Income Protection Journal Podcast

Physician disability insurance questions keep reaching Reddit and the White Coat Investor forum, and Travis Christy, COO of White Coat Insurance Services, the insurance arm of White Coat Investor, says most of them are basic. Doctors who spent eight, 12 or 15 years in school ask how much benefit they need, what to buy and who to talk to. Doctor disability insurance agents answer many of those questions, and his firm vets the agents it refers physicians to long before a doctor starts a search for own-occupation coverage written around a medical specialty. Travis reported the weather on NBC, CBS and Fox before he moved into insurance, and he was a regional at Guardian Life before White Coat started its insurance business. I connected with him at a disability insurance industry event for a live Income Protection Journal Podcast interview about what doctors ask online and how his firm picks the agents who answer them. Physician Disability Insurance Questions Doctors Post on Reddit White Coat runs a Reddit channel, a forum and a private Facebook page that Travis said has about 100,000 followers. He said all of its channels are growing, and that Reddit and Facebook drive the most traffic. A Reddit live he did a couple of years ago drew about 80,000 views, with questions he described as all over the board. What strikes him is how basic the questions are, coming from people with that much schooling. Physicians just do not know, he said. What should I buy? Something as simple as that. What should I buy? Who should I talk to? Is my disability through work enough? Travis Christy, who hosted a White Coat Reddit live that drew about 80,000 views, on the Income Protection Journal Podcast Those questions come before a doctor has spoken with any agent, and to me that is when an accurate answer does the most good. His answer to the last one is that coverage through work typically is not enough. I asked whether younger residents or artificial intelligence are changing what doctors ask. Travis said he does not think so, because the questions are still the same and AI hallucinates. Doctor Disability Insurance Misinformation Gets a Gentle Correction When a doctor repeats something wrong about disability insurance on the forum or Reddit, Travis said he answers very gently. He said he invites the person to consider another angle. Take it from this angle, but gently correct. Travis Christy, who answers physicians' disability insurance questions on the White Coat forum and Reddit, on the Income Protection Journal Podcast One thread called disability insurance a grift, and Travis said the heated discussion led him to write a blog post asking whether disability insurance is a scam. He said he went to the companies to see whether they are paying claims, and compared today's disability marketplace with the one 30 years ago. His finding was that over 100 companies still pay disability claims, while only a handful still make sense for a physician buying coverage. Travis said doctors do not know how much narrower their options are than they were 30 years ago. Data is indisputable, and that's what I brought to the table. Travis Christy, COO of White Coat, on the Income Protection Journal Podcast For a physician reading a thread like that one, I think the useful habit is asking where a claim about the market comes from before acting on it. https://youtu.be/Wwjo1_IihJQ Physician Disability Insurance Agent Vetting Before Any Application White Coat publishes content on disability, life, umbrella, malpractice, home and auto insurance, and the leads it draws go to a group of approved agents. Travis said that because the firm is licensed it makes money on the arrangement, and that the bottom line is getting people to buy insurance. He gets emails all the time from people asking how to get on the approved list. The vetting process, he said, looks for agents who have sold a lot of disability insurance and carry a good reputation. His years in the business mean he knows who is writing a lot of it. I know the people that are writing a lot of disability insurance, and we're just looking for honest, good agents that are going to do the right thing for the client, that know the audience, that write a lot of physicians or dentists Travis Christy, a former Guardian Life regional disability insurance manager, on the Income Protection Journal Podcast The firm also hears when an approved agent falls short. Physicians email him or others at White Coat to ask what happened, and he said he always digs in. Travis said the decline rate on the leads his firm gives its agents is under 2 percent, a figure from his own look at White Coat's data. I told him that seemed very low next to my own sense that about one in three applicants across the industry gets a rating or a decline. His explanation was that the agents do not apply when they know a doctor will not make it through, even when they do not get paid on it. I think that makes an agent's decline rate partly a measure of the applications the agent chooses not to submit, and a doctor weighing an agent can ask about both. Under White Coat's requirement that agents act in a doctor's best interest, a resident may end up in coverage the agent has nothing to do with. Travis said approved agents may send residents to a guaranteed standard issue program, or GSI, and that the right move can be the GSI first with fully underwritten coverage on top of it. We don't care where you buy it; just buy it. Travis Christy, whose firm vets the disability insurance agents it refers physicians to, on the Income Protection Journal Podcast He said the trust that builds with doctors is worth more to White Coat than an application it might not get. There is more in our conversation than fits here, including how his agents decide which disability insurance companies to show a doctor. What stayed with me is that the same firm answers the first questions doctors post on Reddit and vets the agent they talk to next.

