The case for physician disability insurance begins with a sobering reality: Between 25-30% of American workers will suffer a disabling event at some point in their careers that prevents them from earning an income. As a highly-trained, highly-compensated medical professional, ask yourself:
- What would you do if you couldn't work?
- How would you pay your bills if you lost your income?
- What would become of your medical practice if you were unable to treat patients?
- How would the loss of income affect your lifestyle and ability to provide for your family?
Depending on how you answer these questions, you may want to purchase disability insurance to protect your income.
The following factors will determine how much your disability insurance costs each month:
- Age (gets more expensive as you age)
- Gender (women pay more)
- Your Health
- Medical Specialty (i.e., surgeons are at higher risk than family doctors)
- Financial Underwriting (how much you earn)
- Location (not all states are treated equally)
- Benefit Length (the longer you want to receive payments, the more you pay each month)
- Elimination Period (the longer you can wait to receive benefits, the cheaper your payments)
Below are three examples of what a physician might pay for coverage, assuming all three would pay benefits until they turned 65.
$5k Monthly Benefit
A 35-year-old male non-smoker receives a maximum monthly benefit of $5,000. The annual premium is just over $2,500, which mean he pays $208/month. It includes an own-occupation definition of disability. The policy also has a residual benefit rider and a 3 percent annual cost of living adjustment using simple interest.
$10k Monthly Benefit
A 27-year-old male non-smoker receives a maximum monthly benefit of $10,000. The annual premium is $3,350, meaning he pays $279/month. The own-occupation provision is available as a rider. This policy also included a residual disability rider and a 3-percent simple interest cost-of-living adjustment.
$17k Monthly Benefit
A 40-year-old male non-smoker receives a maximum $17,000 monthly benefit. The annual premium is about $5,800, for monthly payments of $483/month. It includes an own-occupation provision and a residual disability benefit. The policy also has a recovery benefit, automatic increases, and unlimited coverage for mental disorders or substance abuse.
Unfortunately just by being hurt or sick doesn’t qualify you for disability benefits. Some insurers consider you disabled if you can't perform your specific role, but others won't pay a dime if you can work anywhere in the field of medicine.
Here are three things to look for when purchasing disability insurance:
This is the strictest definition in a disability policy. An any-occupation policy comes with the lowest premiums and will provide the least amount of coverage. Any-occupation policies are designed for serious disabilities.
For example, if you become seriously injured and can no longer perform medicine, but you can work as a consultant for a hospital -- an any-occupation would not consider you disabled.
The opposite of an any-occupation policy is called an own-occupation policy. This policy protects your ability to work in your given profession. You will be covered if a disability prevents or limits you from working the job you had before your event. Even if you’re able to work in another capacity (as a consultant, teacher, etc.), you are still eligible for benefits.
A transitional own-occupation limits your benefits based on the difference between your total disability benefit amount and post-disability income.
For example, let's say your benefit for disability is $10,000/ month. You suffer an injury that prevents you from doing your old job. But, you find a new job that pays $5,000 a month. Under a transitional own-occupation, your benefits will be reduced to $5,000 per month.
Now that you have a pretty good idea of what physician disability insurance is and why you need it, let's figure out if a short term or long term policy is right for you.
The difference between short-term and long-term disability insurance are: 1) The kinds of injuries covered; 2) The duration benefits will be received; 3) When you receive compensation.
Here is an overview of the key differences between short-term and long-term disability insurance:
|Short-term disability insurance||Long-term disability insurance|
|What it typically covers||Temporary, non-threatening injuries and illnesses that you generally recover from||Serious injuries and illnesses that limit or prevent your ability to work for several months or years, or even permanently|
|How long after disability do benefits typically start||14 days||As little as 30 days or as much as two years, depending on the elimination period selected by the policyholder|
|How long do benefits last||Typically six months, though it may be up to two years||5 to 10 years; in some cases to age 65|
|How is insurance provided||Typically six months, though it may be up to two years||Often through a group plan but an individual policy is recommended in most cases|
Short-term disability is for less serious injuries, like a surgeon who breaks his or her arm. Short-term disability is usually sold as a group plan through an employer or organization.
Long-term disability insurance, however, is designed for medical professionals who unexpectedly become disabled. It is more expensive than short-term, but offers far greater protection.
