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Advanced Insights into Disability Insurance Planning for Doctors

As a physician, your most important asset is your ability to earn an income. If you were to become sick or injured, your income would end but your expenses would continue. That, in a nutshell, is why understanding disability insurance is so important for doctors. For this guest post, I’ve asked Jamie K. Fleischner, CLU, ChFC, LUTCF, president of Set for Life Insurance, a key resource, to share some more advanced insights into disability insurance with us!

What are you protecting with disability insurance?

According to aggregated data, the average physician income was $352,000 in 2023.

If you were to enter this number into this calculator, your accumulated income earned from age 35 to 65 would be over $21,500,000.

advanced disability insurance

Physicians count on this income stream to fund their retirements, pay down student loans, pay for their lifestyles and save for college.

So what would happen if you lost that income stream? How would you pay your bills, accumulate assets for retirement and/or achieve financial independence?

That is where advanced disability planning comes into play…

You, disabled? What are your chances?

Higher than you probably think. Here are the facts according to Disability Can Happen:

  • Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire.
  • Accidents are NOT usually the culprit. Back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences.
  • Physicians have closer to a 1 in 3 chance of losing an income for at least 1 year during their careers. The number is greater for surgical specialties.

Will my employer disability policy take care of my needs?

If you work for a large group or practice or a hospital, they may offer you a group policy. These are usually mandatory for all employees. As a physician, there are several considerations to consider:

  • If your employer is paying your premium, your benefits are taxable to you at the time of claim.
  • Most group policies require total disability and not working in another specialty to receive benefits. Therefore, if you are able to work in another specialty or do research or any other type of job, your benefits would cease. 
  • Group policies typically cover up to 60% of your income to a maximum benefit of $10k or $15k. The higher your income, the lower the replacement value of the group policy.
  • If you leave your employer, most group policies are not portable.

Most physicians therefore supplement their group policies to fill in the gaps.

This allows them to have more comprehensive coverage that covers them in their medical specialty and brings the total benefit closer to their pre-disability income. The individual policy is portable and can travel with them throughout their career.

Individual disability insurance

An individual disability policy is the primary insurance benefit for physicians. When a claim occurs, the individual policy will pay benefits regardless of any group benefits paid.

There are several components to understand when reviewing an individual disability insurance policy:

  1. Definition of disability. Own occupation. As a physician, it is critical that you choose a definition of disability that covers you in your medical specialty. This means if you become too sick or injured to work in your medical specialty, you can still work in another specialty or occupation and continue to receive benefits. If you are a surgical specialist, look for a policy that has an enhanced surgical specialty policy language. 
  2. Occupational class. When you purchase a policy, each company classifies your medical specialty into an occupational class to determine rates. The higher risk specialties, such as surgery, anesthesiology and emergency medicine are in a separate (typically more expensive class) than less risky specialties such as internal medicine and general pediatrics. It is important to note that the policy is based on the occupational class at the time of application, but will base the claim on your specialty/occupation at the time of claim. If you are currently in a less risky specialty but are moving on to a riskier specialty (example: internal medicine moving to interventional cardiology), you may want to consider purchasing your policy prior to making your change to lock in the more favorable rates. Occupational classes vary from company to company which is why it is important to compare rates from multiple companies.
  3. Residual/partial disability. Instead of requiring you to be totally disabled, a residual rider will allow you to receive benefits with a 15% or 20% or more loss of income. The company will look at your income on a month to month basis when on claim and will pay you that proportion of your benefit. Once your loss of income exceeds 75% or more, they will consider you to be totally disabled and will pay you full benefits.
  4. Elimination/benefit period. The elimination period is the amount of time that must elapse before you start to receive benefits. Typically this is 90 days which means you need to have at least 3 months of income in savings to cover you until your benefits start paying. Once you are on claim, it will continue to pay benefits until age 65, 67 or 70 (whichever you choose). 
  5. Increase options. It is important to ensure your policy will allow you to increase your benefit in the future without needing to answer further medical questions.Increase options vary from policy to policy. The most important component is the ability to increase in the future even if you have had an adverse change in health.
  6. COLA Cost of Living Rider. This rider will increase your benefits by 3% Compound each year you are on claim. To clarify, the COLA rider will not increase your benefit year to year if you are not on claim. Therefore it is important to increase your policy as your income increases. The COLA rider is especially important if you have a long term claim.
  7. Noncancelable/Guaranteed Renewable. This means that once you have your policy, the company cannot change your policy or increase your premium. You may cancel your policy at any time.
  8. Exclusions/Limitations. When you apply for coverage, the company will determine if you have a pre-existing condition that will be excluded from coverage. Some policies have a 2 year mental limitation which would only pay benefits up to 24 months for psychological claims. This is required for emergency physicians, anesthesiologists, CRNAs and policies purchased in California.
  9. Discounts. A lot of companies offer discounts when you purchase an individual disability policy. The discounts are sometimes steeper for medical residents. Once a policy is discounted, typically the discounts carry over to future increases as well. 