Nancy Cavey often cites a case out of the University of Virginia system, one she did not personally handle, involving a doctor she recalls as an interventional cardiologist. His disability policy defined "occupation" by which medical board he held, and he had not been boarded in that subspecialty. The carrier's answer, in Cavey's telling, was that he could still work, as a cardiologist. She keeps the story close because it shows how completely a policy's own wording can determine whether a physician's disability claim pays. Cavey is the founder of the Law Offices of Nancy L. Cavey in Tampa Bay, Florida, a Board Certified Workers' Compensation Attorney and certified veterans' attorney who has represented disability claimants nationwide since 1984, working Social Security Disability and private long-term disability claims side by side. I brought her onto the Income Protection Journal Podcast to run that experience in reverse. Physicians researching disability insurance for physicians usually compare price and the monthly benefit. Cavey's cases are the reminder that the word "occupation" inside that policy can matter more than either number, because at least four different definitions of it exist, and a carrier is free to use whichever one it wrote into the contract. Own Occupation Has No Fixed Meaning in an Individual Disability Insurance Policy Cavey walks new clients through the same first question every time: what does this specific policy say occupation means. The Dictionary of Occupational Titles supplies one common definition, and it has not been revised in about 40 years. A local labor market supplies another. A physician's own employer can supply a third. And on the policies Cavey calls the worst she has seen, a medical specialty board supplies a fourth, so a doctor who has not finished a subspecialty exam can be told that a broader specialty still counts as the same occupation. Physicians rarely carry just one policy, and Cavey said that is exactly where the mismatch shows up. "Own occupation can mean your own occupation as performed for your specific employer... Now, if you have more than one policy, and I see this commonly, I'll have doctors or physicians or lawyers who have two or three policies, and I'm going from policy to policy to policy because they're all different." Nancy Cavey, who has handled Social Security Disability and private long-term disability claims side by side for more than three decades, speaking on the Income Protection Journal Podcast That is the mechanism behind the identical-disability, different-outcome problem. Two policies covering the same physician can each specify occupation a different way, so the same injury or diagnosis can satisfy one contract's definition and fail another's, even though nothing about the physician's condition has changed between the two claims. https://youtu.be/5KeYqv29l_Y Physicians With More Than One Disability Policy Face This Twice This shows up earliest for physicians who build coverage in pieces: a group long-term disability plan through a hospital employer, an individual policy bought during residency or in the first year of practice, and sometimes a third layer added after a partnership buy-in. Each of those was underwritten separately, at a different point in a career, often by a different carrier. Nothing requires the definitions of occupation across the three to match, and Cavey said in practice they usually do not. The reason it gets missed is not carelessness. A physician buying a fourth or fifth financial product in a single year, on top of malpractice coverage, a mortgage, and a partnership agreement, is trusting a broker to add up the monthly benefit correctly. Cavey has represented CFOs, union stewards, and physicians who could describe exactly how much coverage they were sold and could not describe what the word "occupation" meant inside any of it. Timing is the part that is hardest to fix after the fact. Reading four separate own-occupation definitions before a disability exists costs an afternoon and, at most, a conversation with an agent about a different rider. Reading them for the first time after a claim has already been filed means living with whatever those definitions happen to say, on top of managing the disability itself. Cavey said the same blind spot extends past the disability benefit itself, into how a medical practice is structured. "One of the things I always want to look at is the buyout agreement, because you know normally in buyout agreements there are disability provisions, so the buyout can be different if you're disabled." Nancy Cavey, a board-certified workers' compensation attorney and certified veterans' attorney who has represented disability claimants nationwide for more than 35 years, speaking on the Income Protection Journal Podcast A partnership agreement written years before anyone expected to need it can change the value of a buyout the day a partner becomes disabled, the same way an old policy's occupation definition can. Neither document announces the change in advance. A physician learns the actual terms only when a claim forces the question. Cavey's own introduction to this work came from watching it happen inside her own family, not from a law-school casebook. "He had enough foresight to buy a disability insurance policy through USFG, never thinking that he would need it. And when I was in junior high school, he was diagnosed with leukemia." Nancy Cavey, founder of the Law Offices of Nancy L. Cavey in Tampa Bay, Florida, who has represented disability claimants since 1984, speaking on the Income Protection Journal Podcast Her father was a disabled World War II naval aviator, and the family lived on that policy after he could no longer work the family insurance business he had joined in Maryland. Cavey has spent more than four decades since on the other side of that same kind of policy, reading the definitions that determined whether other families would have the same outcome. What stays with me is that the outcome of a claim is usually set years earlier, by a choice nobody thought mattered on the day the policy was bought. Before assuming a policy will pay, read what it actually calls "occupation," and read it again in every other policy sitting in the same drawer.