Doctors need true own-occupation disability insurance. We make it incredibly simple.Get My Rates
One more thing to consider before purchasing physician disability insurance is the optional features that can be added on to your policy.
Insurance policy riders are optional features that can be added to enhance your coverage. Here are the different riders you may want to consider:
Residual Disability Rider
Residual disability benefits protect you against partial income loss, and is defined in one of two ways:
- Ability to perform one or more, but not all, of your duties
- Unable to perform your duties for a set percentage of the time
A residual disability rider will supplement your income even if you are still working and not considered totally disabled.
Future Increase Rider
Your income will increase over time so a future increase rider allows you to increase your coverage at designated future dates. And, you can do so without going through underwriting again.
A future increase rider is critical for residents and fellows because your benefits will be capped based on your income at the time of purchase. Once you're out of residency, you will need to increase your coverage.
Cost-of-Living Adjustment (COLA)
A cost-of-living adjustment rider will increase your benefit amount each year you are disabled.
Your expenses, i.e., your cost of living, increases each year with inflation. Let's say inflation averages 3% a year. A level benefit amount will have a third less purchasing power in 15 years. With a COLA rider, your benefits will keep pace with inflation.
Catastrophic Disability Rider
Most insurers offer a catastrophic disability rider. The rider can help pay for the care needed due to a catastrophic injury such as a loss of hearing, inability to eat or a severe cognitive impairment. The risk of a catastrophic disability is low which means adding the benefit is cheap.
Student Loan Rider
A few carriers offer a student loan rider that will cover some or all of your student loan payments during the period of disability. It’s an inexpensive option to add.
How Long do I want to Receive Benefits?
The longer you want to receive payments, the more you will pay in premium. Choosing the optimal length is tricky. On one hand, most disabilities are temporary and you will return to work. That said, if you become permanently disabled at age 40 and you have a standard 10-year benefit period, you will stop receiving payments at age 50. The best way to determine your need is to look at your budget. Balance that with how long you plan to work in your specialty.
What Elimination Period Should I get?
The elimination period is the amount of time you have to wait to receive benefits after you file the claim. The longer the elimination period in your policy, the less you will pay in premium. For most disability insurance policies, 30-day elimination periods are more expensive than 60-day periods.
Can I get Physician Disability Insurance if I have Pre-existing Medical Conditions?
In most cases, you can qualify for disability insurance even if you have pre-existing medical conditions. That said, the policy may have exclusions and limitations based on your condition and you may have to pay a higher premium. Even if one carrier won’t cover you, others will. It’s a competitive market. Some insurers cater to individuals that other insurers have turned down.
Should I get Physician Disability Insurance in Residency?
Even though it may be more difficult to afford, there are several reasons to consider buying disability insurance as a resident:
- It will protect your future income potential
- You probably have student loans
- It will never be more affordable
- You can always buy more coverage later
Do Disability Benefits Affect my Taxes?
The effect disability insurance payments have on your taxes depends on the type of policy, how premiums are paid and who pays them.
Premiums for individual disability insurance are not tax-deductible. The policy benefits will be tax-free income if you pay the premium. This is true whether you’re buying a group plan or your own individual policy. If your employer pays the premiums without including the cost in your gross income, the policy’s benefits will be taxable income.
Should I Get Level or Graded Premium?
A level premium means you pay the same amount for the life of the policy. A graded premium starts with a lower premium payment that gradually increases over time.
A level premium is advantageous if you can afford the amount due at policy issue. It will be easier to budget for something that never rises in cost. A graded premium might be better if you’re a student, resident, or beginning your practice. This will enable you to have more affordable coverage while your income is lower.
What is the Difference between Critical Care Insurance and Disability Insurance?
Critical care insurance benefits are limited to acute illnesses, such as cancer, a heart attack, or stroke. Disability insurance covers injuries and illnesses that prevent you from working.
In addition, critical care insurance covers the expenses of an illness, such as treatment and doctor visits. Disability insurance replaces the income you lose due to a illness or injury.
Will my Life Insurance Cover a Disability?
Many physician life insurance policies offer disability riders to make them more attractive, but these riders do not provide the coverage of an individual disability insurance policy. This is especially true for physicians with high incomes to replace.