A Physician's Guide to Disability Insurance
Replacing a physician’s income if they become disabled without disability insurance would be nearly impossible.
That is why investing in a true own-occupation disability insurance policy, created specifically for physicians, is a financial must for protecting your future income.
However, even within a policy created with physicians in mind, there are many factors to keep in mind.
This guide will help you understand the many elements of a physician disability insurance policy and how to find the policy for you.
Why Physicians Need Disability Insurance
Aside from life insurance, disability insurance should be a top priority for any physician.
Physicians are among the top earners in the country. This is an advantage. However, the old adage, “The higher they are, the harder they fall,” comes into play.
Imagine suddenly losing the ability to earn such a high salary due to a disability. How devastating would that loss of income be? It certainly wouldn’t be easy to find a way to replace it.
Many take the risk of proceeding without disability insurance coverage, claiming that the chances of needing it are slim to none.
Instead of relying on perceived risk, let’s take a look at the facts. The fact is that 1 in 4 Americans will be disabled for more than a year before they retire, physicians included.
Imagine yourself and three other physicians in a room, and one of you will need disability insurance benefits at some point in your life. Do you feel confident it won’t be you?
How Disability Insurance Works
Before purchasing a disability income insurance plan, it’s important to understand exactly how it works.
There are several different types of disability policies available to physicians. We’ll compare these and discuss some limitations to your policy benefits.
We’ll also discuss how the cost is determined so that you can estimate how to add this to your financial plan.
Long-term vs. Short-term
Long-term disability insurance and short-term disability differ in their coverage length.
While short-term disability policies are meant to provide coverage immediately but only last for mere months, long-term disability policies take some time to kick in but last for years, even decades.
Group vs. Individual policy
An employer often provides a group policy to its employees with blanket coverage for all members. With group coverage, you have no freedom to pick and choose how much coverage you want to pay or which riders to include.
Individual disability insurance allows you to shop around for the best policy with the terms and benefit amount that best suits your needs. While group policies are cheaper, investing in an individual policy is well worth the money.
Any limitations to an insurance policy are excluded from coverage.
Exclusions for disability insurance are similar to those for health insurance. These often include pre-existing medical conditions, injuries due to self-harm, on-the-job injuries, and more. These differ depending on the policy.
Some insurance companies may require a medical exam and drug test to insure a physician.
There are many factors that can affect the premium of a disability insurance policy.
These include your age, income, chosen riders, coverage amount, the benefit period and elimination period, your medical specialty, and location.
The underwriting process is how an insurance company decides the cost of your policy. This process can take between two to six weeks to complete.
First, you need to fill out an application. Discuss with your insurance agent the specifics of what you want to be included in your policy. You will get a quote based on the policy terms you choose to include.
The agent will then hand off the application to an underwriter, and they will finalize the terms and cost of your policy.
Two Most Important Aspects of a Disability Insurance Policy
The two biggest concerns any physician should have about their disability insurance policy are its definition of disability and whether or not it is guaranteed renewable.
Own-Occupation Definition of Disability
The best disability insurance is own-occupation disability insurance, but even within this definition, there are variations.
True own-occupation policies will provide full benefits if you can no longer perform the duties of your current profession or specialty due to disability, even if you can still earn income from a different occupation.
Other types of definitions of disability include:
This version of the own-occupation policy will pay your full benefits if you can’t perform your current occupation. Still, it stipulates that you may not be employed in any other occupation or will lose your benefits.
This policy will pay your full benefits if you are gainfully employed in another field. However, to continue to receive benefits you must earn less income in your new job than you earned in your previous occupation.
This is the lowest tier of disability definition as it will only pay your full benefits if you can no longer earn an income from any occupation. This includes occupations that earn far less than your former salary.
With this type of policy, the insurance company cannot deny or change your disability coverage until you turn 65. They also cannot ask for another medical exam.
Terms of a Physician Disability Insurance Plan
While shopping for a disability insurance plan, you may encounter certain terms that you aren’t familiar with. This section will act as a glossary of terms for disability insurance.
Also referred to as the elimination period, a waiting period is a length of time between the date of your injury or diagnosis and the date you can start receiving monthly benefits.
For long-term disability insurance, this period usually lasts between 3-12 months.
This period is the length of time you continue to receive monthly benefits in the event of becoming disabled.
The policyholder chooses this time frame based on the options provided by the insurance company, usually between 5-20 years.
The benefit period can also last until retirement age — 65 to 70 yrs old.
The monetary amount the policyholder receives each month while disabled is the monthly benefit.
This amount is usually between 40-60% of gross salary divided into 12 payments.
Riders Worth Considering
Most disability insurance policies have optional riders that you can add to your policy for an additional cost.