A business owner deducted a disability insurance premium one year, then stopped for the next two once a back injury made a claim look likely. Three years later, an IRS audit reached back and found the year the premium had been written off. Mark Clark did not write the policy, but he watched what happened next from inside his own office. The audit did not catch a client hiding money. It caught a client who assumed that skipping the deduction in the years he expected a claim would undo what he had already claimed years earlier. It does not work that way, and the tax bill that follows a mistake like that can run into six figures. I talked through that case with Mark Clark, CFP, founder and president of Prestige Advisors, Inc., a fiduciary tax-planning practice in Lakewood Ranch, Florida, on this episode of the Income Protection Journal Podcast. Mark has spent 30 years building tax-efficient structures for business owners and high-income professionals, and before he moved into tax strategy he spent years placing disability, life, and benefits coverage directly, which is why he can walk through exactly where a disability premium goes wrong on a return. The S-Corp Bookkeeping Decision That Determines Whether Disability Benefits Are Taxed Most of Mark's clients who run S corporations pay their disability insurance premium through the business. That alone does not create a problem. What determines whether the eventual benefit is taxed is how the payment is booked, on paper, in two places at once. It has to be indicated not only on the payroll side on the W-2, but it also has to be on the corporate books where it is a distribution and not a premium expense, and that's the big one for the S corp. Mark Clark, founder and president of Prestige Advisors, Inc. in Lakewood Ranch, Florida, on the Income Protection Journal Podcast The premium has to show up as a shareholder distribution in both places, the W-2 and the company's own books, never as a deducted business expense on either one. Miss either side of that and the CPA has effectively deducted the premium anyway, even if nobody meant to. For most owners weighing disability coverage for business owners, this is the paperwork that gets skipped until a claim forces the question. https://youtu.be/HWmHPEL6mM4 What a $15,000 Insurance Premium Can Cost a Business Owner at Claim Time Mark walked through the numbers on a case close to his own client base. A business owner in a 35 percent tax bracket pays a $15,000 disability insurance premium and deducts it, then goes on claim for a $100,000 monthly benefit. So that $5,200 tax savings would cause a $100,000 benefit to be taxable at 35%, so that's a $35,000 tax bill. So you're saving a $5,200 tax bill to potentially pay a $35,000 tax bill, and that could be year after year. Mark Clark, a certified financial planner who has spent 30 years advising high-net-worth families, on the Income Protection Journal Podcast A ten-year claim turns that $35,000 into $350,000, all to protect a deduction worth $5,200 in the single year it was taken. Mark has a phrase for this trade he uses often, asking whether the orange is worth the squeeze. On a disability insurance premium, in his telling, the juice never covers the cost. Why the IRS Audit Reached Back Three Years for One Disability Insurance Premium The bookkeeping mistake described above is not always accidental. Mark told me he has watched a business owner try to walk what he calls a tightrope, deducting the premium in a year with no claim in sight and skipping the deduction the moment a claim looks likely. He does not recommend it, and the one time he watched it up close, it did not hold. They went back three years and they had deducted the premium three years prior. They hadn't done it the last two years, and the reason they hadn't done it is because they felt that something was going on with them where they had the disability, and this was a back injury. Mark Clark, a Qualified Kingdom Advisor who works on the tax structure behind other people's businesses, on the Income Protection Journal Podcast The client was already a higher audit risk simply by earning enough to draw attention, Mark said, and the audit reached back far enough to find the one year the premium had been deducted. That single year was enough to make the related benefit taxable, exactly the outcome the client had spent two years trying to avoid. None of this is about whether a group disability plan reaches an owner's K-1 income in the first place. A related question, whether a group plan's covered-earnings definition counts distributed S-corp income toward the benefit at all, is a separate issue covered elsewhere. What Mark is describing here happens after a benefit is already in place: the premium's own paper trail determines whether that benefit arrives tax-free or gets added to the owner's income at claim time. Mark's advice to every S-corp client is the same, in the end: never deduct the disability insurance premium, because the benefit on the other side is worth far more than the deduction ever was. The tax treatment of a disability benefit is settled years before anyone files a claim, by a decision that looks like paperwork at the time.

Most practice owners have never priced what it would cost to keep a practice's bills paid if the owner could not work. In 2020, Maxwell Schmitz's mother needed a lung transplant. For decades she had run the underwriting and case-management side of the family's insurance agency, the person who reviewed every application before it went out the door, and her family had to decide, in the middle of that, what happened to her paycheck. I talked through that decision with Maxwell Schmitz, President of Yetworth Insurance Solutions, a wholesale disability brokerage his family has run for three generations out of San Rafael, California, and a past president of the International Disability Insurance Society, on this episode of the Income Protection Journal Podcast. His mother's own individual disability policy meant the agency never had to pull her salary out of the business to cover her. That money stayed in, and the family used it to hire someone new and automate some of the work she used to do by hand. What her family did