Which is Better: Level or Graded Disability Premiums?

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4 mins

IN THIS ARTICLE
IN THIS ARTICLE

Level premium means you pay the same amount for the life of the policy

How Level Premiums Work

When purchasing physician disability insurance you have to decide between level or graded premiums. So ask yourself: When it comes to protecting your income, would you rather:

  • Pay more now to have the same monthly payment for the entirety of the policy?
  • Pay less now and have your premium payments increase over time?

With a level premium, option 1, you pay the same amount for the life of the policy. Assuming you have a non-cancellable and/or guaranteed renewable policy, your premium obligation will remain constant for as long as you own the policy. Under this structure, the insurance company established a premium schedule designed so that you pay more of the cost of insurance upfront. This way, the insurer can benefit as much as possible in case you file a disability claim early in the life of a policy or surrender it at a later date.

How Graded Premiums Work

A graded structure, on the other hand, starts with a lower premium payment that gradually increases over time. The amount may increase each year and there may also be a step-up rate every five years. The longer you hold the policy, the more likely you are to file a claim and the higher the company will raise rates.

Graded premiums are beneficial initially, because your costs are lower. If you’re a resident or fellow who expects a higher income over time, graded premiums may be easier on your budget. However, after a few decades, you may end up with a much higher payment than what it initially cost.

Not sure which one is right for you? Click here to talk to our in-house specialist, for FREE

Which Structure is Better for Physicians?

Practicing physicians and dentists usually find that the level premium is better because they can afford the amount due at policy issue. In addition, it is nice to know what your bill will be over time in the future. No surprises! Medical professionals tend to see their income increase over time, as will other expenses, but with a level premium physician disability insurance policy, your monthly payment won’t budget for 25+ years.

On the other hand, if you are a resident or fellow in training, then a graded structure is advantageous because payments will be low to start and start to rise at a time when you are likely seeing an increase in income. But how much will payments go up? The uncertainty of a graded structure is a downside.

In the initial years of a graded premium structure, you may pay up to 40% less for insurance than if you opt for the level structure. Then, as you earn more income, you can afford to make the increasing premium payments. Graded premiums are also an option for those who may eventually drop their coverage as it will take several years before you’re paying more under the graded structure than you would have with a level premium.

Experts say the break-even point between the two structures is typically sometime in your early 50s. After that point, you will end up paying more over a lifetime for the graded premium structure than you would have had you elected a level premium at policy issue.

Insurers typically allow you to switch from a graded structure to a level structure on your policy anniversary. Therefore you could elect a graded structure at policy issue for a year or two, then switch over to a level payment once your income has increased. Keep in mind that when you make this change, the new level payment will be based on your age at the time of the switch, not your age at policy issue.

Don’t Forget the Future Increase Option

Another option to save money in the early years of your physician disability insurance is to elect a future increase option. This enables the policyholder to increase the amount of coverage at a future date without having to undergo additional underwriting. A future benefit increase would typically be triggered by an increase in income. Essentially, it’s designed so that you’re only paying for the coverage you absolutely need at the time you encounter a need for disability benefits. The American Medical Association allows you to buy a future purchase option but coverage can be increased once within the first 3 years of the policy or before your 40th birthday, whichever comes first. This is a major limitation for physicians in residency or early in practice that may experience significant increases in their income later in their career. All the other individual plans (Ameritas, MassMutual, etc.) give you the option to increase your coverage each year up to age 55.

Looking for Physician Disability Insurance?

It’s tough to read through the various insurance policies to know which one is best for you. For that reason, LeverageRx has an in-house specialist with over 10 years experience who will answer your questions for free. In less than two minutes, you can fill out this form and he will be in touch with you ready to help. In the meantime, here are some popular disability insurance company options that cater to physicians:

Guardian

Guardian has the best definition of own-occupation. To be considered totally disabled and receive full benefits, you cannot be able to work the medical specialty you went to school for. However, even if you can work somewhere else, Guardian will pay you full benefits since the job is not your specialty.

Learn More: AMA Disability Insurance Review

Ohio National

Ohio National has a stricter definition of own-occupation. The rider for their policy says the physician or dentist who got injured or ill must be under the care of a physician in order to receive total disability benefits.

Learn More: Ohio National Disability Insurance Review

Which Banks Offer Physician Mortgage Loans?

Compare rates, features, and more from the best physician mortgage loan programs of 2022.

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  • Loan Amounts ForResidents & Fellows
  • Loan Amounts ForPracticing Physicians
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States Available

AK, AZ, CO, FL, GA, HI, IA, ID, IL, IN, KS, MI, MN, MO, MT, ND, NE, NM, NV, OK, OR, SD, TN, UT, WA, WI, WY

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BMO Harris offers doctor loans for primary residences, for purchase or refinance.

