Long term disability insurance policies can be very complex with many moving parts. They can vary widely by price, guarantees, and policy features which make it tough to compare.
Choosing the right one for your unique needs requires time, research, and professional advice. Unfortunately, many physicians rush through the process to get it done and over with, not unlike most people buying this type of coverage.
But in doing so, they run of risk of making critical mistakes. Here are the four most common errors you should try to avoid when shopping for and deciding on disability insurance.
Mistake #1: Not buying enough coverage
When it comes to buying any kind of insurance, people rarely overestimate how much they need. If there’s a mistake to be made in determining a coverage amount, most buyers of insurance — whether it’s life, property, or disability — will buy too little.
It’s an easy mistake to make. After all, nobody wants to buy insurance, everybody believes they’ll never use it, and few have the extra money in their budget for complete coverage.
But buying too little disability insurance coverage today can cause major headaches if an injury or illness does occur that impacts your earning ability. You could easily lose half of your income or more between what you earned before your disability and what your insurance benefits pay. The problem could be potentially compounded by any medical expenses caused by your disability.
When assessing your disability insurance needs, thoroughly consider:
- Your current and future income
- Your current and future living expenses
- The increasing expenses you may have because of your disability (e.g.—medical treatment)
- The increasing cost of goods and services (i.e.—inflation)
Mistake #2: Relying solely on group coverage or an association plan
Many physicians make the mistake of relying solely on group disability insurance coverage or an association plan like the AMA disability insurance plan. This is another easy mistake to make, considering that group plans are cheaper than individual policies and easier to obtain. Plus, since many medical professionals don’t anticipate ever becoming disabled, they believe having group insurance is more than enough.
Group policies are a good way of supplementing your disability coverage, but you should never rely solely on one. Doing so puts you at risk of:
- Losing your coverage because of a change in jobs or membership status
- Having the sponsor or insurer cancel the policy
- Collecting benefits that cover only a fraction of your pre-disability income
- Collecting benefits for a limited timeframe
- Having limits on what is considered total disability
- Not having access to key features and benefits available on individual disability plans
- Paying taxes on the benefits you receive if you become disabled
An individual policy, on the other hand, is owned by the physician. It can therefore be tailored to your specific needs and lifestyle. This type of policy typically cannot be canceled and is guaranteed to renew, meaning the only way to lose coverage is to fail to pay premiums.
Mistake #3: Not conducting a thorough comparison of disability insurance options
Would you buy the first home you were shown by an agent? Or the first car you test drove? Not likely. Most people spending a lot of money on something will compare multiple options before making a final decision.
The same should be true for disability insurance. You should never limit your search to one policy or recommendation. There are dozens of companies that offer this type of insurance, including six who provide disability for physicians and other medical professionals.
When you compare options, you need to assess more than just cost. You want to survey all the various contract provisions, benefits, occupational classes, features included in the base contract, and any optional riders available. You should also look at the insurance company and ensure that it’s a highly rated, reputable firm.
Doing this without professional help would be a daunting task for most people, but especially doctors with demanding careers. Therefore you should enlist the help of a licensed independent insurance agent.
Independent agents are contracted with multiple insurance companies. They can offer you multiple options and can choose among different carriers for the best combination of price and features.
Mistake #4: Not taking the time to understand all disability insurance provisions
The worst time to be surprised by what is — or isn’t — in your disability insurance policy is when you have to make a claim. Therefore, it’s important to know as much about the contract as possible before you sign up for coverage and begin paying premiums.
The provisions you absolutely should know and understand include:
- How disability is defined - make sure you select an own-occupation disability insurance plan
- Length of waiting period - how long do you have to wait until you start collecting your benefits from the insurance company?
- Benefit length - if you become disabled, how long will you receive benefits?
- Exclusions and limitations, including disabilities related to mental illness
- When you can collect for residual disability
- Future increase option - will your income be increasing in the near future? Make sure you can increase your disability plan
- Catastrophic benefit - do you get extra benefits if you suffer a severe disability that impacts your daily activities?
- Recovery benefit
- Cost-of-living adjustment on benefits - will your benefits adjust each year to keep pace with inflation?