Why is Disability Insurance Important?

It is not difficult to understand the importance of a disability policy for a dentist, seeing as they work with their hands all day long. For a dentist who is graduating at the age of 27, his/her income potential to age 65 (on average) can easily be in excess of $7,000,000. Once inflation is properly factored in, this number is much larger. The reason why the word “potential” is the most important word in this paragraph is because that’s exactly what it is— potential. The only thing that can prevent a dentist from earning his/her hard-earned income is the onset of a disability.

One of the most commonly asked questions is, what is the best policy available in the marketplace? Is it a personally owned policy through an insurance company, or is it a policy through the association plan offered for dentist (CDSPI)?

Rates

Rates are age banded under the association plan, which is the main reason why an individually owned policy makes much more sense. This major difference in premiums is only apparent once a proper premium payment calculation comparison is done. For example, a 30-year-old male (non-smoker) dentist would pay $193,855 more for the association plan than they would an individual plan. If the dentist qualifies for a preferred health rating, he/she would still end up paying $122,865 more with the association plan.

The CDSPI is less expensive for a dentist in his/her 20s and early 30s, although as you can see from the example above, when looking at a proper long-term cost comparison, the association plan is not nearly as competitive, nor does it offer the sound guarantees that are needed when protecting your most important asset: your income.

Coverage

Although an individual plan and the association plan are almost identical in coverage, the association falls short in a few areas. When combining this with the fact that the association is entirely in control of your coverage, this leaves you at their mercy if they choose to remove or change one of the important definitions in the policy wording, and/or change the premiums for the coverage.

Downfalls to Associations Plan – CDSPI

1. Rates are not guaranteed
2. Coverage definitions and policy wording are not guaranteed
3. Coverage becomes more expensive every 5 Years
4. Definitions in the policy are not as good

Frequently Asked Questions

Question: Why do I not just start off with CDSPI plan (when the rates are cheaper) and then move into an individually owned policy down the road when the CDSPI rates start to really get expensive?

Answer: The most important part of this answer is in regards to guaranteeing your health. If you have protected your income through the CDSPI, in order to move to an individual policy at a future date, you will be required to pass extensive medical and health requirements. If you have developed some type of injury, illness, or change in health, it could prevent you from getting a standard policy without any exclusions, or it could prevent you from getting a policy altogether. Secondly, because individual professional policies have 100% rate guarantee’s to the age of 65, you will jeopardize locking in the rate based on your current age. Lastly, many insurance companies offer discounts for dentist still in school or in their first year of practice. The first five months of premiums are usually waived.
Question: If I am in school and do not yet earn an income, can I still purchase disability insurance in order to secure as low of a rate as possible long term, and also cover my student loans if something were to happen to me before graduating?

Answer: Yes, insurance companies offer “Student Initiative Programs” which allow for a maximum amount of coverage to be purchased even while in school. Typically you are only able to buy these policies in your last few years of dentistry school.
Question: Am I able to deduct these premiums from my income tax?

Answer: No, you are not able to deduct personal disability premiums, although if you own a business overhead expense policy, these premiums can be deducted as a business expense.