The Ultimate Guide to Disability Insurance for Physicians

Everything that doctors should know before purchasing disability insurance

Introduction to Disability Insurance for Physicians

As a physician or dentist, it is critical that you insure the possibility of becoming disabled with disability insurance. According to the AMA’s Annual Physician Financial Preparedness Survey, approximately 70% of physicians purchase an individual disability insurance plan, but the products available and process to do so can be complex and full of misinformation. For that reason, we have put together the Ultimate Guide to Disability Insurance for Physicians and Dentists. Throughout this guide, we will provide tips and advice for selecting the best disability insurance policy based on your unique needs and provide recommendations on ways to save money when buying.

When is the best time to purchase disability insurance for physicians?

Every single insurance agent will tell you the best time to purchase disability insurance is NOW. And while most insurance agents will tell you that to get your business, there is truth in that statement. Insurance companies evaluate and price premiums based on multiple factors including your age and overall health. The older you are, the more risk the insurance company takes on to cover you in the event you become disabled and they have to pay monthly benefits. Therefore, all else equal, your premiums you pay over the life of the policy will be less expensive if you purchase a policy at 30 than they will at age 35, 40, 45 etc.

How much coverage do I need?

For doctors in residency or fellowship, benefits are capped between $5,000 and $6,500 regardless of your specialty and current annual income during training. When you complete your residency or fellowship, your monthly benefit from your disability insurance policy can be increased based on your new, higher income. Doctors should determine what their monthly living expenses are and what amount of income would need to be replaced in the event he or she becomes disabled and is unable to perform the duties of his or her medical specialty. However, you typically can only obtain coverage to replace up to 60% of your annual income.

What happens if I become disabled?

Hopefully this never happens, but in the event you become disabled the disability insurance company will pay the agreed upon monthly benefit, but this is not always a smooth process. Expect some headaches when dealing with the insurance company. They are going to want documentation from your physician and will not always make it an easy process. If you own an individual policy, the monthly benefit you receive will be tax free.
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How Much Does Disability Insurance Cost?

Disability insurance policies can vary greatly based on a number of factors including gender, age, medical specialty, the state where you are located, personal health history and the type of policy and riders you decide to purchase. Typically, you should expect to spend 1-2% of your annual income on a disability insurance policy.

Age

The cost of disability insurance increases with age. So the younger you are when you purchase disability insurance, the less expensive your rates will be

Gender

Males are generally lower risk and less likely to suffer a disability than females. Because of this fact, premiums for males can be significantly cheaper than females (females – look for unisex rates when available)

Medical Specialty

Rates can significantly vary based on specialty and different medical specialties are separated into different occupational classes based on the insurance company’s perceived risk of that specific specialty

State of Residence

The cost of disability insurance can change based on where you are located. For example, if you are a resident of California you can expect that your premiums will be higher than a doctor living in Nebraska. This is based on claims history in each state

Personal Health History

Prior health issues and medication can have a significant impact on the price you pay for disability insurance, and sometimes you can be flat out denied by insurance companies based on your medical history. Companies will also look at prior injuries or operations in your medical history and will carve out “exclusions” for these areas, which means that any future disability arising from existing medical conditions won’t be covered

Policy Type

The cost of disability insurance can vary by company, policy type and riders that are included on the policy. Guardian is typically the most expensive company and additional riders to your policy can significantly increase the cost

Definitions of Disability – Why is it so Important?

Great question. Long term disability insurance policies are legally binding agreements between you and the insurance company. The core of this agreement is what legally determines whether you are classified as disabled and become eligible to receive your benefits, referred to as the "Definition of Disability". It’s critical to choose a policy with an own-occupation definition of disability, which will consider you disabled in the event that you cannot perform your specialty-specific medical duties. This is the opposite of "any occupation", which means that you will only be disabled in the event that you cannot work in another occupation (medical or non-medical).

Let’s look at an example. If you are an orthopedic surgeon and develop severe arthritis to the point where you cannot perform surgery, you would be considered fully disabled under an own-occupation disability insurance policy. This is because you would be unable to perform the material and substantial duties of an orthopedic surgeon, or your "own-occupation". Under an "any-occupation" policy, the insurance company could argue that you are still able to be employed in other medical specialties, or even employment opportunities outside of medicine. Under an "any occupation" policy, you would not receive full benefits, if any.

What Criteria Should I use to Evaluate Disability Insurance Policies?

The definition of disability is the most critical component of any disability insurance policy and will determine what makes you eligible for benefits in the event you become disabled. However, there are other factors that you need to be aware of when evaluating and customizing a policy. We’ve laid out other components commonly found in disability insurance for physicians below.

