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The details on disability coverage for dentists

July 25, 2022
Most dentists don't give much thought to their disability insurance coverage until they actually need to use it. Bryan Osterday, DDS, knows from experience, and has a few tips for making better use of disability coverage.

In 2013, I noticed tingling in my hands while performing long procedures. In November of that year, I had a simple carpal tunnel surgery performed on my left hand. I suffered permanent nerve damage that day. After a series of hand surgeries, my days as a thriving general dentist were over. Despite being fairly knowledgeable, financially speaking, I discovered that my personal disability policy was not exactly what I thought.

After that experience, I vowed to become an advocate in helping other dentists understand disability insurance. Too often, dentists feel immune to becoming sick or injured. Also, we often haven’t been thoroughly educated in regard to the pros and cons of different policies. Not all policies are the same. There are many disability insurance providers, but only a handful rise to the top in terms of the strength of contract language.

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These are the most important components of any policy:

Own occupation

This is, perhaps, the most important component to a policy. “Own occupation” is defined differently by each provider. “Own occupation” can basically be generalized to mean that, if one is unable to perform the material duties and obligations of their profession (or to which they’re reasonably educated), they will receive consideration for initiation of payment on a policy. On top of that, there are other terms that are sometimes used. Some are: “specialty own occupation,” “gainful occupation,” and “any occupation.”

“Specialty own occupation” is more specific, in that payment may be considered if one is unable to perform the duties of the exact work to which they were engaged in on a routine basis and/or received specialized training. “Gainful own occupation” can mean many different things. It is often interpreted as one’s ability to perform any job within the scope that one has been educated/trained. “Any occupation” is simply that … the ability to hold any job. One should be extremely vigilant in understanding the definition that they are reading. If you already have a policy in place, do you know what your policy states, regarding occupation? In my opinion, specialty own occupation should be the gold standard for dentist policies.

Noncancellable/guaranteed renewable

This is part of a policy in which the insurance company cannot cancel one’s policy, for any reason (other than nonpayment), and it is guaranteed to be renewed each and every policy year. There are two aspects of this: a medical component and policy carrier component.

Generally speaking, a medical and pharmacological review/exam is required upon initial purchase of a disability policy. Noncancellable/guaranteed renewable policies will not require the policyholder to submit another medical exam (after the initial one), for the lifetime of the policy.

Many association and group policies do not fall under the noncancellable/guaranteed renewable obligations. Recently, a large association changed carriers, and policyholders were forced to switch from one carrier to another.

Partial disability

This is where a large percentage of claims are actually made. Some statistics show that as many as one in four policyholders will file a disability insurance claim at some point in their career. The overwhelming majority of these surround temporary sicknesses/injuries, where the dentist will return to work within 12 months. Wording within assorted carrier contracts varies significantly, regarding how and when payment will proceed, in this capacity. Many dentists think that if they become sick or injured, they will automatically be awarded the maximum monthly benefit amount that’s on their policy. This is often not the case. A dentist that is sick/injured can usually come to work.

For example, consider a dentist who hurt their thumb or knee while skiing. It’s unlikely that they would be considered completely unable to work, in any capacity, in the dental office. For simplicity, if they are able to work 50% of the time (or make 50% of their income), the carrier would likely provide 50% of the total monthly benefit. As mentioned, some carriers will take into account the actual dollar loss and may/may not pay the benefit to a higher level than 50%. In other words, the policy wording is crucial.

Monthly benefit and waiting periods

What a dentist is typically buying in a disability policy is a monthly benefit, should they become sick or injured. This is the amount that they should expect to receive upon making a claim. Various policies from carriers can be acquired with benefit periods that last two, five, or 10 years, to age 65, 67, or 70. The amount of benefit is contingent upon the income of the dentist. Most carriers will allow one to acquire 60%­–70% of their current income. (Tax forms are often requested.) For dental students/residents, the carriers know that there is currently no income. However, they will offer a certain amount of benefit to be purchased. Often, this is available to students at the beginning of the D4 year. There is a waiting period for the payment to begin. The most common waiting period is 90 days, but there are waiting periods that last 30, 60, 120, 180, 360, and 365 days (sometimes even longer).

