Disability insurance is arguably the most complex type of insurance policy. There are a number of individual policies, group plans and government benefits available to help protect people from the potential loss of income caused by an accident or illness. Each has a wide variety of provisions and stipulations on how they work and what determines whether benefits are paid.
It’s therefore no surprise that disability insurance is also one of the most misunderstood financial products. In fact, LIMRA, an insurance trade association, conducted a survey in which only 4 percent of respondents demonstrated a high level of knowledge of how disability insurance works.
With misunderstanding comes misconception. People, including physicians, may make the mistake of believing they either don’t need disability insurance or can’t get adequate coverage.
Here are five common myths, along with rebuttals, regarding individual disability insurance. Some may decide they don’t need or can’t get an individual physician disability insurance policy because:
One of the reasons people avoid discussion of disability insurance is the belief that, even if the worst happens, they’ll somehow “get by.”
You might think you can save enough money to live on. Or you’ll bank on sick leave and vacation time to provide income. Maybe you’re thinking your spouse’s income will sustain you.
Many people count on Social Security to help them through a disability, but it won’t pay near enough to compensate a physician. Likewise, workers compensation only pays a fraction of your income and only if you’re injured on the job. Group life insurance typically limits the amount you can receive in benefits.
Also consider the amount of income you’ll potentially lose if you can’t work at all or as much due to accident or illness. If you suddenly lost, say, a $300,000 annually salary, how do you begin to replace that income without some kind of insurance benefit?
It’s common to think of long-term disabilities as the result of a car accident, the overuse of drugs and alcohol, or dangerous activities such as mountain climbing or race-car driving.
But the reality is that 95 percent of all long-term disability insurance claims are caused by illness and not accidents or injuries, according to the Council for Disability Awareness.
But you eat right, exercise and take care of yourself, so you think you can beat the odds of having a long-term illness, right?
As a physician, you know that many illnesses occur gradually. You probably have also encountered vegetarians and long-distance runners who have cardiac episodes. Ailments like breast cancer, arthritis and spinal issues can happen to anyone regardless of health.
In fact, estimates range from 25 percent to 30 percent of American workers will endure some type of temporary disability during their careers that will prevent them from working.
Physicians might be tempted to eschew disability insurance by convincing themselves that most possible disabilities won’t prevent them from practicing medicine.
This may be true, but there are number of ailments that can limit your ability to continue in your chosen field of medicine, the amount of time you can work or your ability to fulfill some of your responsibilities. These scenarios may not halt your income, but they can potentially reduce it.
So, again, how do you replace that lost income with insurance?
Many physician disability policies have a true own-occupation provision that cover you in the event you can’t work at all in your current speciality, but may be able to work elsewhere.
Policies may also come with a residual rider that covers you in the event you can partially work in your current area of practice.
This myth isn’t as widely believed as it used to be, now that there are more women in the workforce, many earning significant incomes. But there are some still of the mindset that men suffer disabilities at a higher rate than women.
In reality, women actually file more disability claims. Between 1999 and 2009, Social Security Disability applications increased by 72 percent for women and 42 percent for men.
Women suffer disabilities that impact their careers, such as breast cancer, auto immune disorders, and depression, more than men, and disability claims for women also typically last longer than those for men.
Because of these higher risks, women can pay up to 40 percent higher premiums than men for disability insurance.
Many people write off disability insurance, believing they won’t get through underwriting. Maybe they have diabetes or other chronic illness that, although managed, may lead to complications later. Or they have risky hobbies and interests like rock climbing, skydiving, or skiing.
It’s true that disability insurance is underwritten much like life insurance, and that insurers will assess your overall risk of becoming disabled before issuing you a policy. But your health or lifestyle doesn’t necessarily prevent you from obtaining coverage.
- You may pay a higher premium for health and/or lifestyle attributes, but you can still get coverage.
- Your policy may contain exclusions or benefit limitations that restrict coverage for claims resulting from or related to a preexisting medical condition, or from participation in a potentially hazardous activity.
- Even if one carrier won’t cover you, others will. It’s a competitive market and some insurers cater to certain individuals that other carriers restrict coverage to.
By debunking these five common myths about disability insurance, we hope to have given you the information you need to make informed policy decisions.
For an exhaustive look at income protection, there's:
The Ultimate Guide to Physician Disability Insurance in 2021
Joel Palmer is a writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.