Psychiatrist Disability Insurance: Protect Your Mental Health Practice
We cannot stress enough how important it is for psychiatrists — and all other physicians for that matter — to have disability insurance. It doesn’t matter what type of psychiatry you specialize in.
Why is having an individual disability insurance policy so important?
Because without one, you could find yourself suffering a physically disabling condition and struggling with your own mental health due to a lack of income. For yourself and the family members that rely on you, getting disability insurance should be at the top of your to-do list.
In this guide, we’ll detail why every psychiatrist needs a disability insurance policy. We’ll also cover how much it costs, where to get it, and other ways to protect yourself and your mental health practice if you become too ill or injured to work.
Do All Psychiatrists Need Disability Insurance?
Disability insurance is income protection insurance, and it is the best way to continue earning future income if you become too sick or injured to work.
When a medical condition prevents you from working, disability insurance benefits replace a portion of your lost salary so that you have a steady cash flow throughout your illness and recovery period. Because disability insurance benefits are income replacement, there is no limit on how you can spend them.
You can use your benefits in any way that you choose, including:
- Making mortgage or rent payments on your home or office
- Paying credit card bills and utilities
- Covering your children’s educational expenses
- Contributing to a retirement savings account
An injury or illness can occur at any time. The younger you are, the more income you have to lose.
The average psychiatrist’s salary in 2022 was $287,000. A 35-year-old mental health professional with 30 more years to work before retiring stands to earn over eight million dollars throughout their career. An injury or illness could make that amount impossible if you don’t have disability insurance to protect yourself.
All psychiatrists need to purchase disability insurance early in their career. Insurance providers also offer policies to residents, so you don’t have to wait until you finish your training.
Psychiatrists Cannot Rely on Social Security Disability Insurance
While many Americans think they’ll be able to collect Social Security disability benefits if they become too ill or injured to work, this is not good enough for physicians.
The federal government caps the monthly benefit amount you can receive, and it’s far less than most psychiatrists need to maintain their current lifestyle.
In 2023, the maximum SSDI benefit per month was just $3,627. It’s also important to know that qualifying for SSDI benefits is extremely difficult.
Most disability insurance companies allow you to buy coverage up to approximately 60% of your current salary. With an individual policy at 60% salary protection, a psychiatrist could continue to earn more than $14,000 per month, nearly $10,000 more than they would ever be able to collect through the Social Security Administration.
What Type of Disability Insurance Do Psychiatrists Need?
There are two different types of disability insurance:
- Long-term disability insurance
- Short-term disability insurance
Short-term policies pay monthly benefits for approximately one year, though some insurance companies provide disability coverage for up to two.
Mental health providers that own their own practice have the option to purchase an individual short-term policy, but it’s better to buy a long-term one instead.
Long-term policies have extended benefit periods ranging from two years all the way up to retirement. Depending on your age at the time of the diagnosis or injury and the severity of your condition, you could collect benefits for decades.
Individual long-term policies are also entirely customizable, so you can create a policy tailored to your specific needs.
Between age 20 and retirement, approximately 25% of Americans will suffer a disabling medical condition that prevents them from working for at least a year.
How is the Cost of Disability Insurance Calculated?
Most psychiatrists spend only a tiny percentage of their salary on disability insurance premiums, but various factors affect the cost.
Insurance companies typically offer coverage up to 60% of your current salary. With an individual policy that you pay for out of your own pocket, the benefits you receive are considered non-taxable income. So even with 60% coverage of your salary, your monthly benefits could be just about the same amount as your current take-home pay.
Definition of Disability
Every policy has a definition of disability, which is the standard you need to meet in order to qualify for benefits.
When you file a disability claim, you must provide the insurance company with medical records to prove your disability. Yet, regardless of how compelling your medical evidence may be, you’ll still need to meet the definition in order to collect benefits.
There are two main definitions of disability:
Qualifying for benefits with an any-occupation policy is quite tricky. With this definition, you’ll need to be so severely ill or injured that you cannot work in any job at all.
