Physicians often fail to consider the possibility of an unexpected life event deeming you unable to work.
The process of becoming a doctor is rewarding in time but is an ultimate investment. You will train away for years on a limited salary and some may struggle under the weight of student loans. The financial rewards of putting in the time to become a specialized physician outweigh the few years of medical school, residency and even fellowship. This is only assuming you’re capable of working.
If you become injured or develop an unexpected medical condition that prevents you from physically being able to work, your financial obligations won’t just disappear. You will still be paying for student loans, the mortgage, trying to support your family and even expenses to live a normal lifestyle. Medical professionals are at a unique risk for this situation, especially physicians who specialize in procedures and interventional work. That is why Disability Insurance is highly important to be fully protected without depleting your savings account.
What is Disability Insurance?
Disability Insurance will pay an insured a monthly benefit, replacing earnings lost from an accident or sickness. This coverage is meant to just help you stay afloat, preventing you from losing your home or having your car repossessed. The payout will only be to cover the essential expenses such as your student loans, utilities, car payments, mortgage, etc.
Insurance companies will usually only allow you to be covered between 40 to 60% of your income for a certain benefit period selected. The benefit period options are typically 5 years, 10 years, to Age 65, to Age 67 and to Age 67.
You may have heard of two different disability insurance types – short term and long term. Short-term disability insurance is meant to cover you immediately after a disability and can last a short amount of time (between 9 to 52 weeks). This coverage is often provided by your employer or the state. After the short-term period ends, long term disability insurance would kick in if you still cannot work. The claim payments would kick in after the elimination period (usually 60, 90, 180 or 365 days) and will pay out as long as you are still disabled up to your Benefit Period within the plan.
How are Long-Term Disability Policies Offered?
Disability insurance can be purchased on an individual or group, employer paid basis.
Employer paid long-term disability insurance plans are inferior to individual plans. These plans are taxable and may not have the best definition of total disability. Most group plans will not allow you to work in another specialty or occupation, which is important to consider if you are specialized in the medical field. The payouts for group plans will also adjust dollar for a dollar if you are receiving any other income such as residual pay, lawsuit settlements, and social security. Since the group plans are issued through a Certificate, not a policy, we loosely refer this to a piece of paper with no rights of ownership. The company can increase the costs, change definitions, change benefits and even cancel your plan any time they want. Choosing to be insured by only your group plan may not be the best option since these plans are also much harder to collect on. These plans cover you regardless of your health history when you begin your employment. When you go to file a claim through your group in the case of a disability, they will look into your past medical history and try to find any reason to deny your claim.
Individual private plans are superior compared to group plans because they are not taxable, have the best specialty specific (own occupation) definition of total disability, are fully underwritten (health considered making it easier to qualify for claims in the future), and they’re portable – meaning you will still have the plan even if you change employers. Individual plans complete a full medical underwriting when considering you for coverage as opposed to group plans. The individual insurance carrier will determine what they will cover you for at time of application so that they will not deny your claim in the future unless it’s fraudulent or frivolous. We have had many clients that collected claims from their individual plans but were denied from their group plans so it is extremely important to consider individual coverage!
An individual who has a group plan already, or who is changing employers, may have the opportunity to supplement with individual disability insurance coverage. Once purchased, an individual policy would not be affected by subsequently enrolling in a group LTD plan. If however, an individual policy is not already at its maximum benefit level, this strategy might prohibit the insured from further increasing an individual policy. If you have both individual and group coverage and need to file a claim, you will be able to collect claims from both plans.
How Much Disability Insurance Coverage Should You Consider?
You need enough coverage to provide you with sufficient income to live on until you are able to return to work or receive other financial resources (retirement, social security, etc.). The benefits you purchase through a disability policy is quoted as monthly income that you receive if disabled. Consider your monthly income after taxes, now and in the future, as the base amount you would need. In addition to the monthly amount, you need to consider the length of time you want to collect benefits, and when you would need them to begin. If you are a dual physician household, are financially independent or have an abundance of savings, you may not need the maximum amount of coverage.
