You did your research. You determined the benefits you need in a physician disability insurance policy. You worked with a licensed agent to explore all of your options. You endured the application and underwriting processes.
Now, you have finally received an offer from your carrier of choice. But your coverage isn’t effective yet. You still need to sign a delivery receipt. This will authorize payment and activate the policy.
Before doing so, use this opportunity to take one last look at your policy. Review all of its provisions to ensure you have the coverage you need. After all, the worst time to discover your policy isn’t what you thought is when filing a claim for benefits.
With this in mind, here are 20 questions you should be able to answer before finalizing your policy. (Trust us -- we get asked them all the time!)
Short-term disability insurance is usually provided by employers and covers individuals, on average, for about six months. You will typically be reimbursed for about 60 percent of your lost wages due to disability.
Long-term disability insurance policies are designed to protect people from illness or injury that keep them out of work for an extended period. Benefits may last from five to 10 years, and some will pay up until the insured reaches age 65.
Don’t skip long-term coverage in lieu of having just a short-term policy. Short-term coverage will not be adequate in the event you suffer a serious injury or illness and you could find yourself without any kind of income after just a few months.
It depends on the policy and how it’s structured, but disability insurance policies are designed to cover most injuries or illnesses that prevent or limit people from working. This includes severe injuries, blindness, loss of hearing, and often mental illness. As a medical professional, a disability policy may also provide benefits if you suffer from back pain, arthritis, diabetes, and other conditions that limit your ability to practice medicine.
Policies have exclusions and limitations that may not cover certain circumstances; for example, injuries resulting from criminal acts or dangerous activities like skydiving.
A critical illness policy provides a one-time cash payment to help the insured avoid major financial loss. The money provided by the policy can pay for out-of-pocket health care costs related to the critical illness or cover household expenses while the insured recovers.
Critical illness insurance typically covers a few conditions, and those are usually limited to acute illness, not chronic diseases. The primary illnesses you’re insured against include cancer, heart attack, and stroke. Some policies may also include coverage for organ transplants, kidney failure, or paralysis.
Long-term care insurance covers expenses associated with the need for assisted living or nursing home care, typically when insureds reach older ages.
It may seem redundant to own an individual policy if you already have coverage through your employer or professional association. However, you don't want to rely solely on group long-term coverage.
Group plans generally offer less in benefits than individual policies. Also, your ability to have coverage is contingent on being employed by the company or a member of the organization sponsoring the group plan. If that changes, you lose your coverage. There is also usually an annual renewal process for group plans and there is no guarantee that the employer, organization, or even the insurance company will renew the group coverage.
Most disability insurance policies pay about 60 percent of your pre-disability income, which usually includes your salary, bonuses, and revenue from your existing practice.
While that may not sound like a lot, keep in mind that in most cases disability insurance benefits are tax-free, so the amount you receive in benefits should be nearly equal to what your after-tax take-home pay was prior to becoming unable to work.
With a cost-of-living adjustment (COLA) rider, you can ensure your benefits increase each year based on the rate of inflation or another external measure.
Premium rates are based largely on how much risk an insured person poses to the insurer, which is obligated to pay on contractual disability claims. One of the major risk factors that determine the pricing and benefits of policies is an insured’s occupation. Insurers group jobs into specific occupational risk classes.
In general, specialties in the highest-risk occupational classes are those that regularly engage in high-risk practices, have strenuous manual duties, and/or perform interventional procedures. Examples include anesthesiologists, registered nurses, and podiatrists, surgeons, emergency room physicians, and obstetricians.
The lowest-risk medical specialties are those that do not typically perform surgery or interventional procedures. Examples include general practitioners, internists, and family practice physicians, as well as most dental specialties.
If you have an individual disability policy that is non-cancelable, then it can’t be changed or canceled for any reason. It does not matter if you change employers because an individual policy is not contingent on your employment with a specific employer. However, you must continue paying the premiums if you want to continue having coverage, although some policies may include an employment waiver of premium that will cover your premiums in the event you are temporarily unemployed.
If you’re a partial or full owner of a medical practice, you need both a physician disability policy and a business overhead expense (BOE) policy or rider.
Whereas regular disability insurance covers individual income, a BOE policy will help cover your monthly business expenses if an injury or illness impacts your ability to work. BOE policies vary but you can typically get one that pays a maximum monthly benefit between $15,000 and $25,000.
Premiums for individual disability insurance are generally not tax-deductible. But that also means the benefits you claim from the policy will be tax-free income. This is true whether you’re buying a group plan through an association or your own individual policy.
On the other hand, if your employer pays the premiums without including the cost in your gross income, then the policy’s benefits will be taxable income to you.
Also, premiums for BOE coverage are tax-deductible. That’s because the IRS considers it a business expense.
Group plans typically do not require underwriting and are guaranteed issue to anybody who is part of the group sponsoring the plan (i.e., the employer or professional association). There are some individual policies available that do not require underwriting, but they will offer less in benefits and features and should only be considered by physicians who may not qualify for a standard individual policy because of a pre-existing condition or another factor.
After your policy has been issued, you have one final chance to review it. In fact, you can even change your decision altogether.
This is your free-look period. By law, insurance companies must offer a free-look period once your policy has been issued. It allows you to cancel the policy within a given period (albeit with a penalty). Each state mandates its own free-look period, typically 10 business days. Some states mandate 20-day periods or more. Some insurance companies have their own period lengths.
A future increase option is critical if you are buying disability insurance when you are:
- A resident.
- A fellow.
- New to practice.
It will allow you to increase your coverage in the future without additional underwriting.
For those new to practice, benefits will cap according to your income at the time of purchase. However, your income will increase substantially over time. And when it does, you will want your disability insurance benefits to increase as well.