not have, and what most business owners in the same position still do not have, is a second policy built to cover everything else a practice needs to keep running while the owner is out. The Difference Between an Individual Disability Policy and a Business Overhead Expense Policy Maxwell told me the mix-up he runs into most often is between two products that sound alike but pay two different bills. Key person typically denotes that this is going to be a non-owner employee, and then that you know, if they go down, if that non-owner employee goes down, the benefits are paid to the business to then find a replacement... The key person policy, whereas a business overhead expense policy is designed to just protect the business owner. If that person can no longer operate the business, then it will come in and pay the salaries, the benefits, keep the lights on, the mortgage or the rent, you know, and any other sort of regular equipment that the firm or practice or clinic needs to keep operations running smoothly. Maxwell Schmitz, President of Yetworth Insurance Solutions, a wholesale disability brokerage his family has run for three generations, on the Income Protection Journal Podcast The distinction matters because owners often assume one policy does both jobs. It does not. An individual disability policy, which is what covered his mother, replaces the income the owner would have earned. A separate overhead expense policy for the practice pays the practice's own bills instead, rent, payroll, malpractice premiums, and equipment, while the owner recovers. Maxwell has watched the two get confused often enough that a business owner ends up asking a carrier for what is really a key person benefit, and the reverse happens just as often. They are not interchangeable, and a practice that buys only one of the two still leaves the other side uncovered. https://www.youtube.com/watch?v=pBiGPHSsfdY What a Solo Practice Loses Without Overhead Expense Coverage Maxwell walked me through why overhead expense coverage matters most for small, owner-dependent practices, the kind with one clinician and a small staff behind them. If you can't have the dentist seeing people, then of course revenue is going to dry up, and when revenue dries up, you can't pay the employees, and those employees are going to have to go work for the dentist down the street. Maxwell Schmitz, past president of the International Disability Insurance Society, on the Income Protection Journal Podcast That is not a hypothetical for Maxwell. His own family's agency runs on five people, and he watches the same math inside his own business. A practice does not lose revenue gradually when the person who generates it stops working. It stops close to immediately, and staff without a paycheck do not wait around to see whether the practice recovers before they take a job somewhere else. Why the Individual Disability Policy Comes First Given how much of Maxwell's own work is designing overhead expense cases for advisors, I expected him to lead every conversation with the product he sells the most. He told me the opposite is true. Instead of leading straight to the business overhead expense conversation... What gets overlooked, I think, in the BOE conversation is how relevant and important the individual disability insurance policy is. Maxwell Schmitz, MSFS, CLTC, DIA, on the Income Protection Journal Podcast His reasoning traces back to his own family's experience. His mother's individual disability policy did more for the business than either of them expected going in, because it meant her paycheck never had to come out of the agency's revenue in the first place. Business overhead expense insurance is worth what it costs, Maxwell said, but it solves a narrower problem than most owners assume, and it should never be the first conversation a practice owner has about disability coverage. Maxwell's family found out, in the middle of an actual medical crisis, exactly which policy did what. Most practice owners find out the same way, after something has already gone wrong. If a practice's disability coverage has never been checked against the specific bills an overhead expense policy is built to pay, rent, payroll, malpractice premiums, and the loans and equipment leases that do not pause just because the owner is out, that is the conversation worth having before there is a real deadline attached to it.

For an attorney relying on a law firm’s group disability plan, coverage for the exact same injury can play out two completely different ways depending on how long the disability has lasted. Most group long-term disability policies define disability one way for the first two years of coverage, and a different way after that. For those first 24 months, you qualify as disabled if you cannot perform the material and substantial duties of your own occupation. After 24 months, the definition typically shifts to any occupation, meaning any occupation you could reasonably do given your training, education and experience. Nothing about the underlying condition has to change for the benefit to stop. Only the definition does. I explored exactly why that switch happens, and why it doesn’t happen under every policy, with Edward Dabdoub of the Dabdoub Law Firm in Coral Gables, Florida, on this episode of the Income Protection Journal Podcast. Edward has spent years studying how disability insurance policies define who qualifies as disabled, across every profession he represents. The Own-Occupation-to-Any-Occupation Switch, and Why It Applies to Attorneys Too A law firm partner or associate on a group plan faces this identical mechanism. Coverage holds at the own-occupation standard for the first 24 months, then converts to the broader any-occupation test, whether or not anything about the underlying condition has changed. Edward’s clearest illustration of how that conversion actually plays out came from one of his clients, a dentist who developed a tremor severe enough that dental work was no longer safe to perform. For two years, the dentist’s policy paid a full benefit, because it defined disability as being unable to do the specific work of dentistry. Then, on schedule, nothing about the tremor changed, but the payments did. A