A CFI can teach (ground and flight) and be compensated with no medical at all.

In order to serve as PIC while instructing, you need a third class medical. This applies if the student is not rated in the airplane.

If the student is rated in the airplane you can do instrument add-ons & IPCs (VMC only), BFR's, fam flights, etc.

The best way to make a living as a career instructor is to find a narrow niche and charge well for it: Cirrus instructor, Garmin instructor, ME instructor, CFI instructor etc. Instructing at the basic level is a wh*re's market, so a career CFI needs to take advantage of his higher level of experience to teach in areas where the airline-bound CFI's are too inexperienced to tread.