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Dear Valued MGIS Broker,

Would Tax-Free Disability Benefits Interest Your Physician Clients?

If your physician clients are covered by a Group LTD policy, they can save money today by paying their premiums with pre-tax dollars. On the other hand, if they pay for their Group LTD coverage with post-tax dollars and then become disabled, how much more would they receive in disability benefit?

How to lose $396,000. Although an employer-sponsored plan using pre-tax dollars can save your physician clients thousands in the short run, the taxation of disability benefits in the long run can cost your clients hundreds of thousands of dollars. Click here to see examples of a physician who pays premiums for $10,000 of monthly disability coverage for 10 years and is then disabled for the next 10 years. These examples demonstrate how a $10,000 tax savings (pre-tax approach) could cost almost $400,000 of benefits (post-tax approach) in the long run.

It comes down to this: If your physician clients never use their disability benefits, they’ll save money by paying their premiums with pre-tax dollars. But – heaven forbid -- if they do use their disability benefits, using post-tax dollars to pay their premiums places them in a better position.

If your physician clients are looking to maximize their income protection in the event of a disability, they should carefully consider how they pay Group Long Term Disability premiums. To learn more about tax-free disability benefits, including Irrevocable Elections, Revenue Ruling 2004-55, and the 162 Bonus Plan, please click here.


Your friends at MGIS

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