High Income Professionals
Highly compensated Professionals often consider building additional benefit structures into their financial strategies. Though the monthly maximum benefit for Personal Disability Insurance is often $10,000 a month (or in some cases $15,000 a month), there are several ways for physicians, dentists, or other highly compensated professionals to obtain more monthly benefits.
Two ways to increase your overall Monthly Benefits in the event of a Disability include: protecting your Retirement Plan Contributions and your Payments to Tax-Advantaged Cash Accumulation Vehicles. Both are shown below with a comparative example of their benefits.
Retirement Protection Plus Program
Retirement Protection Plus Program (RPP) is not a pension plan or a substitute for one. Rather, it is a unique program using disability income insurance to replace lost retirement plan contributions in the event you become disabled.
The goal: to provide you with close to what you could have expected from your retirement plan if a disability had not forced contributions to end.
RPP pays up to the amount you contribute now, plus perhaps even the amount your employer contributes, into an irrevocable trust. The trustee invests the funds (in consultation with you) until you reach age 65. At that point, the trust assets are distributed to you to supplement whatever you receive from your original retirement plan.
Tax Advantaged Cash Accumulation Protection
The most attractive form of protecting your payments towards Tax-Advantaged Cash Accumulation vehicles is through the Waiver of Premium (WoP) rider on a Permanent Whole Life Insurance product. This acts like a built-in Disability policy on your Whole Life Policy to cover your Life Insurance Premiums if you are disabled for more than 6 months. This benefit contains "Own Occupation" coverage for 5 years, and "Any Occupation" to age 65.****
Example Scenario
Consider the following example for a 40 Year Old Physician:
- He earns $400,000 & maximized his Personal Disability Insurance policy (#, ##), *, **
- He contributes $30,000/yr to his retirement plan
- His employer contributes $15,000/yr to his retirement plan
- He accumulates cash in a Tax-Advantaged Life Insurance Product with Waiver of Premium (WoP) covering the $40,000/yr Premium
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Benefits
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Group DI Only
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Personal DI Only
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Personal DI & RPP
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Personal DI, RPP, & WoP WL
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Income Benefit
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Group Only
(benefit is often taxable, max benefit often capped at $6-10k/mo, rarely inflation indexed)
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Personal DI
(for life)
~$180,000/yr ($15,000/mo) + 3% COLA rider(#)
Benefit is tax-free(##)
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Personal DI
(to Age 65)
~$180,000/yr ($15,000/mo) + 3% COLA rider(#)
Benefit is tax-free(##)
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Personal DI
(to Age 65)
~$180,000/yr (#)
($15,000/mo) + 3% COLA rider
Benefit is tax-free(##)
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Retirement Benefit
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None
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None
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$45,000/yr
($3,750/mo)
+ 3% COLA rider(#)
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$45,000/yr
($3,750/mo)
+ 3% COLA rider(#)
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Cash Accumulation Benefit
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None
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None
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None
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$40,000/yr
Premium
with WoP Rider
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Death Benefit
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None
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None
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None
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Initial Death Benefit of ~$2,500,000
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Scenario Results
If totally disabled later this year, what would a potential lifestyle & retirement scenario look like for the 40 year old physician at age 65? Which scenario would you and your family rather experience?
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Benefits
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Group DI Only
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Personal DI Only
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Personal DI & RPP
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Personal DI, RPP, & WoP WL
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Income Benefit
to Age 65)
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Continual reduction in lifestyle due to inflation. Also, no excess funds for retirement savings. And, group benefits typically end at 65 - what will you use for income?
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Personal DI
~$180,000/yr ($15,000/mo) + 3% COLA rider(#)
Tax Free benefit paid for entire life* to cover expenses, lifestyle, & inflation
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Personal DI
~$180,000/yr ($15,000/mo) + 3% COLA rider(#)
Tax Free benefit paid to Age 65** to cover expenses, lifestyle, & inflation
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Personal DI
~$180,000/yr ($15,000/mo) + 3% COLA rider(#)
Tax Free benefit paid to Age 65** to cover expenses, lifestyle, & inflation
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Retirement Benefit
(at Age 65)
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None
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Benefits continue to be paid*
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$45,000/yr
($3,750/mo)
+ 3% COLA rider(#)
$4,621,566
in Trust Account***
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$45,000/yr
$3,750/mo)
+ 3% COLA rider(#)
$4,621,566
in Trust Account***
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Cash Accumulation Benefit
(at Age 65)
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None
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None
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None
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$40,000/yr WoP Benefit
~$2,000,000 Cash Value in Whole Life Insurance Policy****
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Death Benefit
(at Age 65)
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None
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None
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None
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$40,000/yr WoP Benefit
~$4,200,000
in Death
Benefit ****
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(#) COLA - cost of living adjustment rider
(##) Benefit is tax-free when premium is paid with after-tax dollars
* assumes Graded Lifetime Benefit Rider was included on DI Policy
** when RPP Rider or RPP Policy is included, DI Policy benefits are set to Age 65
*** assumes average annual 8% compounded return for 25 years
**** assumes WL99 policy with Waiver of Premium (WoP) at Age 40 in "Prefered NT" Health class
If you would like one of our financial strategy specialists to work with you to optimize your wealth maximization and protection strategies to efficiently integrate any of the above scenarios into your financial situation, please indicate your interest when requesting your Disability Quote.
The amount of coverage, if any, for which you may be eligible may vary from the amount stated in this table and is dependent on the following factors including, but not limited to: your health, age, occupation, and income.
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