dentist who can no longer hold instruments steady can often still teach, consult or manage, and the moment an insurer decides that’s true under an any-occupation standard, the group benefit ends. The definition switched. Nothing about the dentist’s hands did. That’s the mechanism every attorney on a group plan needs to check for in their own firm’s certificate, and it’s the switch Edward has watched play out again and again with clients like the one above. So if that dentist had an own occupation insurance policy, an individual insurance policy, they would be able to find another occupation other than dentistry, and continue to get paid a full total disability benefit and essentially reinvent their career doing something else. They don’t just have to stay. I tell my client, you don’t have to stay home watching reruns of Oprah all day. Edward Dabdoub, managing partner of Dabdoub Law Firm in Coral Gables, Florida, on the Income Protection Journal Podcast Under an individual, true own-occupation policy, the definition Edward is describing never changes. What’s insured is the ability to perform your own occupation specifically, not some other occupation you could theoretically be retrained for. That single difference in policy language is the entire reason two professionals, a dentist and an attorney alike, can face the identical disability and end up in two entirely different financial positions two years later. Edward has seen the group-plan version of that story more than once. The group insurance policy is different because after 24 months, the insurance company will likely terminate those benefits because they would take a position that well, there are other things you can go and do now, and many professionals were wired a certain way where we don’t want to stay home if we’re disabled, and we want to reinvent our careers. And so my clients were dentists. Some of them going to teaching, but if you have a group insurance policy that has that definition of disability change from own to any after 24 months, well, when you move into teaching, you’re not going to continue getting paid after 24 months. Edward Dabdoub of Dabdoub Law Firm, who has spent years studying how insurers write disability definitions, on the Income Protection Journal Podcast Notice what actually disqualified those dentists from further group benefits. It wasn’t that they recovered. It was that they found a second career, exactly the kind of resilience a group plan’s own-to-any definition treats as proof the benefit is no longer needed. https://youtu.be/dXe05mgp7yQ What This Means If a Firm’s Group Plan Is Your Only Coverage Attorneys hear this dentist story and assume it doesn’t apply to them, because practicing law rarely depends on fine motor skill the way dentistry does. But the definition-switch mechanism Edward described isn’t written for one profession. It’s built into the policy language of most employer-sponsored group long-term disability plans, including the ones law firms buy for their partners and associates. An attorney disabled by a condition that keeps her from trying cases or negotiating at the pace her practice demands can qualify for the full benefit for two years under the own-occupation standard, then lose it once an insurer decides she could reasonably do a different kind of legal or non-legal work instead. A law firm partner who has never looked past the group plan’s summary page usually assumes coverage is coverage. It isn’t. The same 24-month definition switch that reclassified Edward’s dentist clients into teachers applies to a partner who could plausibly shift out of the courtroom and into compliance work, or an associate attorney who could move into a different practice area. Because the group plan’s benefit is typically capped as a percentage of salary and tied to the firm’s own group contract, a partner or associate has no ability to negotiate that definition individually. It comes with the plan, own to any, at 24 months, whether the attorney knew that going in or not. Solo practice presents the opposite problem. Without a firm behind them, there’s no group long-term disability plan at all, own-occupation or any-occupation, unless a solo attorney has bought individual coverage separately. For a solo practitioner or a partner who wants the definition of disability tied to their own occupation to hold for the life of the policy rather than for exactly 24 months, an individual disability policy is the only structure built to do that. What to Check Before You Buy or Renew This is the question worth asking before you buy or renew any policy, group or individual. Does the definition of disability in this contract change at any point, and if it does, when and to what. It’s a short question to put to a broker, and it’s the difference between coverage that protects your ability to practice law specifically and coverage that only protects you until an insurer decides you could do something else instead. It’s also the exact comparison we walk through when an attorney is comparing disability insurance for attorneys, definition by definition, carrier by carrier. Edward put the stakes plainly when I asked him what he’d want every law firm partner who assumes the firm already has this covered to hear. I think it would be individual disability insurance is king, right? Relying on group disability insurance means you’re both underinsured and not going to have the worth at all that you will on with an individual insurance contract. These are two completely separate insurance policies. Managing partner Edward Dabdoub of Dabdoub Law Firm in Coral Gables, Florida, on the Income Protection Journal Podcast They are two completely separate insurance policies, and only one of them keeps its promise on the same terms two years, ten years or twenty years into a disability. The dentist who lost his benefit at month twenty-five didn’t lose his tremor. He lost his definition. Before you assume your own disability insurance for attorneys will hold up the same way ten years from now, find out which definition you actually have.

Michelle L. Roberts has represented disability claimants since 2005. She explains what a new employer's group plan does with a condition you already have.