Common Riders You May Have Come Across When Considering Long-Term Disability Insurance
Every disability insurance policy will have its own riders, additional features within the plans. Below are the riders you should consider as a physician.
It is important for physicians to consider the value in obtaining “own occupation” disability insurance coverage that protects the ability to work in their chosen medical specialty. Most own occupation disability insurance policies define a disability as the inability to work in your regular specialty due to an injury or illness. “True Own Occupation” with Guardian, “Regular Occupation” with Principal, “Own Occupation for the Length of the Benefit Period” with Ameritas are all Own Occupation definitions defining total disability. Insurance companies will use unique language to stand out from each other. All these definitions will allow you to be gainfully employed in another occupation or specialty even if you are collecting total disability due to not being able to perform in your specialty.
If you are a proceduralist or surgeon, Guardian has an enhanced definition of total disability. If more than 50% of your income is coming from hands-on patient care or surgical procedures, and you can no longer perform them, you will be considered totally disabled even if you can still work in your specialty as a clinician or doing consults. This protects proceduralists and surgeons in case their fine motor skills are comprised. For example, if you develop a hand tremor and can no longer perform surgeries, endoscopic procedures or scoping as a Gastroenterologist, you could still work in your field as a clinician and consult with patients and be considered totally disabled through Guardian’s enhanced language.
Residual or Partial Disability Benefits
Disability insurance for doctors is not black and white. A physician may experience an injury that can be managed but still affects their day-to-day life. Some people may develop a disease that allows them to work but for a limited amount of time or may limit duties. The residual disability benefit rider can help bridge the gap between your pre-injury or pre-illness salary and your current expenses. This rider will pay you a partial monthly benefit if you lose at least 15% or 20% of your income, depending on the plan’s language. The percentage of your benefit paid is typically proportionate to your loss of income. Today, some plans may have a rider that will first pay your actual loss of income or at least 50% of your policy’s monthly benefit amount for 6 or 12 months.
Future Increase Rider
This allows a physician to increase their disability policy up to the stated maximum without having their health re-examined by the Insurance Company on the anniversary date. This is a very important rider for newer physicians wanting to protect a projected higher income since their health status could change making them ineligible for increased coverage in the future without this rider. A physician would still need to prove their higher income through W-2s and/or tax returns to qualify for the increased coverage. There are different types of Increase Riders, such as Future Increase Option (FIO), Benefit Purchase Rider (BPR), Benefit Update (BU).
Future Increase Options (FIO) - Allow you to increase your monthly benefit at any policy anniversary date. You pay an additional cost for this increase rider for the flexibility. You would have to request the increase and provide income documentation to determine eligibility for the increase.
Benefit Purchase Rider (BPR) and Benefit Update (BU) - These riders work the same way as the names are just unique to the companies; Principal is BU and Guardian has BPR. They come at no additional cost as they are built into the plans. Both riders offer 1 increase at the end of each 3rd year. You would need to provide income documentation to determine the amount you can increase by. If you qualify for an increase, you’ll have to increase by at least 50% of the qualified increase amount in order to keep the rider for another 3 years. This is a continuous 3-year cycle and if at any point you do qualify for an increase but decide not to increase your policy, the rider will drop off for the remainder of the policy.
Where to Buy Disability Insurance?
We recommend contacting an Independent insurance broker, such as ourselves, to ensure you are getting the best quotes from various insurance carriers. Each insurance company will quote you with different benefits and options available so it will be worth your while to find an independent insurance broker that is not subsidized by one insurance carrier. We shop around the top insurance carriers to find the best rates and policies for you. Afterwards, we are more than happy to speak with you to explain the differences between each plan, learn about your situation and customize your quote to better align your needs and wants.
Feel free to request quotes directly from us by clicking here. This is completely free and we are more than happy to discuss the comparisons of various plans and apply it directly to your situation!