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What is High Limit Disability Insurance and Who Needs It?

By Elizabeth Haynes 10:00 am MDT 5/25/2021

High limit disability insurance is a popular add-on for high earners like physicians, executives, lawyers, entertainers, sports figures, and other professionals who command wages beyond the income-protection limits of standard disability insurance policies. Depending upon the needs of the professional, these policies can provide high monthly and lump-sum disability benefit amounts.

Like many short-term disability (STD) and long-term disability (LTD) insurance policies, high limit coverage considers all types of income when calculating benefit payment amounts. These include not just annual salary but also bonuses, K-1 (partnership) income, and any other income the high earner might have.

Even though high-limit disability policies are not common in the workplace, certain types of healthcare professionals do qualify as high earners. Their income creates coverage gaps within their traditional policies, so high limit disability policies often become critical income-replacement tools. Here’s what you need to know and when to recommend them to your healthcare clients.

How Does High Limit Disability Insurance Work?

A high limit policy is usually part of a stacked set of disability policies purchased according to the healthcare professional’s unique financial circumstances. It is typically used alongside the individual disability insurance (IDI) and any existing employer group policies, like traditional STD or LTD, to fill individual coverage gaps.

High limit insurance is structured using many of the same policy definitions as traditional disability insurance (such as how a disability is defined and which conditions are excluded from coverage), and there are sometimes riders available to further customize the plan. However, this type of insurance is not intended to compete with other types of disability coverage; it is intended to function as a supplemental layer of protection to fill any remaining coverage gaps. It is only for individuals whose earnings are too high for their existing insurance policies to provide adequate income protection.

Many high limit policies offer benefit payments for five years (60 months), after which a lump sum payment is available if the insured is still disabled. Many policies will also require medical exams or labs for underwriting – although this depends on the policy, the benefit amount, and whether the policy is being offered to multiple applicants. Because the premiums are often paid by the policyholder and not the employer, the benefits would not be taxed at claims time and therefore could help a healthcare professional achieve a higher income replacement.

When Should I Offer This Type of Policy to Clients?

For healthcare professionals, high limit disability insurance is most appropriate for exceptionally high earners with over $400,000 in annual income.

According to the most recent Physician Compensation Report, the highest earning healthcare professionals are neurosurgeons with a compensation of nearly $750,000 per year in 2020, But there are many other specialties with a compensation well over $600,000 per year, including thoracic surgeons and orthopedic surgeons, and over $500,000 per year, including plastic surgeons, oral and maxillofacial surgeons, vascular surgeons, cardiologists, and radiation oncologists. Other candidates for high limit insurance may include gastroenterologists, radiologists, urologists, ENTs, dermatologists, anesthesiologists, general surgeons, colon and rectal surgeons, oncologists, and opthamologists. It’s also important to note that many physicians generate significant extra income from bonuses or practice revenue, and this may push them into high earner status.

So brokers should look carefully at all income sources when calculating pre-disability income. For example, if a client’s overall income seems exceptionally high, check to see if their disability policies will adequately provide a true 60-70% income replacement in the event of a claim (most traditional policies will not pay out more than $20,000 to $25,000 per month). If not, a high limit plan should be suggested to fill that gap.

Also critical is the definition of covered income within the disability policy. Healthcare professionals should have an “all sources” definition to cover partnership income and various incentives outside of their normal W-2 income.

Getting Access to High Limit Coverage

High limit disability insurance can be offered to healthcare professionals in individual or group practice settings. It can either be employee or employer-paid, and a guaranteed standard issue (GSI) policy is often an attractive option. Although the benefits are typically lower through GSI plans, there is little or no underwriting making the overall process smooth for your clients.

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