to learn the definition of individual disability varies; any, modified or own occupation and many have subset caveats of additional definitions and requirements. In addition, the elimination period can vary greatly (think of this as a time deductible) prior to benefits beginning, as can the length of payments (finite years, age 65 or lifetime). Riders (additional purchased benefits) are often times only available if purchased with the initial policy. As important, know the fine print as the insurer will not hesitate to challenge any claim.
Prior to any policy being offered and accepted, the proposed insured must pass underwriting scrutiny. Payment may be made personally (benefits are tax free but not income tax deductible) or paid via the practice (taxable benefit but business expense). Suggestion: prior to purchasing any individual or group policy, tax implications-deductibility and income, should be discussed with your accounting professional.
In addition, the purchase of a separate Business Overhead Expense (BOE) policy may be considered and accessed if the insured were to become disabled. These policies also have varied terms, including whether an insurer will provide coverage for any medical provider covering the practice while the insured is disabled.
"The 'own-occupation' definition in one carrier's contract is not always the same as the own-occupation definition in another carrier's contract. The consumer, who should not be expected to read the different definitions in various contracts may be left with a contract, which they believe to be own-occupation and is in-fact a 'modified own-occupation' policy."9
The Need for Benefits
Dr. Health, accepts the offered policy for own occupation and makes annual payments. A few years pass and Dr. Health begins to experience difficulties consisting of neck and shoulder pain with numbness to the hands. Dr. Health visits his colleague Dr. Ortho who obtains cervical X-rays and an MRI indicating disc degeneration and herniation, spondylosis with arthrosis and IVF encroachment. Dr. Neuro, after performing an EMG and NCV, determines cervical nerve root compression and sensory changes with positive results for carpel tunnel syndrome. Strengthening exercises, work modification, utilizing proper body mechanics while working with patients, chiropractic adjustments, physical therapy, medication for pain, acupuncture, deep tissue massage, etc., are suggested by the physicians.
Many if not all of the suggestions are followed by Dr. Health. Symptoms become more pronounced and problematic, and he is finding it increasingly difficult to practice. After consultation with his physicians, Dr. Health decides it is time to exit practice and file a claim for disability. "A real own-occupation policy may be available to you, ask the question of your insurance agent, 'Is this a pure own-occupation contract to age 65, or is this a modified own-occupation policy that offsets for other income during a claim?"9 Knowing he has purchased an own occupation policy; the plan is to file a claim, have the elimination period begin and receive his policy benefits thereafter. But, will Dr. Health actually receive this benefit?
Process and Pitfalls
Realizing that his condition is not something that is likely to get better, Dr. Health begins the claim process, providing "Notice of Claim" to his insurer, and requesting his claim materials, which will likely include a request for an Attending Physician Support Statement, a claimant statement, an occupational description and an authorization permitting the insurer access to a myriad of types of information, including medical, financial, credit, banking and other collateral sources of information.
Each of the claim filing materials is fraught with potential damage to a claim. It is of paramount significance to the success of a claim to have the treating physician supportive of the claim. In order to effectively secure such support, an insured should make sure that the physician has an appreciation for the duties of one's occupation, as it is often that even doctors are unfamiliar with what is required to be considered disabled under various insurance policies. It is wise to provide the physician with an articulation of the duties of one's occupation. In the case of Dr. Health, it is important for him to provide his doctor will a robust understanding of the physical rigors of his occupation, so his physician can appreciate what the specific occupational limitations will cover.
For the claimant portion of the filing, it is important to be able to provide information concerning the occupation, as well as the physical limitations which the condition is causing and relating it to how and why Dr. Health is impaired in his ability to continue working as a chiropractor. Many times, the claim forms are presented in such a way as to try to limit the ability to truly and meaningfully express what the occupation really requires. In those situations, it is often wise to create one's own occupational description, rather than work off of the form provided.
In some instances, insurers may look to challenge a chiropractor's occupation, potentially taking the position that they have a "dual" occupation – potentially as both a chiropractor, as well as administrator, if their work duties support this analysis. Most often, this occurs where an insured has numerous chiropractic offices, with associate chiropractors working there and where the insured is handling a myriad of administrative functions. Another instance could be where a chiropractor also creates a wellness facility and provides other types of wellness beyond chiropractic care and the insurer takes the position that there is a "dual" occupation.
Often, it is wise to consider limiting the scope of one's authorization, to limit the breadth of the authorization and potentially only permit the insurer to have WRITTEN contact only with the physicians. Otherwise, an insured like Dr. Health could be subjected to a random call from the insurer's doctor to his physician, who might be caught off guard or be unprepared and could provide information which might harm the success of the claim.
Careful thought must be given to each aspect of the claim filing – and materials to be provided. As another example, despite one's income often not being part of the claim process, many insurers will seek an insured's tax returns for several years prior to the claim filing. For what purpose? Many times, an insurer is looking at whether the insured is ceasing practice due to choice, rather than disability, and will try to support such a position through a financial analysis.
Where an insured is seeking a claim for partial disability, or residual disability as it is often called, an insurer will be entitled to access tax returns, as it will in fact become a financial calculation for whether and how much an insured is entitled to benefits.
Careful consideration should be given to engaging a professional to assist with the filing of one's disability insurance claim. Attorneys familiar with these issues are likely to spot issues BEFORE they become problems. After all, the insurers have professionals reviewing these claims, so why shouldn't you?
All about the Planning
Financial planning and working with knowledgeable fiduciary professionals (i.e. CFP®, CPA, attorney, etc.) should be an integral part of your overall financial approach and needs. A thorough analysis of assets vs. liabilities (net worth and accessible liquid assets) allows for an objective decision of what pieces of the puzzle need to be addressed and in what priority. As important as drafting a will and purchasing life insurance to protect your loved ones, preparing for retirement from early on is smart. Even a few dollars saved weekly will accumulate over time if invested judiciously. The advent of a detrimental event with potential disability and early retirement can be devastating if plans are not in place prior to any such occurrence; preparing for the unexpected is smart. The necessity to prematurely access retirement funds-401K, IRA, Keogh, SIMPLE, savings, etc. can adversely affect long term goals and carry hefty tax consequences. For some, being self insured may be plausible, but reality demonstrates for most this is not likely. The use of insurance and sharing or transferring risk may be a smart and practical decision to obtain necessary and desired benefits. The decision to purchase individual disability insurance should be examined carefully with cost being only one determining factor. When a patient visits you, a comprehensive examination is performed and necessary tests obtained before a decision is made on how to best proceed with care. Your financial health is as important. As a professional, you should expect this and more!
H. William Wolfson, DC, FICC, MS, obtained his Masters of Science (MS) Personal Financial Planning from The College for Financial Planning and is a candidate for CFP® professional certification. Dr. Wolfson remains active and engaged in chiropractic by volunteering his time as NY Delegate to the American Chiropractic Association and serving on assorted committees. He is also a board member of the New York State Chiropractic Association. Dr. Wolfson participates on assorted committees with the Financial Planning Association LI chapter. Dr. Wolfson retired after twenty seven years of active practice and may be reached at
Jason Newfield, Esq. is an advocate, litigator, negotiator and practicing attorney in Garden City, New York. Jason has spent the past 13 years handling disability insurance claims on behalf of healthcare providers. He is a founding partner of Frankel & Newfield, P.C., founded in 2004, and dedicated to protecting insured's pursuing their disability insurance claims. He graduated from Hofstra Law School and can be reached at