August 01, 2018

Manage Risk Through Proper Insurance Coverage: How Does Personal Disability Insurance Work?

Dr. Smith was out running errands one Saturday morning. As he was getting ready to enter a store, he didn’t realize the plate glass door was closed and ran into it. He then fell backwards and hit his head on a parking block. From that point on, he had tremors in his hand and could not practice dentistry.

As a dentist, you spend a lot of time and money investing in your education and training. You invest this time and money because you have a desire to treat your patients and educate them on the importance of oral health. But, I would imagine, you also invest this time and money because dentistry can provide you and your family a comfortable income and bright future. Because of the investments you make in yourself, if, at some point, you can no longer practice dentistry, you want to ensure that your income (and family) is protected. That is why personal disability insurance is a key element of a dentist’s financial plan.

So how does personal disability insurance work? The first thing to note is that not all personal disability insurance policies are the same. In addition, you want to make sure you are working with an agent that understands dentistry. The definitions of your policy are key. You want to receive a benefit in the event you cannot practice dentistry. This type of coverage is called own occupation. Own occupation will pay your benefit if you can't practice your chosen career, in this case dentistry, even if you can still, say, consult or teach.

The other important elements of a personal disability policy are the monthly benefit amount, the wait period and the coverage period. Your monthly benefit will be based on the income you show on your tax return. Most dentists choose a wait period of 90 days. Having a plan to cover lifestyle expenses for 90 days before your benefit kicks in can help lower the premium for your policy. The coverage term, the period over which the policy will pay benefits, is typically to age 65.

We recommend that dentists not take a tax deduction for their personal disability insurance premiums. Doing it this way will make your monthly benefit, if you have to claim it, tax-free. This is important because if you become disabled, you probably want to receive the maximum benefit for your family. We don’t believe the tax deduction now is worth potentially taking money away from your family in a time of need because your monthly benefit is reduced through taxes.

Thankfully, Dr. Smith realized the importance of personal disability insurance and took the time to build a comprehensive risk management plan. While he did have to fight with the insurance company to approve his benefits (yes, Dr. Smith is a real person and his accident actually did happen), he is now receiving his monthly benefits to cover his lifestyle expenses.

Have you put a plan together to protect your income and your family in the unfortunate event of a disability?

This commentary originally appeared August 1 on

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About the Author

Katie Collins

Practice Integration Advisor

As a practice integration advisor, Katie works directly with clients to develop a financial plan personalized for their specific situation and goals. She quarterbacks the entire financial picture, often for clients who have never put all the pieces together with one advisor. Katie joined Buckingham Strategic Wealth through the 2014 merger with Indiana-based Hufford Advisors, where she spent more than 10 years working in various financial planning roles, most recently as a senior planning consultant.