An owner who runs a practice or a company as an S corporation pays themselves a modest base salary, takes the rest of the year's profit as a K-1 distribution, then enrolls in the group long-term disability plan and treats the income question as settled. Most group disability plans never saw that distribution, because they define covered earnings as W-2 wages and stop there. Under that definition, the largest number on the owner's tax return was never insured. Grayson Owen has spent more than 12 years in the insurance business, and he now works in a corner of it most buyers never see. He is a disability income wholesaler at DI Broker East, which means advisors across the Mid-Atlantic, the Southeast and the rest of the country route their hardest income protection cases through him, the executives, partners and owners whose earnings a lot of other people depend on. He told me S corp owners make up most of the business owner files that reach his desk. Covered Earnings Definition Inside S Corp Owner Disability Insurance Covered earnings is the single line in a group long-term disability contract that sets the ceiling on any benefit it will ever pay. Most employer plans define it as W-2 wages, sometimes averaged across a stretch of months before the disability began. Profit distributed out of the S corporation sits outside that definition unless the plan was deliberately designed to reach it. The replacement percentage printed on the front of the plan document, usually 60 percent, gets applied to whichever number the definition allows. That modest salary line has a reason behind it. The Internal Revenue Service requires an S corporation officer who performs services for the company to be paid reasonable compensation as wages before non-wage distributions are made, and owners and their accountants typically set that wage at a defensible floor and route the remaining profit through the K-1. That is ordinary tax planning. It is also the number a group carrier reads when it calculates a disability benefit. Owen sees the result of that arithmetic in six and seven figures. "A lot of the S corp owners might have very significant six figure, even seven figure K-1 distributions. That's basically their business profit, how I understand it. I'm not a tax advisor, but K-1 is a type of income that the S corp owner distributes usually at year end, and those earnings may or may not be covered under the group plan depending on how they design it." Grayson Owen, a disability income wholesaler at DI Broker East who has spent more than 12 years in the insurance business reviewing owner-employee disability cases for advisors, speaking on the Income Protection Journal Podcast "May or may not" is the operative phrase, and it is settled inside the plan document long before anyone gets sick. Almost no owner-employee has read that answer. The percentage is the number they remember, because the percentage is the number the enrollment material leads with. If you own a dental practice, a law firm, a medical group or a construction company organized as an S corporation, this is your plan too. Most owners approve the group disability plan once, when it is first installed, often back when the company was smaller and the salary line was closer to the whole paycheck. Profit grows after that. The distribution grows with it. The covered earnings definition does not move. Owners also miss it because the group plan reads like the more generous of the two products. Sixty percent replacement sounds close to whole. An owner drawing a $100,000 salary against a much larger K-1 hears 60 percent and pictures 60 percent of what the household actually lives on. The contract is measuring wages, and the household is spending income, and those two words point at very different numbers on the same tax return. Here is the arithmetic I walk owners through. Say the owner pays themselves a $100,000 base salary and takes $900,000 in distributions, a common shape for a profitable single-owner professional company. Under the group policy, only that $100,000 counts as covered earnings, while the household is running on the full $1 million. An individual disability policy is what reaches the rest, because individual carriers underwrite total earned income and will issue a benefit that sits on top of whatever the group plan already pays. The group plan will not pay on the $900,000 no matter how the claim is filed. https://www.youtube.com/watch?v=yKgx8b3Eeto Individual Disability Insurance for Business Owners Picks Up the K-1 Income Individual policies reach the distribution because they measure income differently. Financial underwriting on an individual contract looks at total earned income, which for an S corporation owner-employee means the W-2 line and the K-1 line read together, usually across two years of returns. That is the number the benefit is built on. It is also why the application asks for tax returns rather than a pay stub. There is a second route Owen spends much of his executive time on, and it changes who pays. A company can install a layer of individually owned coverage on top of the group plan for a defined class of people, issued with limited or no medical underwriting. Carriers will generally look at a class as small as five lives, and Owen said most of the private-company cases he manages run somewhere between five and 40 people, frequently family businesses with a core management team. Some designs true everyone up to the same replacement percentage. Others carve out a class by title, so anyone hired or promoted into it becomes eligible on arrival. Those policies are individually owned and portable, which matters more than most executives realize on the day they leave. The reason so many owners never learn any of this, Owen argues, is that the conversation stops one question too early. An advisor asks whether the client has coverage at work, the client says yes, the box gets checked and the agenda moves on. "We want them to say, 'Hey, do you have coverage through work?' The client's going to probably say yes or no or I don't know, and then after that, would you mind if we review that plan for you to make sure you're okay?" Grayson Owen, who spent nearly a decade as a consumer-facing insurance broker before moving to the wholesale side, where he now runs disability coverage reviews for advisors and their clients, speaking on the Income Protection Journal Podcast That second question is where the review actually starts. Reading the plan document is what surfaces the covered earnings definition, and that definition is what decides whether an owner is insured on a salary or on a paycheck. Nobody finds it by asking whether coverage exists, because it does exist. It just does not reach as far as the owner believes. So the practical move for an S corporation owner is narrow. Pull the certificate of coverage for your group long-term disability plan and find the covered earnings or covered monthly earnings definition. Read whether it says W-2 wages, base salary or total compensation, and whether the plan document mentions K-1 distributions anywhere. Then set that number next to what you actually reported as income. When I build income protection for small business owners, that comparison is the first page of the analysis, because everything downstream depends on which number the contract agreed to insure. Timing decides the rest of it. Individual coverage is medically underwritten, and the owner who waits until the practice is at peak profit is also the owner who has accumulated the health history that shapes the offer. Owen made that point about himself on the record, naming his own diagnoses. There is more in the recorded conversation than fits here, including the two medical policies another broker wrote without residual disability or true own-occupation language and what it took to rebuild them, what happens inside underwriting when a file was never pre-screened, and the one line Owen would put on a billboard for every owner who assumes the business will simply keep paying them. That conversation is on the Income Protection Journal Podcast. What stays with me is that the definition nobody reads is the one that sets the check.

Alkeme Insurance EVP John DePinto, 30 years on the property and casualty side, on the one policy the state, your bank and your job never make you buy.