Different policies have different scenarios regarding waiting periods. Some require the days to fall in consecutive order; others do not. Here’s an example scenario: A dentist has a wrist injury and initiates a claim. Day 1 of the waiting period begins. After 30 days, the dentist thinks she might be ready to go back to work to see if she’s able to practice. She attempts to see patients, but it is too soon. Some carriers will make that dentist start the waiting period over. Others will give “credit” for the first 30 days and count the cumulative days, not consecutive. It is something that could appear to be a small aspect of the contract/policy, but it can have significant ramifications.

Premiums

This is the amount that the insured will be charged for the policy. There are typically two ways that policies can be paid—graded or fixed/flat. Often, young dentists will purchase graded policies that initially start with lower payments but get more expensive over time. Fixed/flat policies have one price that stays constant over the life of the policy. When factoring in inflation, these policies, in essence, get cheaper over a long period of time. The break-even point of a graded and fixed/flat policy is about 8–10 years with many disability carriers. So, over a 20- to 30-plus-year disability policy’s life, it is often considered the better financial choice to purchase a fixed/flat policy. A policy that was initially bought as graded can often be converted over to fixed/flat at a later date, depending on the contract. However, the new fixed/flat rate is typically higher than it would have been initially.

A word of warning: many association and group policies have graded policies, without the ability to convert. Perhaps one of the most important things to consider is how the premium payments will be made. Generally, it is considered in one’s best interest to pay the premiums with personal, after-tax dollars. That way, if a claim is made, the monthly payments will typically not be subjected to income tax. If the office pays for the policy (and writes off the expense), personal income taxes would typically have to be paid if one receives disability insurance income.

Riders

These are the extras, or add-ons, to a disability policy. Depending on the carrier, there may be many choices. The most common riders seen are cost of living adjustment (COLA) and future increase option (FIO). The COLA will help any benefits that one is paid to keep pace with inflation, in regard to monthly benefit, should the disability policy be put into effect. This can be factored as a fixed amount, CPI (consumer price index) adjusted or compounded. The FIO allows the policyholder to add additional monthly benefit to the contract, typically without a medical review. Proof of increased income is typically required to exercise the FIO option.

Student loans/personal debt

Some policies allow for additional monthly benefit to be purchased, over the allowed amount, to cover such things as student loan or personal debt. Also, separate disability policies can be acquired by some carriers to help pay for student loan debt, specifically.

Quality of the carrier

The financial strength and long-term viability of the carrier is not something that most dentists think of when purchasing a policy, but it can be quite important. If one has a policy with a company for 10–20+ years, but then the company folds, one may be left with no policy at a time when they need it the most. Pay particular attention to which company is offering a policy.

Group policies

Many dental service organizations (DSOs) and hospitals offer dentists a group policy upon working at their facility. Group policies are often not transferrable upon leaving that job. They often will not last until the age of 65. They often have wording in the contracts that don’t offer the highest level of own occupation or specialty own occupation. In my opinion, a strongly worded, iron-clad individual disability policy is superior to a group policy. It is very important to have an individual policy in place before acquiring a group policy. Carriers will typically extend the option to cover 60%–70% of your income. Having an individual policy in place that covers this is ideal. Upon initiation of work with an employer that offers a group policy, the group can be added, over and above the individual policy, covering even more income. However, this cannot be done in reverse. If a group plan is in place and then a dentist wants individual disability, the group plan (which is typically not as robust as an individual policy) will be factored toward the 60%–70% first. This often leaves the dentist with the ability to acquire less individual disability than desired.

There is a lot more detail that can be covered. However, this article has given a general overview of disability policies, what to look for, and what not to look for in a policy. Feel free to email me at [email protected] with any questions.  

Editor's note: This article appeared in the July 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

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