  • 100% financing up to $1MM for training or attending
  • 95% financing up to $1.5MM for training or attending
  • 90% financing up to $2MM

States Available

FL, GA, IL, IN, KY, MI, NC, OH, SC, TN, WV

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Fifth Third Bank offers residents and physicians a primary residence loan for either purchase or refinance:

  • 100% financing up to $750k (training or attending)
  • 95% financing up to $1MM (training or attending)
  • 95% financing up to $1.25MM (attending more than 1 year)
  • 90% financing up to $2MM (attending more than 2 years)

States Available

AL, AR, FL, GA, LA, MS, NC, SC, TN, TX, VA

About

First Horizon’s doctor loan program is available for primary residence, for purchase or refinance:

  • 100% financing up to $1.5MM (training or attending)
  • 95% financing up to $2MM (training or attending)
  • 90% financing up to $2.5MM (training or attending)
  • First National Bank
  • Up to $1.5MM
  • $1.5MM
  • 700
  • 11 states (View states)
  • Learn More

States Available

DC, DE, GA, MD, NC, OH, PA, SC, TN, VA, WV

About

First National Bank offers residents and physicians financing on primary or secondary residences, for purchase or refinance:

  • 100% financing up to $1MM (training or attending)
  • 90% financing up to $1.5MM (training or attending)

States Available

MN, WI

About

Frandsen Bank & Trust’s doctor loan program is available for primary or secondary residences, for purchase, refinance or equity:

  • 95% financing up to $1.25MM (training or attending)
  • 90% financing up to $2MM (training or attending)

States Available

DC, DE, NJ, PA

About

Fulton Mortgage Company has a doctor loan program available for home purchase only on primary residences:

  • 100% financing up to $1MM (training or attending)
  • 95% financing up to $1.25MM (training or attending)

States Available

AR, AZ, CA, CO, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NH, NJ, NM, OH, OK, OR, PA, RI, SC, SD, TN, UT, VA, VT, WA, WI, WV, WY

About

Huntington Bank’s doctor loan program is available for primary residences, for purchase or refinance:

  • 100% financing up to $1MM (training or attending)
  • 95% financing up to $1.25MM (training or attending)
  • 90% financing up to $2MM (attending)

States Available

AK, AZ, CO, CT, HI, ID, IN, MA, ME, MI, MT, NM, NV, NY, OH, OR, PA, RI, SC, TN, UT, VT, WA, WY

About

KeyBank’s doctor loan program is available for primary or secondary residences, for purchase or refinance. For residents or attending physicians alike:

  • 100% financing up to $1MM
  • 95% financing up to $1.5MM
  • 85% financing up to $2MM

Geographic restrictions may apply.

States Available

MI

About

Level One Bank’s doctor loan program is available for primary residences, for purchase or refinance:

  • 100% financing up to $500k (training)
  • 100% financing up to $1MM (attending 1+ year)
  • 85% financing up to $2MM (training or attending)
  • Mercantile Bank
  • 100% Financing Options
  • 100% Financing Options
  • Call Lender
  • 4 states (View states)
  • Learn More
  • Get Rates

States Available

IN, KY, MI, OH

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Mercantile Bank’s doctor loan program is for primary residences, for purchase or refinance:

  • 100% financing options for residents & fellows
  • 100% financing options with loan amounts up to $2MM for practicing physicians

Equal Housing Lender

Member FDIC

States Available

AL, AR, FL, GA, IA, IL, IN, KY, MO, MS, NC, SC, TN, TX

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Regions’ doctor loan program is available for primary residences, for purchase or refinance:

  • 100% Financing up to $750k (training or attending)
  • 95% financing up to $1MM (training or attending)

States Available

DE, IN, KY, MD, MI, NJ, OH, PA, VA, WV

About

S&T Bank’s doctor loan program is available for primary residences, for purchase or refinance:

  • 95% financing up to $5MM (training or attending)
  • TD Bank Logo
  • $1.5MM
  • $1.5MM
  • N/A
  • 16 states (View states)
  • Learn More

States Available

CT, DC, DE, FL, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, VT

About

TD Bank’s doctor loan program is available for primary residences, for home purchase only:

  • 100% financing up to $750k (training or attending)
  • 95% financing up to $1.25MM (training or attending)
  • 90% financing up to $1.5MM (training or attending)

States Available

AL, AR, CA, CT, DC, DE, FL, GA, MS, TN, VA

About

Truist’s doctor loan program is available for primary residences, for purchase or refinance.

For training or attending physicians with less than 10 years experience:

  • 100% financing up to $750k
  • 5% down up to $1MM
  • 10% down up to $1.5MM

**if you have been attending for more than 10 years but less than 15, Truist requires a 10% down payment

Colin Nabity

Colin is a former investment banker turned entrepreneur and the founder of LeverageRx. He has well over a decade of experience in the financial services industry and has written for Thrive Global, Chime, Breeze (another business Colin founded) and SmallBizClub.com. Colin was named Midlands Business Journal’s 2019 Entrepreneur of the Year and his work has been featured in Forbes, Council for Disability Awareness, Medical Economics, Dental Products Report, HCP Live, and more.

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