Elimination Period

The elimination period is the amount of time between when your disability happens and when the insurance company will start paying you monthly benefits. You’ll see options that are 30, 60, 90, 120 and 365 days, and the longer the elimination period, the lower the cost of the policy. Most disability insurance agents will recommend a 60 or 90 day elimination period

Benefit Period

The benefit period is the length of time the monthly benefit will be paid in the event of a disabling illness or injury. Benefit periods can be as little as two years and as long as to Age 67. As you may expect, the shorter the benefit period, the less expensive the policy. Most policies are issued to Age 65 or 67

Future Increase Option

The Future Increase Option allows the policy holder the option to increase the policy in the future given a change in income without additional underwriting and regardless of any change in health. For residents and fellows, this is a critical component as you’ll most likely want to increase your coverage when your income increases after training

Cost of Living Adjustment (COLA)

COLA is another rider commonly added to policies that protects the policy holder from future inflation. This rider will automatically increase the monthly benefit after one year of receiving disability benefits to keep pace with inflation and is either tied to an inflation index or fixed percentage increase

Residual Disability

The Residual Disability Option covers the event that you become disabled but are still able to work in a limited capacity. Typically in these situations, you may be able to work part time but still lose income because of an injury or illness that restricts you from working full-time. A residual disability benefit rider helps cover partial lost income and typically is triggered when that loss exceeds 15-20%. If you don’t have a residual disability benefit rider with your policy, you will only receive benefits if you are considered totally disabled

Catastrophic Disability Rider

The Catastrophic Disability Rider provides additional funds on top of your base monthly benefit if you are unable to perform at least two activities of normal daily living (bathing, dressing, eating, etc.). This helps protect from additional expenses for caregivers and other care support in the event you cannot take care of yourself after suffering an injury or illness

What is the difference between an individual policy and a policy through my employer or association?

Individual policies differ greatly from group disability insurance plans. We’ve laid out some of the major differences between these disability insurance plans below.

INDIVIDUAL DISABILITY INSURANCE PLANS

These policies are individually owned policies and continue to stay in place in the event you switch employers. Benefits paid in the event of disability are typically not taxable and cannot be reduced by other forms of income (i.e. investments, social security, etc.). Individual policies are typically characterized as follows:

  • Policy Form

    The disability insurance policy is individually-owned by the doctor
  • Policy Renewal

    The disability insurance policy is typically non-cancellable and guaranteed renewable (meaning the insurance company cannot cancel your policy unless you fail to pay premiums)
  • Premiums

    The premiums you pay are locked in at the beginning of your policy and cannot be changed by the insurance company
  • Portability

    Individual policies are portable, meaning that if you switch employers, your disability insurance policy stays in place

GROUP DISABILITY INSURANCE PLANS

Group or association policies, like the AMA Disability Insurance plan, cover multiple employees or members under one master contract and rates are based on the current age of employees under the plan. For group plans, the benefits paid are typically taxable as pre-tax money is used to cover the cost of the plan. Group policies typically have the following characteristics.

  • Policy Form

    The disability insurance plan covers multiple employees under one master policy
  • Policy Renewal

    The disability insurance plan has an annual renewal process, but coverage is not guaranteed to be renewed by the insurance company
  • Premiums

    The premiums paid can change each year based on the age of the employees participating in the group plan
  • Portability

    Group policies are not portable, meaning that if you switch employers, you don’t get to keep your disability insurance policy

What is the process for getting disability insurance?

If you determine a need for an individual disability insurance policy, you should expect the entire process to take anywhere from 6 to 10 weeks. Here’s a short step-by-step overview of what to expect.
  1. Compare Quotes from Multiple Companies. You will want to obtain multiple quotes from different carriers. This will help you obtain the most comprehensive coverage at the lowest cost. There are several well-known carriers that offer physician disability insurance. You can compare carriers by getting disability insurance quotes from any number of websites. If you don’t have the time to do your own research, you should enlist the help of a licensed insurance agent, preferably one that represents more than one insurer. Working with an agent will also help when it comes to explaining some of the finer points of the contract.
  2. Submit a Formal Application. Once you’ve decided on a policy, you can then begin the application process, which, on average, takes four to eight weeks. The first step is completing the application form. You or your agent will submit the form along with supporting documentation, including proof of employment and income. You will also have authorize release of medical records, and in some cases driving records and a credit report.
  3. Complete Medical Underwriting. Once the application has been submitted, the insurer will schedule a paramedical exam. This will consist of an interview to gather a medical history, as well as collection of blood and urine and recording of height, weight, blood pressure and pulse. The results of the exam plus your medical records will be sent to the insurance company’s underwriter, who will then assess your risk of filing a claim for disability coverage.
  4. Final Acceptance of the Policy. Based on your risk assessment, you will receive an offer of coverage with a premium amount or a denial if the insurance company thinks you are too high of a risk. Sometimes the insurance company will offer modified coverage with certain exclusions if you have a prior medical event or health history that may make you a higher risk of becoming disabled. If you accept the offer, the insurance company will issue your policy and coverage will take effect.
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Where Should I Purchase a Physician Disability Insurance Policy?

There are many agents that sell disability insurance for physicians. To find the best disability insurance for physicians, look for an agent that is contracted with multiple disability insurance companies (i.e. an “independent agent”) instead of someone that is a representative of a single company (i.e. a “captive agent”). You are going to want to evaluate multiple quotes, or offers, which can vary greatly from insurance company to insurance company and disability insurance agent to disability insurance agent. Many insurance agents who focus exclusively on providing disability insurance for physicians can provide discounts based on where your are employed, which can help you save thousands of dollars over the course of your career.
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