A common error with disability insurance is failing to adjust the benefit on a regular basis to account for changes in income. Firstly, it is practically impossible to over-insure on a personal income replacement disability policy. Disability insurance companies will only insure income up to about 85 percent because they do not want to encourage claims. Even when fully insured, a dentist will almost certainly make less on claim than they would in active practice. Since disability benefits are tax-free, the amount an applicant is eligible for is also tax-adjusted. Given this, a fully insured dentist will carry a monthly benefit of roughly 50% of their gross monthly income.
You can’t retire on a disability policy that pays less than half of what you make now
Fortunately, a disability policy that has been set up correctly will include the option to increase the benefit periodically, anywhere from once per year to once every three years around the anniversary date of the policy. Qualification for the increase is based solely on financial records that prove current income. The current health of the dentist cannot be considered. The problem is that many dentists neglect to take advantage of these options. In the best case, that means that there is an untapped benefit increase pool, sitting stagnant, that the policyholder has been paying for. In the worst case, that means that the benefit increase option is lost due to inaction. The process varies by company and policy. A review of the policy should clarify the individual options for updating the benefit.
Until you need it, a disability benefit is just a number on a page. We’ve been involved in the dental community for over 25 years and have seen far too many dentists who should be “on claim” struggle with pain and other limitations to continue practicing due to insufficient disability benefits. One of the most important steps one can take to protect their future is to review a personal income replacement disability benefit on a regular basis.