Insurance is a necessary evil. So many of us spend many days battling with insurance companies to get them to cover medical treatment. Then we get confusing EOBs for our bills at home. It doesn’t breed love and harmony.
Many types of insurance aren’t worth the money. Those include special-cause life insurance, small electronics warranty extensions, and phone repair coverage. However, there are several insurance policies that I consider critically important. The common theme is they cover a potentially catastrophic loss. Therefore, policies shouldn’t be for trivial losses.
The Essential Seven
These critical policies spell MUDFLAP.
· Medical (health insurance) & Malpractice (These are the most obvious to all of us). A few rare situations exist where one could “go bare” without malpractice insurance, but it comes with significant risk.
· Umbrella (this covers many types of liability that slip through the cracks or exceed your home or auto caps).
· Disability (Physicians build wealth by converting salary into financial assets. Therefore, protecting that “human capital” from loss is essential.
· Flood (This one is controversial, but I can justify it based on how common flooding is and how much damage water can cause). Standard homeowner’s insurance policies do not cover the damage. These policies exist for a reason.
· Life (If you have people who financially depend on you (i.e., children and nonworking spouse)
· Auto (at least collision, un/underinsured motorist, perhaps comprehensive)
· Property (if you own a home, office building, rental property, boat, etc.)
Protect Your Income
This post will focus on disability insurance. I recently filed disability claims and learned more about how it all works. Disability insurance policies are essential for anyone who relies on their income. There are two main types of policies: short-term and long-term disability insurance. One thing to understand is the industry refers to short-term policies as STDs. It took me a while to get used to that since STD meant something else to me (HA!). Short-term policies typically cover up to six months, while long-term policies cover several years. LTD payments may even continue until retirement age.
When purchasing a disability insurance policy, understand what’s included and what’s not. Most policies will cover a percentage of your income if you become disabled and cannot work. However, some policies may have exclusions for certain types of disabilities or only cover a portion of your income. It’s essential to read the policy carefully and understand the terms before purchasing.
When shopping for a disability insurance policy, looking for one that fits your needs and budget is essential. Consider factors such as the length of coverage, the percentage of income covered, and any exclusions or limitations. It’s also a good idea to compare policies from multiple providers to ensure you get the best coverage at the best price. Then, with the right disability insurance policy in place, you can have peace of mind knowing that you and your family will be financially protected in the event of a disability.
Disability Insurance Policies Differ
– Disability policy features:
– Monthly benefit amount
– Benefit period
– Elimination period
– Definition of disability
– Optional riders
– Elimination period:
– Time between the onset of the disability and when benefits begin
– Typically ranges from 30 to 180 days
– Longer elimination periods result in lower premiums
– Own-occupation coverage:
– Provides benefits if the policyholder is unable to perform the duties of their specific occupation
– More expensive than other types of coverage
– Provides greater protection for highly specialized professionals
– Other conditions:
– Some may not cover Pre-existing conditions
– Some may reduce benefits if the policyholder receives other disability benefits
– Policyholder may be required to undergo medical exams or treatment
My Experience with Disability Insurance
I filed an STD claim before my surgery last year. It required a form and some limited medical information. Mainly they needed an off-work note from my physician. After the medical leave was approved, they continued my salary for 13 weeks at its usual amount.
I returned to work briefly but then required more treatment. My case was then beyond the 13 weeks requiring an LTD claim. I have an LTD policy through my employer that pays 60% of my salary up to a cap.
I also filed claims with my two personal disability policies. These are policies that I took out over 25 years ago as a resident physician. Fortunately, they were still in place. I paid for all three policies with after-tax dollars, meaning my disability income was tax-free.
Readers of this blog will know that I’m financially independent. I don’t need my regular salary to maintain my current lifestyle. So, when all four disability policies paid for my time off, I didn’t exactly need the money. Hence the picture of my 2023 Hybrid SUV paid for by all the disability checks.
I have been blessed not to need disability claims until after I reached FI. You may not be so lucky. Take this time to review or implement a rock-solid own-occupation disability policy ASAP. Share your thoughts below. Do you have good coverage? Have you ever filed a claim?