One way you can save money on the cost of your physician disability insurance policy premium is by electing a longer elimination period.
Here's what you need to know to capitalize on this opportunity -- without compromising your coverage.
What is an elimination period?
The elimination period of a disability insurance policy is the amount of time it takes for benefits to be paid after a disabling event occurs. For example, a policy with a 60-day waiting period would not pay benefits for the first 60 days after the insured becomes disabled.
The longer the elimination period on your policy, the less you will pay in premium. That doesn’t mean, however, that you should necessarily choose the longest elimination period available. Nor is electing the shortest period typically the best option.
Shorter periods may cost more than they’re worth
For most disability insurance policies, 30-day elimination periods are considerably more expensive than 60-day periods, which cost significantly more than 90-day periods.
That’s because short-term disabilities lasting one to months are much more common than long-term disabilities. Therefore, a policyholder with a 30-day elimination period has a significantly higher chance of filing a benefit claim than one with a 90-day or longer waiting period. To account for the higher risk, the insurer has to charge a higher premium.
While a 30-day elimination period may provide the best coverage, the cost over time will almost always outweigh the potential benefits you would receive.
90 to 120 days is optimal
At the same time, you don’t have to stretch your elimination period to 180 days or a year to afford coverage.
Once elimination periods reach 90 to 120 days, there is little cost savings to be had by increasing the elimination period. That’s because if your disability lasts that long, it will typically take longer for you to recover. Therefore, there is little additional risk to the insurance company if they have to provide benefits after 90 days as opposed to 120. So the premium costs between these elimination periods will be negligible.
To get optimal coverage for the cost, your best best will typically be a 90-day elimination period. If you believe the savings are significant enough, you could also opt for 120 days. But under most circumstances, you should not go higher than 120 days.
The risk of choosing lengthy elimination periods
Choosing anything higher than 120 days means that in exchange for a slightly smaller premium payment, you will be spending your own money for a much longer period if you do become disabled.
Buying a physicians disability insurance policy with a longer elimination period is like buying an auto or homeowners insurance policy with a higher deductible. In both cases, the policy holder is simply trying to save a few dollars now with the mindset that they will never have to file a claim. But if the worst happens, they may wish they had paid the higher premium because of the out-of-pocket costs before insurance benefits kick in.
By the time you wait through a 180-day, 365-day or two-year elimination period, you could be nearly bankrupt before your disability insurance policy benefits take effect.
If you’re considering a longer elimination period, estimate how long you will have to cover your lost income before benefits kick in. Then determine whether you have enough in savings and investments to cover that out-of-pocket cost, and whether you want to use that much of your own money. You should avoid choosing an elimination period longer than how long you could afford to support yourself after you become disabled.
Elimination periods available on leading policies
Here is an overview of the elimination period options available on the leading disability insurance policies for physicians:
Ameritas' disability insurance policy for physicians offers elimination period options of 30 days, 60 days, 90 days, 180 days, 365 days, and 730 days.
Guardian’s disability insurance policy is available with the following elimination periods: 30-day, 60-day, 90-day, 180-day, 360-day and 720-day.
MassMutual policies offer elimination periods of 60 days, 90 days, 180 days, one year and two years.
Ohio National offers coverage with 60-day, 90-day, 180-day, and 365-day elimination periods.
Principal allows you to purchase coverage with 30-day, 60-day, 90-day, 180-day, and 365-day elimination periods.
Standard’s disability coverage comes with 60-day, 90-day, 180-day, and 365-day elimination periods.
The American Medical Association's (AMA) group plan offers 60, 90, 180, and 365-day elimination periods.
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