An employee signs up for disability coverage during open enrollment, checks the box, and assumes the benefit will stand in for a paycheck if illness or an accident ever stops the income. It does step in, but the check that arrives replaces less than half of what the household was taking home, once the formula, the cap, and the tax treatment all land. Most people never learn that math until they are already on claim, which is the worst possible moment to discover it. I hear that assumption in almost every first conversation I have with a working professional. To pressure-test it, I sat down for the Income Protection Journal Podcast with Andy Schafer, Vice President of Workplace Benefits Solutions at Principal Financial Group, who spent 24 years as an actuary pricing disability risk before moving into product development for Principal's Specialty Benefits Division. His job for more than two decades was to calculate, across millions of insured lives, how often working people lose their income and what it costs to replace it. When someone who priced that risk for a living tells you what the payout actually looks like, the number is worth sitting with. Andy walked through the arithmetic without softening it. Employer-sponsored coverage typically replaces 60 percent of pre-disability earnings, and that replacement is calculated on pre-tax income, not on the take-home figure a professional actually lives on. Why Most Disability Claims Are Sickness, Not Accidents The other assumption Andy spent years watching the data contradict is the picture people carry of what a disability even is. Insurance marketing leans on crutches, wheelchairs, and hospital imagery, which trains the public to file the risk under accidents. The claims experience runs the other way. "Accidents are only 10 percent of the disabilities that we cover. The other 90 percent are sicknesses."Andy Schafer, Principal Financial Group, on the Income Protection Journal Podcast That ratio reframes the entire buying decision. A professional who reasons "I work on a computer, so I can push through an injury" is answering the wrong question, because the medical conditions that actually drive disability claims are cancers, cardiac events, autoimmune disease, and the cognitive fog that arrives with serious illness. Andy made the point that being physically able to sit at a desk means little when illness makes it impossible to think, concentrate, or stay awake through a working day. The 90 percent share belongs to sickness, and sickness is precisely the risk people talk themselves out of. Sitting with the claims data for a career also taught Andy how rarely the event arrives at all, which is the second half of the psychology. "About three and a half to four out of every 1,000 people that we insure actually file a claim."Andy Schafer, Principal Financial Group, on the Income Protection Journal Podcast A frequency that low feeds the sense of invincibility that keeps professionals from acting. Andy was candid that the "I will never need it" instinct is statistically true for most people in any given year, and that the industry has leaned too hard on fear to sell against it. The rarity is real. So is the size of the loss when the rare event lands on one household instead of a thousand. What Individual Disability Insurance Adds to a Workplace Policy Two forces have quietly lowered how often working people file. The pandemic normalized remote and hybrid work, and Andy described how that reshaped the risk. A worker recovering from a stage-two cancer diagnosis who once would have filed for short-term disability, because coming into an office was impossible, can now often keep contributing part-time from home. People return to work faster, and sometimes never leave it, which pulls claim frequency down and, in turn, brings the cost of income protection down for everyone in the pool. That good news for pricing does not fix the shortfall inside a single household when a serious sickness does stop the income. This is where I spend most of my time as an advisor. After three decades placing coverage for professionals, the same correction comes up again and again, and Andy landed in the same place from the carrier side: take a hard look at the benefit summary before you need it, and if the employer-sponsored replacement leaves a household living on less than half its prior income, that is what individual coverage is built to close. An individual disability income policy stacks on top of the group benefit, can lift total replacement toward 70 percent of pre-disability earnings, and moves with the professional from job to job rather than ending the day they change employers. Portability is the piece that Andy, who spent his entire career at one company, flagged as the modern blind spot. Most working professionals now change jobs several times, and each move resets the group coverage. A new employer may offer a weaker benefit, or none, and a health change in the interim can foreclose the chance to buy individual coverage on good terms. That is the argument for purchasing young, while insurability is intact and premiums are lowest, and for owning a policy the employer does not control. The full conversation, including the soundbite round where Andy names the odds a 35-year-old actually faces, is worth hearing in his own words on the Income Protection Journal Podcast.

