Pilot Risk Management

Loss of Medical Certificate: Your Financial Parachute

Protect Your Income When You Can't Fly

Losing your medical certificate ends your flying career instantly. Learn how to protect your income, create alternative revenue streams, and build wealth that doesn't depend on your medical status.

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~2.5%

Annual Medical Denial Rate

6 Months

Typical LOL Waiting Period

$175K

Income Gap During Wait ($350K Salary)

Tax-Free

Living Benefits Distributions

Quick Answer

One failed FAA medical and your income stops immediately - standard disability insurance will not help because you are not "disabled"
Loss of License insurance covers FAA medical loss but has gaps: 6-month waiting periods, 4-year duration limits, often ends at age 60-62
Section 7702 Living Benefits pay immediate lump sums for heart attack, stroke, cancer - no waiting periods, tax-free
The Triple Protection Strategy: Loss of License (base) + Living Benefits (critical supplement) + Cash Value Access (long-term security)
A $350K captain grounded at 55 with Triple Protection: $300K lump sum + $95K first year + ongoing $240K/year vs $95K with LOL alone

The Opportunity

Why This Matters for Pilots

Standard Disability Fails Pilots

You can be perfectly healthy by normal standards and still lose your FAA medical. Conditions like controlled blood pressure, managed diabetes, or certain medications ground you but are not "disabling" - so standard disability will not pay.

Loss of License Insurance

Specialized coverage designed specifically for professional pilots. Triggers when FAA denies or defers your medical certificate, typically paying 50-70% of income after a waiting period.

Section 7702 Living Benefits

Critical and chronic illness riders on life insurance pay lump sums IMMEDIATELY upon diagnosis - no waiting periods. Heart attack, stroke, cancer - the exact conditions that ground pilots.

Tax-Free Cash Value Access

Policy loans available at any age, no income verification, no credit check, tax-free. Supplements income during grounding or provides bridge until other coverage kicks in.

Implementation

Proven Strategies

Layer 1: Loss of License Insurance (Base Protection)

Get the maximum benefit your income qualifies for with the shortest waiting period you can afford. This is your foundation - but recognize it has limitations: 6-month waiting period, 4-year typical duration, often ends at age 60-62.

Best for: All professional pilots - this should be in place while you are healthy and flying.

Example:

Captain income $350K: LOL benefit $175K/year (50%), 6-month waiting period = $175K gap in first 6 months alone.

Layer 2: Section 7702 Living Benefits

Critical Illness Rider pays immediate lump sum for heart attack, stroke, cancer - no waiting periods. Chronic Illness Rider pays if you cannot perform 2 of 6 Activities of Daily Living. Both are tax-free.

Best for: Pilots who want immediate protection for serious medical conditions without waiting periods.

Example:

$1.5M death benefit with living benefits: Heart attack = immediate $750K-$1.5M lump sum, tax-free, while LOL is still in waiting period.

Layer 3: Tax-Free Cash Value Access

Build cash value in Section 7702 policy accessible via tax-free policy loans at any age, for any reason. No income verification, continues regardless of medical status.

Best for: Long-term security and flexibility - supplements income during grounding or early retirement.

Example:

At grounding: Access $50K-$100K+ from policy cash value immediately to bridge 6-month LOL waiting period.

Avoid These Pitfalls

Common Mistakes

Relying Only on ALPA Disability

ALPA LTD requires proving you are "disabled" - not just grounded. At $400K income with $108K capped benefit (taxable), you lose nearly $300K/year in the gap. Layer additional coverage.

Ignoring the 6-Month Waiting Period

Most Loss of License policies have 6-month waiting periods. At $350K income, that is $175K in income lost before benefits start. Build emergency reserves or Section 7702 cash value to bridge this gap.

Waiting to Get Coverage After a Health Scare

Pre-existing conditions result in exclusions, higher premiums, or complete denial. The best time to get coverage is while you are young and healthy. Every FAA medical you pass is a reminder to act now.

Questions

Common Questions

Here are the most common questions we receive about this topic.

Ask Your Question

ALPA Long-Term Disability provides valuable coverage but has limitations: typically 60% of income capped at $9,000-$12,000/month, taxable if employer-paid, requires proving you cannot perform pilot duties, and may not cover all FAA medical denial scenarios. Layer additional coverage for comprehensive protection.

Typical premiums range from $2,000-$8,000/year depending on age at enrollment, benefit amount, waiting period selected, and current health status. Coverage becomes more expensive or unavailable as you age or develop health conditions.

Loss of License pays when FAA denies/defers your medical certificate. Living Benefits pay when you have a qualifying medical condition (heart attack, stroke, cancer, chronic illness). They can both trigger from the same event but work differently - living benefits often pay immediately while LOL has waiting periods.

Section 7702 policy loans let you access cash value with no income verification, no credit check, tax-free (not considered income), available at any age, and repayable on your schedule. This provides flexibility that 401(k) loans (employment-dependent) or home equity (requires income) cannot match.

It depends on the condition and insurer. Some conditions are excludable, others result in higher premiums, and some may prevent coverage entirely. The key is applying while healthy - do not wait until you have a condition that complicates or prevents coverage.

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