You have a much better chance of the insurer approving your claim if you have an own-occupation policy.
With the own-occupation definition, any physical or mental illness that prevents you from doing your current job can allow you to receive benefits. (Depending on the terms of your policy, disabilities that arise from pre-existing conditions may be excluded.)
Selecting the own-occupation definition will increase the cost of your premiums, but it’s worth every penny. Without it, you’re not fully protecting yourself or your income.
Also called the waiting period, the elimination period is the time between the date of your injury or diagnosis and the date that you can start collecting benefits.
Elimination periods range from as little as 30 days to as many as 720 days.
The shorter the elimination period, the higher your premium will be. Suppose you have a substantial amount of savings or a secondary form of income, such as your spouse’s salary. In that case, you may decide to reduce your premium by opting for a longer elimination period.
The benefit period refers to the number of months you can receive benefits. They can be as little as two years or all the way up to retirement age.
Choosing a longer benefit period costs more, but since you never know how long a disabling condition will last, it’s best to protect yourself with a policy that will pay until age 65.
Pricing varies based on where you live, but it’s not necessarily tied to the cost of living in your state. States that have a higher percentage of disability insurance claims charge more than states that have a smaller amount.
For example, New York is one of the most expensive states to live in. Yet physicians in Texas, where the cost of living is far less, pay more for disability insurance because they have a higher percentage of claims.
If you’re considering moving to another state, compare the location rates for both first. You can only purchase a policy in the state you currently reside in, but your rates will remain the same even if you move.
Women pay more. Like location, this is because women file claims at a higher rate than men. While women suffer all sorts of disabling conditions, complications with pregnancy are one of the top reasons female physicians need to file.
Monthly premiums cost more for physicians in higher-risk specialties. High-risk specialties are those that require strenuous manual duties or involve performing invasive procedures, such as surgeons, anesthesiologists, and OBGYNs.
In comparison, rates for psychiatrists tend to be lower, since they have less of a physical demand on them.
Riders are optional add-ons you can buy to enhance your policy terms and benefits. Each one you select will add to the cost of your premium.
There are many to choose from, but there are a few must-haves:
- Own-Occupation Definition of Disability
- COLA (cost of living adjustment)
- Future Purchase Option
- Residual Disability Rider
- Automatic Increase Benefit
Read The Complete Guide to Physician Disability Riders to learn more.
Age and Health
The younger and healthier you are, the less you’ll pay.
Though younger physicians may have pre-existing physical or mental health conditions, insurance companies generally perceive older physicians as being at a higher risk for a disabling condition.
Where to Get Disability Insurance
Dozens of companies offer individual, customizable, long-term disability insurance. But only five traditional insurers have the critical own-occupation definition of disability.
If you haven’t yet protected yourself with disability coverage or now realize that you need to purchase a better policy with greater protection, do so with one of the following providers:
Protect Your Mental Health Practice with Business Overhead Expense Insurance
Disability insurance protects your income, which is excellent for you and your family. But for mental health professionals with their own practice, there are measures you can take to protect your business as well.
Practice owners should consider purchasing business overhead expense insurance, or BOE.
BOE provides benefits to keep your practice running. You can collect benefits from a BOE policy while receiving disability benefits for yourself, so you don’t have to use any of your personal benefits to cover practice costs.
Unlike disability benefits, which you can spend however you wish, a BOE can only be used for practice expenses.
You can use BOE benefits to pay:
- Rent on your office
- Staff salaries while you’re unable to work
- Business loan payments
- Utility bills
Your entire practice could be in jeopardy if you’re unable to perform your duties, but BOE insurance can help prevent you from having to close the doors permanently.
Because you can also use BOE benefits to hire a locum tenens physician to take your place when you can’t be there. That way, you can focus on your recovery, knowing that your practice is still running as it should.
Every psychiatrist should have an individual long-term disability insurance policy to protect their future income.
With it comes peace of mind knowing that even if a medical condition makes working impossible, you can still earn income, provide for yourself and your family, and plan for your future.