This list includes the riders that a physician should consider adding to their policy to get the highest level of financial protection:
1. COLA Rider
COLA stands for the cost of living adjustment. With this rider, your monthly benefit will increase incrementally as the cost of living increases over time.
2. Residual Disability Rider
This rider might be known by another name, partial disability rider, in different policies. This rider will pay the policyholder partial benefits if they become partially disabled.
3. Catastrophic Disability Rider
In the event of a total disability, this rider will provide extra funds to help pay to hire the help you need for care.
These riders have certain medical requirements that must be met before these funds are awarded.
Some examples include losing your sight or hearing, losing the use of both hands, or being unable to perform daily activities on your own.
4. Future Purchase Option Rider
Also called the Future Increase Option, this rider gives you the option to purchase extra insurance as your income increases.
5. Student Loan Repayment Rider
Many medical students accumulate a large debt when securing a medical school loan. This debt often takes years to pay off, even after they begin to earn a higher salary as a physician.
If they become disabled while still owing student loans, this rider will provide extra funds to cover these payments while they are disabled.
Disability Insurance Discounts for Doctors
Physicians may be entitled to certain discounts on their insurance premiums.
Take a look at the discounts below. Ask your insurance agent if you think you might be eligible for these discounts.
If you are a woman, opting for a unisex discount can lower your premiums since policies for women usually cost much more than those for men.
If you are still a resident or fellow, you are likely entitled to a discount on your premiums.
Residents and fellows, who tend to be in their twenties or thirties, are generally in better health than older physicians, so insurance companies provide premium discounts to encourage residents to purchase coverage early in their career.
Multi-life Institution Discounts
If your insurance agent signs three or more physicians from the same institution for disability insurance, they may receive a discount even if the physicians don’t know each other.
These physicians must be from the same institution and apply through the same agent.
Belonging to an association such as AMA can sometimes earn you a discounted rate for disability insurance.
The Big Six Companies
When it comes to disability insurance companies, there are six main companies that set the bar. These are respectfully referred to as The Big Six.
Securing an insurance policy from one of these companies will increase your chances of getting the protection you deserve when you really need it.
In fact, these are the only insurance providers that offer policies that meet the two most important criteria of disability insurance; true own-occupation disability and guaranteed renewable.
Let’s highlight these companies’ strengths and identify where they may fall short. This can help you to pinpoint which of these you may want to get a quote from first.
This insurance provider has been providing top-quality insurance for over a century. They have an A+ rating with the BBB, showing that they are a reputable company.
Guardian offers short and long-term policies, group and individual coverage, and even supplemental disability insurance policies.
The Guardian Provider Choice Plan can be customized to match your needs. You can choose an elimination period between 30-720 days, your premium tier, and any additional riders.
This policy also has several built-in benefits, including waiving your premiums if you become unemployed and an automatic benefit increase for the first six years of your policy.
Guardian is known for having strict underwriting guidelines, which may make it difficult for anyone with a pre-existing condition to qualify.
The oldest insurance provider on this list, MassMutual is still among the nation’s top disability insurance providers.
The second half of its name shows that policyholders can earn dividends that can help to reduce the cost of premiums.
MassMutual offers several choices for elimination and benefit periods and has a maximum monthly coverage of $20,000. You also have several optional riders for added protection.
Known for its fast underwriting process and stellar customer service, this insurance provider is a favorite for those who value convenience.
Principal offers policies with several built-in benefits. These include a future increase rider, a serious illness benefit, and a benefit update rider.
You can choose a benefit period that lasts until you are 70 years old. This will provide plenty of protection should your disability last until retirement.
4. Ohio National
Best known for its life insurance, Ohio National also offers one of the nation’s best disability insurance policies.
You can choose an elimination period between 60-365 days, and its policies come with these additional benefits free of cost:
- Survivor benefit
- Hospice benefit
- Recurrent disability benefit
There are also plenty of additional rider options that will increase your protection while also increasing the cost of your premiums.
This insurance provider was founded in 1887. It offers everything a physician would look for in a disability insurance policy, including true own-occupation and a guarantee of renewability.
Ameritas offers many additional riders to choose from and a Good Health Benefit that will reduce the elimination period each year that you don’t collect benefits.
The main downside to this provider is that its maximum payout is $20,000 per month, which may be low for some higher-earning physicians.
6. The Standard
This provider is the best choice for more mature physicians seeking disability insurance. It also provides a very competitive suite of additional benefits. Many of these benefits aren’t offered by any other insurance company.
With that being said, this company is known for being somewhat strict on medical underwriting.
The question is not whether a physician should purchase a disability insurance policy to protect their income, but which provider will provide the best benefits to suit their needs.
LeverageRx can help guide physicians through the disability insurance shopping experience and answer any questions they may have along the way.