In insurance, a disability is any injury or illness that limits your ability to work. But a fractured wrist is nowhere near as serious as brain damage.
So naturally, insurance companies do not treat all disabilities the same. That’s why they fall into are two categories of coverage:
- Short-term disability insurance.
- Long-term disability insurance.
Often times, high-earners like doctors combine short and long-term policies to maximize coverage. But to do so effectively, let's first take a look at what makes them different in the first place.
The main differences between these two types of insurance are:
- How long you can receive benefits.
- How long you have to wait from the time of your disability to receive compensation.
Short-term coverage is temporary. It covers less serious injuries that may keep you from practicing, but you are likely to recover from.
Examples might include:
- A surgeon breaking an arm or hand.
- A physician needing to recover from back surgery.
- A medical pro needing time to recover from cancer treatments.
Short-term benefits typically cover 60 percent of your income. There is usually a two-week waiting period from the time a claim is made until the benefit begins. Benefits will then usually last around six months --- though some may pay for as long as two years.
Many employers offer short-term coverage to employees as a group plan. In some instances, they may even pay the full premium. A handful of states require employers provide this coverage. (Short-term disability is different from workers' compensation, which covers injuries that occur on the job.) Group plans are guaranteed issue. This means you automatically qualify for coverage without going through underwriting. Short-term policies sold on an individual basis are often guaranteed issue as well.
Meanwhile, long-term disability insurance protects people from injury or illness that keep them out of work for an extended period. The waiting period is typically 90 days. But you can buy policies with waiting periods ranging from 30 days to one-year. Long-term benefits last from five to 10 years. Some plans will pay benefits until the policyholder reaches age 65. Long-term group coverage is also guaranteed issue is most cases. But those sold on an individual basis are far more complex than short-term disability insurance.
Because long-term policies pay benefits for several years, insurers take on greater risk.
Therefore, applicants must undergo a complete underwriting process that will assess:
- Their risk of filing a claim in the future.
- How much that claim could possibly be.
That’s why long-term policies require underwriting, which evaluates the age, gender and health of the applicant. In addition, insurers will classify physicians by their medical specialty. These classes take into account:
- The hazards of the job.
- The difficulty in returning to work following a disability.
Another factor is the claim history tied to certain professions.
There are also different policy rules for and definitions of disability.
Some policies will pay out a monthly benefit if an injury prevents you from working at your normal job, but allows you to do other types of work that reduces your income.
Other policies, while charging less for premium, will not pay benefits if you are able to work in any capacity, even if your injury prevents you from working in your chosen field of medicine.
Do not skip long-term coverage in lieu of having a short-term policy. Short-term coverage will not be adequate in the event you suffer a serious injury or illness. This could leave you without any kind of income after just a few months.
At the same time, you don't want to rely solely on group long-term coverage either. Group plans generally offer less in benefits than individual policies.
Also, your access to coverage is contingent upon:
- Your employment by the company, or...
- A member of the organization sponsoring the group plan.
If that changes, you lose coverage, period.
Group plans also tend to have an annual renewal process. That means there is no guarantee the employer or insurance company will renew the coverage.
So what's the best strategy for doctors?
Buy an individual long-term physician disability policy. Then if possible, supplement it with your employer’s short-term and long-term group plans.
By combining the two you can protect your income against just about any type of injury or illness that would affect your ability to earn an income.
When it comes to insurance, doctors require far more than most. Short-term disability insurance is not enough by itself. Often times, neither is long-term coverage. That's why is so important to understand:
- The differences between short-term and long-term coverage.
- The added complexity of individual long-term coverage.
- How to combine the two to maximize coverage.
When it comes to protecting your income, this is the most surefire way take control of what's rightfully yours.
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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.