With the advent of 401k plans, there are very few people left in the country that do not know what retirement plans, pension plans, IRA’s etc., offer.

Funding these retirement plans is only accomplished by working.  Now, if a dentist becomes disabled, these plans can still be funded.  Now, you can protect your pension contributions. 
What a concept. 
 

Consider the following: 

Disability Insurance

Sidestep the $10,000 (or even $15,000)

Maximum Monthly Benefit Level

Disability Insurance Protection for Retirement Plan Contributions

If I gave a seminar on DI and said with a straight face I knew an insurance company that sells to physicians an additional $40,000 a year over and above any other DI a physician owns, would that interest you?  It should.  How can this be true when every physician (especially surgeons) complains because they have been told for years they cannot buy any more DI?

The answer is very simple; DI carriers will sell to physicians protection against the cost of funding their retirement plans (401(k), Profit Sharing, Keogh, SEP, 403(b), etc.).  Therefore, if a physician normally pays $40,000 a year to fund their retirement plan, the disability carrier will pick up that cost with retirement plan DI.

The most effective approach uses an individual DI policy that pays benefits into a trust set up specifically for the benefit of the insured physician.  If a disability occurs, monthly benefits from the policy are paid directly into the trust.  The trustee, with input from the disabled physician, then invests the monies received into mutual funds, annuities, or individual securities until the insured (the trust beneficiary) reaches age 65.  At that point, the trust’s assets are distributed to the individual to provide supplemental income for retirement.

Policy benefits and trust earnings are subject to the normal rules that govern the taxation of trusts and individual disability income insurance.  Trust earnings are generally taxable to the insured as the beneficiary of the trust. 

Example:

Dr. Smith─age 40 with an annual income of $250,000 a year.  Assume Dr. Smith traditionally funds his 401(k)/Profit Sharing Plan in the amount of $40,000 a year.  Now assume that Dr. Smith purchased retirement plan protection insurance with the maximum benefit of $40,000 a year.

If Dr. Smith became totally disabled at age 40, the insurance company would fund approximately $40,000 a year into a trust account where the money would grow and could be used in retirement.  If Dr. Smith stayed disabled, his total cumulative benefit at age 65 would be $993,720.

If Dr. Smith purchased a cost of living adjustment (COLA) with a 6% inflation rider, his total cumulative benefit at age 65 would be $2,205,396.

What did the insurance cost to have the coverage and benefits outlined above?  With the COLA rider, the premium each year for Dr. Smith would be $2,385; and without the COLA rider, the premium would be $1,883. This premium can be deducted from the practice (although the benefits like other retirement benefits would be taxable when received).

My personal opinion is that physicians looking for more premiums should strongly consider purchasing retirement plan protection DI.  Because very few insurance agents in the country are familiar with this product, the general public, including physicians, for the most part have never heard it.  If you would like further information on Pension Protection DI, please feel free to give me a call or send me an e-mail.