Most attorneys who buy disability coverage believe own occupation guarantees their benefit the day they can no longer practice law. It is an umbrella term with tiers, and the version inside a group plan, or an individual policy bought without the right rider, pays very differently. Which tier an attorney owns decides whether the disability claim pays in full or drops to a fraction the moment it is filed. Ethan Abramowitz has watched that decision play out from both sides of the table. He spent nearly four years defending insurance carriers at Kirwan, Spellacy and Danner before joining Mark F. Seltzer and Associates, a national practice representing highly skilled professionals in private and group disability matters, where for more than 13 years he has represented physicians, dentists and attorneys whose claims were denied or stalled. Admitted in Florida, Pennsylvania and California, he meets these professionals years after the policy is signed, at the moment the carrier says no. I brought him onto the Income Protection Journal Podcast to work the story backward, from the denied claim to the contract language that caused it. Own-Occupation Coverage Separates an Attorney's Full Benefit From a Modified Trap The phrase attorneys think they understand is the phrase that fails them most often. True own occupation, sometimes called regular occupation, pays the full monthly benefit when a sickness or injury stops you from practicing law, even if you go earn a living doing something else. A modified own-occupation definition pays only while you are not working at all. Step back into any paid work and the claim collapses into a partial or residual analysis, the reduced benefit paid when you can still work but earn less. Own occupation, it's an umbrella term, and underneath that, there's different tiers of coverage. Ethan Abramowitz, a disability insurance attorney with Mark F. Seltzer and Associates for more than 13 years, speaking on the Income Protection Journal Podcast He watched the difference cost one physician most of her income. An OB/GYN in her late 30s developed rheumatoid arthritis, lost her clinical career and accepted a medical directorship with the residency program she had trained in. Because her individual policy carried a modified own-occupation definition rather than a true one, her earnings from the new role were offset against her benefit. The monthly check fell from $15,000 to two or three thousand. A true own-occupation policy would have paid the full $15,000 alongside her new salary with no offset. Attorneys assume this is a doctor's problem because a surgeon's disability looks obvious. It is not. Abramowitz has represented lawyers with Parkinson's disease, traumatic brain injuries and visual impairments who could no longer tolerate the physical and cognitive load of the work, the ability to sit for 10 or 12 hours, read voluminous records and hold a trial schedule together. When a lawyer with that kind of condition wants to teach or consult instead, only a true own-occupation definition lets the benefit and the new income coexist. If I can't be a lawyer, but I could go teach at a law school as an adjunct professor, I can do that and earn a living and do something I'm passionate about. Without the true own-occupation definition, I can't do that without having an offset. Ethan Abramowitz, who represents policyholders in disputed disability claims, speaking on the Income Protection Journal Podcast Group Long-Term Disability Converts an Attorney's Own-Occupation Term After 24 Months The group plan a firm provides is where most attorneys assume they are covered, and it is where the definitions quietly turn against them. An individual policy weighs the material and substantial duties of the occupation as you actually perform it, examining your billing records and your day-to-day work. A group long-term disability plan leans on a national-economy standard drawn from reference works like the Dictionary of Occupational Titles and O*NET, generalized rubrics that ask what a lawyer does, not what you do. The costlier problem sits deeper in the contract. Most employer plans limit own-occupation protection to the first 24 months, then shift the standard to any gainful occupation. When the policy does not spell out a replacement-income formula, that phrase defaults to the Social Security definition of disability. I always joke that if you can be a barista at Starbucks, no disrespect to them. Ethan Abramowitz, a former insurance-defense litigator who spent nearly four years defending insurance carriers, speaking on the Income Protection Journal Podcast Then the carrier can argue you are not disabled. A greeter's wage clears the bar. Group plans answer to the Employee Retirement Income Security Act, a federal statute that tilts the burden toward the carrier and forces a denied claimant through an internal appeal before any courtroom is available. Covered monthly earnings compound the shortfall. Many group plans count only base salary and exclude bonus, incentive and production pay. Abramowitz described an orthopedic surgeon earning about $800,000 who returned to work at half time. His individual policies paid a 50 percent partial benefit. His group plan, measuring only base compensation, required a 60 percent loss of total earnings before it paid anything, so it paid nothing. Attorneys on a modest salary and a large bonus face the same arithmetic. Four Attorney Disability Policy Features That Decide the Claim Asked which single feature he would refuse to give up on a policy of his own, Abramowitz did not hesitate. The true own-occupation definition comes first, followed by residual disability, a future increase option and a cost-of-living adjustment. Roughly 60 to 70 percent of his cases involve some component of partial disability, and only about 10 percent of disability claims trace to an accident, so the provisions that pay while you are working less matter far more than most buyers expect. Attorneys rate among the most favorable occupation classes for pricing, alongside architects, accountants and engineers. When I build individual own-occupation coverage for attorneys, I treat that pricing advantage as a reason to add the strong features rather than to buy the cheapest contract, because the group plan the firm owns can be cut or canceled at any renewal and does not follow you when you leave. Abramowitz put the same point on a billboard. No attorney should sign a disability policy until they have read the fine print. Ethan Abramowitz, who has represented physicians, dentists and attorneys in denied disability claims for more than a decade, speaking on the Income Protection Journal Podcast The same math decides it for solo practitioners and firm partners, the attorneys with no group plan behind them at all. On the r/personalfinance forum, a self-employed single parent asked whether an own-occupation policy is worth the higher premium, and whether a benefit that runs to age 65 makes sense. Abramowitz did not hedge. Absolutely. If you're self-employed and you're a single parent or a single income household, you're the breadwinner. You need to protect your income. Ethan Abramowitz, who has litigated insurance disputes from both the defense and policyholder side for more than 15 years, speaking on the Income Protection Journal Podcast The full conversation, including his account of a surgeon who kept operating with tremors because he could not afford to stop, and the elimination-period and pre-existing-condition traps that decide a claim before it is filed, is on the Income Protection Journal Podcast. What stays with me is that the outcome of a claim is usually written years earlier, on the day the policy is bought. Editor's note: I refer clients to Ethan Abramowitz when a disability claim is disputed, and some of the professionals he represents hold coverage I placed. Neither of us pays the other for referrals, and he received no compensation for this interview.