Many companies specializing in physician disability insurance will allow you to apply for a monthly benefits increase on each policy anniversary through a certain age. Others will allow you to do this every three years. Some provisions may enable you to increase benefits if your income increases by a certain percentage.
Be sure to confirm your policy has a future increase option. Understand how much and how often you can increase your benefits.
Some policies provide an optional Cost of Living Adjustment (COLA) rider. This means the policy’s benefits will increase annually based on inflation. The increase will depend on a third-party inflation index or a fixed percentage set by the insurer.
The younger you are, the greater your need is for a COLA rider. Without it, your benefit amount will remain the same for the length of your benefit period. If inflation averages 3 percent a year, that means your level benefit amount will have a third less purchasing power in 15 years. With it, your benefit amount will keep pace with inflation for as long as your receive payments.
To be clear, your policy will not cover every possible case of disability. When you apply for a physician disability insurance policy, you may receive an offer with specific limitations or exclusions. Insurance carriers add these to mitigate risk. This will protect them from paying a claim from injury or illness due to high-risk conditions or activities.
Many exclusions apply to all applicants. For example, insurers typically do not pay claims for injury or illness resulting from:
- Self-inflicted acts.
- Criminal activities.
- Acts of war.
- Civil disobedience or rebellion.
- Operating a motor vehicle under the influence.
Some insurers also exclude mental and nervous disabilities, such as:
- Post-traumatic stress disorder.
- Substance abuse.
Some may cover these conditions the same as they would for accidents and illnesses. Others may limit them to a period of time, typically 24 months maximum.
If mental health is a concern, make sure you know the context in which your policy will pay benefits.
Another common exclusion or limitation is travel. While some carriers allow you to live outside the US and still collect full benefits, others may limit payments to those working outside the country.
You may also have additional exclusions that are specific to your underwriting, such as your:
- Current health
- Medical speciality
- Certain activities you perform
For example, if you have had a herniated disc, your policy may exclude disability claims resulting from spinal injuries.
The same goes for conditions like asthma. If you’re an avid rock climber, the insurer may stipulate that it will not pay you benefits if you become disabled while rock climbing.
In some cases, an underwriter may consider your conditions risky enough to limit coverage. For example, the insurer may limit your benefits period to 10 years due to a pre-existing health condition, even if you applied for benefits to age 65. Some policies may limit your ability to purchase more coverage without additional underwriting.
Disability insurance is designed to replace your income in the event you can no longer work. However, certain injuries and illnesses are life-threatening.
Some insurers offer a catastrophic disability rider. It provides additional funds to your base benefit if a disability leaves you unable to perform at least two activities of normal living such as bathing, dressing, and eating.
The additional funds from this benefit can help you pay for caregivers and other means of support.
If you don't have this benefit, it's not a dealbreaker. But it's good to know if you have this coverage in case the day comes when you need it.
In your policy proposal, you will receive an illustration with:
- The amount of monthly premium you will pay.
- The base monthly benefit in the event you file a claim.
However, this is only an estimate based on your agent’s knowledge of your situation when you applied.
The final policy offer may have different premium amounts based on your full underwriting. Verify the amount and make sure you’re comfortable with those payments before signing the delivery receipt.
This is the most important question to consider. Although you should have already discussed this in detail with your agent, it doesn’t hurt to review it again.
Above all, make sure you have a true own-occupation provision. It's crucial that you understand how this applies to your policy.
A disability insurance policy with a true own-occupation provision will pay benefits if an injury prevents you from working at your normal job, but allows you to do other types of work. For those with certain medical specialties, it will protect you in the event you can’t perform the responsibilities of your chosen specialty, but can work in other medical capacities.
The more you specialize, the greater your need becomes for a true own-occupation provision.
Imagine you are an orthopedic surgeon who develops severe arthritis and can no longer work in your field. But you can still teach or work in another lower-paying specialty. A true own-occupation policy will pay you disability benefits because you can no longer perform the duties of your chosen specialty. Otherwise, your ability to work elsewhere may prevent you from collecting any benefits at all.
Dermatology is another prime example. While all dermatologists should have an own-occupation policy, it’s even more critical for Mohs surgeons. This specialty earns at least $100,000 more than traditional dermatologists on an annual basis. (According to Medscape, traditional dermatologists earn $386,000 per year on average.) Due to the precise nature of Mohs surgery, a number of ailments can limit your ability to perform this procedure, yet still allow you to provide dermatological consultation and other treatments. Without an own-occupation provision that recognizes you as a Mohs surgeon, you may not qualify for disability benefits if you lose the ability to perform surgical procedures.
Disabilities are rarely black and white. Injury or illness may impact your health in a way that allows you to still work in your specialty, but limits:
- How many tasks you can perform.
- How many hours you can work.
If that's the case, a residual disability rider will supplement the income of a partially disabled person who is still able to work.
Typically, residual benefits are equal to the 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. (In other words, it's the difference between what you earn before and after disability.)
All disability insurance policies include a maximum benefit period. This is the amount of time your policy will pay benefits if an injury or illness impacts your income.
Many policies will pay for a set timeframe, such as two years, five years, or 10 years. After this timeframe expires, your policy will no longer pay benefits. This holds true even if a disability prevents the insured from working after that period.
Other policies will pay benefits to a certain age, such as 65. This allows you to collect benefits until you reach that age, whether you become disabled at age 35, 45, or 55. These policies are also a great fit for physicians.
These are the questions about disability insurance we hear all the time. You do not need to answer all of these off the top of your head. But you should treat this as your final checklist. That way, you can sign off on your policy with confidence and get back to doing what you love.
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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.