Insurance is often treated as a commodity, the goal being to purchase it for as little as possible. That means buying the lowest amount of coverage deemed necessary, with few options that add to the cost.
This is a risky strategy when buying physician disability insurance. It may be tempting to forgo optional benefits and features, but that decision can come back to haunt you if and when you need those benefits.
Rather than trying to build a barebones insurance policy, you should be looking to maximize your potential benefits. You want coverage and benefits that will adequately support you and your loved ones if injury or illness limits your ability to practice medicine.
To better ensure you have sufficient coverage, your physicians disability policy should have the option to provide an increasing coverage amount if your circumstances change. It should also provide higher benefits under certain scenarios.
One of the principles of disability insurance is you want to buy coverage as early in your career as possible. Insurance is more costly for older individuals and those with health issues.
At the same time, buying coverage based on your early career income could leave you with insufficient coverage as your needs and income grow.
Two ways you can increase your coverage amount as your income increases include:
Future Purchase Option. This option may also be referred to as a future increase option, a future insurability option, a benefit update rider, or a similar name. It enables you to buy more coverage at a later date, without having to go through additional underwriting, as your income increases.
A future purchase option is a critical component if you’re purchasing disability insurance while still a resident or fellow, as your benefits will be capped based on the income at the time of purchase. Once you're out of residency, you will want the option to increase your disability insurance coverage.
Automatic Benefit Enhancement. You can elect this rider to keep your disability insurance benefit aligned with annual income increases. The premium on your base policy will increase along with the increase in the coverage amount.
If the time comes that you need to access your disability insurance benefits, you want to receive as much as possible.
Depending on what age and under what circumstances you need benefits from your policy, you may need one or more of these features to receive maximum income replacement and care assistance.
Residual disability. 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.
The main reason to consider a residual benefit rider is that disabilities are rarely black and white and people are affected in varying degrees. It’s important to have comprehensive coverage that will provide benefits for a number of scenarios in the event you lose some or all of your income due to injury or illness.
Cost of Living Adjustment. Some policies provide an optional 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.
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.
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 rider that provides additional funds, above your normal disability policy benefits, in the event you become catastrophically disabled. The purpose of this benefit is to have additional funds to pay for caregivers and other care support.
Ready to turn it up a notch? Check out:
The 2021 Ultimate Guide to Physician Disability Insurance
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.