Unless you are financially independent and working by choice, your income is your most valuable asset. This is particularly true when you’re a high-income professional who has invested years of your life and significant tuition payments into becoming a specialist.
The payoff can be huge, both in terms of lifetime earnings and the impact you’re able to make on others’ lives through your advanced skills. However, the risk of becoming unable to practice is real and could be financially devastating for someone who may have borrowed for years, entered the workforce late, and finally built a life around the high standard of living afforded by their considerable income.
It may seem counterintuitive that a professional with an MBA, medical degree, or law degree would need to insure their income when they’re so well educated and well compensated. But the truth is that high-income professionals need disability income (DI) insurance precisely because they have so much to protect. (Calculator: How much DI insurance do I need?)
Should a high earner become too ill or injured to work for an extended period of time, DI would help cover a portion of their income, including bonuses and commissions. And it could help that person avoid having to tap retirement savings to cover income gaps. Additionally, a DI policy can be customized to fit certain needs for those in high-earning professions. For example, a DI policy can be issued with a rider that allows for coverage to be added as salary increases.
Here’s a look at the risks for high-income professionals in more detail.
Debt and disability
Ages 30 to 59 — people’s prime working years — are when households tend to carry the most debt, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. Its household debt and credit data show that most of this debt is mortgage debt, followed by student loan debt.
We rely on our ability to work to pay down those debts, feed ourselves, have fun, maybe raise families, and eventually retire. What would happen to your debt if you became disabled?
Before even starting work and with little money down, credentialed professionals may easily qualify for mortgages over $1 million, meaning a monthly loan payment could be $5,000, $10,000, or even more. Anyone purchasing a high-priced home will also likely have substantial property tax and homeowners insurance obligations, and possibly homeowners association fees.
If you can’t afford your monthly mortgage payments because of a new disability, you may be eligible for mortgage relief. Your servicer may ask you to submit a Mortgage Assistance Application stating the reason for your hardship and detailing your income and assets. They may request supporting documentation, such as account statements and your latest tax return.
Relief likely won’t be immediate. You must stay current on your loan while the servicer reviews your complete application, which may take up to a month — possibly longer.
If your servicer approves your application, it may offer payment deferral or forbearance. This temporary break from making your monthly payment will not affect your credit or incur late payment fees and may be sufficient if you expect to return to work in a few months.
If you need a longer-term solution, you may be able to refinance or modify your loan terms to make the payments more affordable. Other options include selling your home or, if you owe more than your home is worth, a short sale or deed-in-lieu of foreclosure.
There is no guarantee that the servicer will offer you any form of assistance, and larger mortgages may not be subject to the protections commonly available to smaller borrowers whose loans are often owned or backed by Fannie Mae, Freddie Mac, or the Federal Housing Administration.
Even with loan assistance, you will still be responsible for the full cost of taxes, insurance, homeowners association fees, and home maintenance. These expenses may be difficult to afford with no income or a reduced income. (Related: A resource guide for adults with a sudden disability)
Student loan debt
The average medical school graduate owes $241,600 in total student loan debt, of which $215,900 is for medical school. That’s six times as much as the average college graduate, according to the Education Data Initiative.
Student lenders may give borrowers some relief in the face of an accident or illness. How much relief you might get will depend on your lender (or loan servicer) and the facts about your disability.
Federal student loans offer deferment, forbearance, and income-driven repayment plans for borrowers who need a temporary break from making payments. These options keep your loans in good standing and prevent late fees, credit damage, and debt collection calls.
Subsidized federal loans don’t accrue interest during deferment, but these are only available to undergraduate students. The unsubsidized federal loans advanced degree holders often carry do accrue interest during deferment, and both loan types accrue interest during forbearance. When your payment break is over, you’ll owe more than you did before; the interest will be added to your loan balance and accrue more interest.
In 2021, the federal government made it easier for borrowers who have won disability status through the Social Security Administration to have their student loans discharged for total and permanent disability. Some private student lenders use the SSA’s definition of disability to discharge student loans, too. But there are at least three reasons why you shouldn’t rely heavily on this protection.
- Most disabilities aren’t total and permanent.
- It’s notoriously difficult to get a disability designation from the federal government.
- Student loan discharge is only available to those who can’t do any type of work at all.
Specific profession coverage
Insurance companies have different definitions as to what qualifies as disabled. That can lead to unfortunate situations.
For example, a nightmare scenario for a high-earning professional could be being responsible for $200,000 in student debt and a $1 million mortgage but having to work at a job that pays far less than the one they trained for or not working at all.
That can happen with group policies or other types of disability income insurance coverage that doesn’t consider someone disabled if they are able to work in another occupation.
Individual disability income insurance policies are available with an “own occupation” definition of disability. This means that you can collect DI benefits if you cannot perform the main duties of your regular occupation due to sickness or injury and you are working in another occupation.
Such policies are important for trained professionals and other types of high earners. They take into account that while you may be able to perform some job if you’re disabled, that job is unlikely to support the financial obligations or living standards of someone in your specialized profession. Further, the costs of retraining for a different job, while perhaps nowhere near what you paid for your intended profession, can still be significant.
These kinds of customized policies can be more expensive than policies that don’t provide benefits as long as you can work. An individual policy can also be more expensive than an employer’s group policy. But you’re getting what you pay for: A larger monthly benefit if you become disabled and a policy that stays with you no matter where you work.
When to get disability insurance
“My recommendation is to protect your income and earning potential at the earliest available opportunity,” said Philip D. Rogero, FSCP®, CRPS®, a financial professional with Coastal Wealth, a MassMutual firm in St. Augustine, Florida. “Your health and earning potential are your greatest assets, so it only makes sense to protect them as early as you can.”
You don’t need to wait until you’re fully credentialed and practicing independently, nor until you’ve reached your full earning potential, to secure disability insurance that protects your unique situation. Some companies offer coverage to medical residents and fellows, for example, and securing coverage while you’re younger and perhaps healthier can get you a lifetime of lower premiums. (Calculator: How much disability income insurance do I need?)
“Individual disability plans can be customized with different riders,” Rogero said. “One of them is called a future benefit update, or future insurability option — different companies have different names for it. We always try to add this future insurability option onto policies for our clients who have potential for significant income increases in the future.” Riders are available on a policy at an additional cost.
Disability income insurance is particularly important for high-income professionals. Even if your job doesn’t seem high risk, anyone can get hit by a car, diagnosed with cancer, experience repetitive strain injuries, or suffer from a stress-mediated illness. In fact, most disability claims are for musculoskeletal conditions, followed by cancer, injury, mental disorders, and cardiovascular disease. (Learn more: Disability facts that may surprise you)
Disability insurance is about protecting your independence, your choices, your financial stability, and your health by making sure you still have an income when you can’t work and need it most.
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Disability income insurance policies issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001. Policies have exclusions and limitations.