First-Year physicians

As a first-year physician out of residency, you have a couple options when it comes to disability insurance. You can take the first-year physician amount of $6,500-$7,500 a month (depending on company and specialty) regardless of your income. Or, if you already have an employment agreement signed for your first year income outside of residency, you may use that agreement as income verification to issue you a higher amount of coverage now.

Medical Residents/Fellows

But what if you are still in training?

  • Residents may purchase between $1,000/month benefit (minimum) to $5,000/month regardless of current income or group benefits. No financial verification is required.
  • Residents in their last 180 days of residency may purchase up to $7,500/month regardless of income or group benefits in force. No financial underwriting is necessary. 
  • If you are graduating and already have an employment agreement signed for your first year income outside of residency, you may submit that agreement as income verification to issue you a higher amount of coverage prior to starting your job.
  • First-year attending physicians can automatically purchase up to $7,500/month benefit (depending on specialty and company) regardless of new income and without evidence of a contract. To qualify for more benefits, income documentation is necessary.
  • Medical residents do not need to complete a blood or urine test when applying for disability insurance. 
  • To take advantage of discounted resident rates, you must purchase the benefits by September 30th after you complete your training.

A special and advanced consideration: Guaranteed Standard Issue (GSI) disability insurance for medical residents and fellows

Some hospitals offer a GSI program to their medical residents and fellows and can be purchased through selected brokers.

The Guaranteed Standard Issue Program (GSI) Disability Insurance Program offered is a valuable program that provides income protection for residents and fellows without requiring medical underwriting.

This means that individuals with pre-existing medical conditions can obtain coverage up to $7,500 of monthly benefit (graduating residents and fellows) or up to $5000/month for all other residents and fellows, without undergoing the traditional medical underwriting process. GSI policies allow you to increase up to a maximum of $15k/month benefit. There are no medical questions asked. The policy is a personally-owned individual disability insurance policy that is portable, meaning you may take it with you throughout your career.

You will have the ability to increase it up to $15,000/month in the future without any medical questions.

Additional considerations with GSI:

  • Please note that if you apply for an individual policy elsewhere and are rated or declined, the GSI offer is no longer available to you. It is critical that you apply for the GSI FIRST before applying elsewhere.
  • One of the most important aspects of the GSI program is that it provides a True Own Occupation definition of disability, which means that policyholders are considered disabled if they are unable to perform the duties of their own occupation, including their medical specialty even if they can work in another specialty or occupation. There is additional specific surgical specialty language included as well.
  • The GSI program also offers a range of optional riders, including the Future Increase Option Rider, the Residual and Recovery Benefit Option, the Enhanced Partial Benefit Rider, and the Catastrophic Benefit Rider. These riders allow policyholders to customize their coverage to meet their specific needs and circumstances.
  • If you are a graduating resident or fellow, you must submit your application prior to graduation to qualify for benefits.

If you choose to take a smaller size policy, make sure you have the ability to increase the policy as much as possible in the future without further medical underwriting. Ideally up to $15,000/month.

Disability benefit amounts for physicians

This is a common question that comes up…

Physicians may purchase up to $20,000/month benefit with any one company or may aggregate benefits up to $30,000/month if they purchase individual benefits from more than one company.

If you think your income will exceed $500,000/year or more, you may want to consider purchasing benefits from more than one company to have the ability to increase benefits to the maximum level in the future.

Wrapping up these advanced considerations for disability insurance

This was really an incredible round up of advanced considerations around disability insurance.

As I mentioned din our recent webinar with Jamie, I unfortunately still know some doctors who do not have disability insurance. And that is scary! Disability insurance is expensive, but it is also necessary for anyone who is not financially free as a physician.

If you have any questions about a new or old policy, you can reach Jamie at Set for Life Insurance!

In the meantime, here are some other great resources on advanced topics in disability and other types of insurance for doctors:

What do you think? What advanced topics do doctors need to know about disability insurance? Do you have disability insurance? What has your experience been? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

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