Shopping for disability insurance isn't easy.
The policies themselves are complex with many moving parts, and vary widely between companies by price, guarantees, and features. Then add to that complexity the hundreds of insurance agents representing several carriers and providing conflicting advice about the best disability insurance for doctors.
So, where should you begin?
For starters, there are four core elements every physician must have included in their disability policy to provide necessary coverage. There are also four features — which can be automatically included in some policies and offered as optional riders in others — you should strongly consider.
By focusing on these eight elements, you can more easily compare and make a more educated decision among the many disability insurance policies available.
The core of your coverage should include the following disability insurnace provisions listed below.
Noncancelable disability insurance policy
A disability insurance policy that is non-cancelable is one that enables you to renew it at the end of each premium term until its expiration or termination date.
During this time, the insurer cannot change any part of the policy, including the premium amount, even if you change jobs for a lower income. The insurer cannot cancel the policy for any reason, either.
Having this policy typically adds to the premium cost, but it protects you from unforeseen increases in the future. At least with the non-cancelable policy, you will always know what you’ll pay for the life of the policy; without it, you may not be prepared for a future increase.
Own-occupation definition of disability
An own-occupation disability provision helps define what constitutes a disability and whether you will collect benefits.
Many disability policies only pay benefits if the individual is unable to work in any capacity. In this case, you may not collect any benefits if an illness or injury prevented you from practicing medicine so long as you were healthy enough to do other work. While these policies are more affordable, they do not provide adequate coverage for high-earning physicians.
But with own-occupation disability insurance, the policy will pay benefits if an injury prevents you from working in your medical specialty, even if you’re well enough to earn income doing other types of work.
For example, an orthopedic surgeon who develops severe arthritis can no longer work in that field. An own-occupation policy would pay the former surgeon full disability benefits regardless of what other professional options are available.
This provision is often an optional rider available for additional cost.
Benefits guaranteed to age 65
Disability insurance policies include a maximum benefit period. This is the amount of time your policy is guaranteed to pay benefits following a disability that impacts your income.
Many policies will pay for a set timeframe, such as two years, five years or 10 years. After that, the policy will no longer pay benefits, even if the disability prevents the insured from working after that period.
If you have a policy that pays to age 65, you will collects benefits until you reach that age, regardless of whether you become disabled at age 35, 45, or 55. Again, this provision will cost more, but having protection that lasts your entire career is worth the expense. Otherwise your run the risk of exhausting benefits too soon.
90-day elimination period.
Disability policies include a waiting a period — sometimes referred to as an elimination period — which is the period of time between when the disability occurs and when benefits are paid. You should opt for a policy that begins paying at least within 90 days of a disability occurring.
In addition to these core elements, you should consider adding the following four optional features.
Future increase or future purchase rider
Most doctors purchasing an individual disability insurance policy do so at the end of residency to take advantage of disability insurance discounts. Benefits at this stage are typically capped between $5,000 and $6,500 depending on specialty, which isn’t sufficient to cover your increased income when you start practice.
For that reason, young physicians and dentists should consider the future increase option. Also known as the future purchase rider, it allows you to buy additional coverage once you begin practice and your income increases.
This rider locks in the cost based on your current health, meaning you don’t have to do medical underwriting when you go to purchase additional benefits.
Residual disability benefit rider
A residual disability rider can supplement the income of a disabled person who is still working and not considered to be totally disabled. Residual benefits are typically calculated as a percentage of both the policyholder’s loss of earnings and the benefit that the policyholder would receive if he or she was unable to work. It essentially makes up the difference between what you earned before disability and what you can earn with your disability.
Cost-of-living adjustment (COLA) rider
Long-term disability insurance policies provide an optional rider, called a cost-of-living adjustment rider, in which the policy’s benefits will increase annually based on inflation. The increase may be based on a third-party inflation index or by a fixed percentage set by the insurance company.
The younger you are, the more you should consider a COLA rider. Without the rider, your benefit amount will remain the same for the length of your benefit period. If inflation averages 3 percent a year, your level benefit amount will have a third less purchasing power in 15 years. A COLA rider, on the other hand, will help your benefit amount keep pace with inflation for as long as your receive payments.
Catastrophic benefit rider
A catastrophic disability is typically defined as one that prevents you from performing two or more of the activities of daily living without assistance:
- Using the restroom.
It can also include being cognitively impaired or irrecoverably disabled.
Some insurers offer a catastrophic disability rider that provides additional funds, above your normal disability policy benefits, in the event this happens to you. The purpose of this benefit is to have additional funds to pay for caregivers and other care support.
Now, take a deeper dive with our:
2019 Ultimate Guide to Physician Disability Insurnace