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Disability Insurance for Doctors: A Tale of Two Policies

If you are one of the majority of doctors who are not financially independent, you need disability insurance. That means, if you need to work to make money to live your life, you need disability insurance. Bottom line. It’s that simple.

(If someone else depends on your income, you need life insurance too…but that’s another post.)

Despite that, I always run across some doctors who want to “go bare” or not purchase disability insurance. This is pretty much always due to one or two issues:

  • Disability insurance for doctors is expensive
  • Doctors don’t understand how disability insurance works and therefore avoid it altogether

Both of these issues can be solved by a worthwhile disability insurance agent. Disability insurance will always be expensive. But it’s necessary. But a good agent can work to make sure you get a fair price.

A good agent will also help you to understand everything necessary to get you the best policy to accomplish your goals. Everyone will be a little bit different. You want to make sure your policy fits what you need it to do.

This is why I’ve asked Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF (better known as Larry) to write a guest post outlining the important things that physicians need to be aware of when it comes to disability insurance.

Larry is one of the “good guys” in the field and has been committed to physician financial education for a long time! I will also note that Larry is a sponsor and supporter of this blog.

This is one of the most thorough reviews that I have ever read, so please enjoy!

disability insurance for doctors

Disability Insurance for Doctors

You must have a great desire to become a physician. You sacrifice your time and energy to care for your patients, even to great detriment to yourself and your family.

At the same time, you have also invested substantial amounts of money in your education and the practice of medicine. This is in hope of career advancement, fulfillment, monetary reward, and job satisfaction.

In fact, you have spent more time preparing to earn income. As a result, you have less time to accumulate wealth. You might love what you do, but you are likely working because you need to generate an income. You need to protect that income. And one of the most effective ways to do that is to purchase disability insurance. 

The time and money spent on medical training is an investment. And the return on that investment is your future income from your practicing medicine. So, what happens if an accident or illness compromises that ability?  Where would the money come from and how long could you meet your financial obligations without a paycheck? Having a proper disability income insurance policy is necessary. You need to make sure you have enough money if you are too sick or injured to work.

Related Post:
The Important Difference Between Good and Bad Debt for Doctors

What’s at stake?

If you complete your training at age 35, start working with a salary of $150,000 and practice to age 65 with a salary increase of 5% annually, you will earn approximately $10,000,000 ($9,965,827 to be exact). This is professional athlete money! If your salary or income potential is higher, you have even more to lose.

(Larry’s not wrong! Check out this post comparing the financial lives of professional athletes and doctors!)

Purchasing adequate insurance protection is a fundamental component of a physician’s financial plan. The purpose of insurance is to protect against risks that would be financially devastating to you and/or your family. Here, the risks of many individuals and business entities transfer to an insurance company or other large group in return for a premium.

When it comes to disability insurance, most doctors don’t pay much attention to details. They are more concerned about:

  • Saving money in income taxes,
  • Investing in the stock market, or
  • Looking for new opportunities to increase their income beyond the practice of medicine

Unfortunately, this is equivalent to putting the roof on a house before you lay its foundation.

Your Health Is Your Wealth

First and foremost, let’s not forget that your health is what allows you to qualify to purchase disability insurance. Your money is what allows you to keep the policy in force. There are many medical conditions that might prevent you from being able to purchase disability insurance altogether the way you desire.

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Let’s look at a few recent examples from my practice:

Case Studies

The Pregnant Anesthesiologist

One of the most common questions asked by female doctors is “If I am pregnant, can I purchase disability insurance?”. The answer is yes. However, if one is pregnant at the time of policy purchase, received infertility treatment or had prior complications of pregnancy, the policy will be issued with an exclusion rider. This will state, “We will not pay policy benefits for: Pregnancy or complications of pregnancy including any treatment or operation therefor or complication thereof”.

The Surgeon with Ulcerative Colitis

In the “best case”, a client with Ulcerative Colitis will have a policy issued with an exclusion rider. This will be for “any disorder of the large or small intestine, including any treatment, or operation therefor or complication thereof “. This assumes that one has had regular colonoscopies and/or follow-up with a Gastroenterologist.

More typically, a policy is issued with a 25%-50% rating (sub-standard additional premium charge), no increase options and benefits payable for five or ten years (not to age 65 or longer). Additionally, no increase options are typically available. 

In a case where the medical records also noted several times that a colonoscopy was recommended and the potential insured did not have it done, the insurance company would not issue coverage. 

The insurance company stated that “We can reconsider our decision with completed recommended colonoscopy, subject to then current insurability and underwriting guidelines”.

The Anesthesiologist with Depression

This client was diagnosed with mild depression and had taken antidepressants for a period of time prior to the application. They approved the policy with an exclusion rider. It stated that “We will not pay policy benefits for: Any mood or anxiety disorder; or any mental, emotional, adjustment disorder; stress reaction or posttraumatic stress disorder as defined in the Diagnostic and Statistical Manual of Mental Disorders – Fourth Edition (DSM-IV), or its previous or subsequent editions or replacement, or any other DSM-IV diagnosis; or any somatic complaints arising from or attributed to any of the preceding diagnoses, including any treatment therefor, or complication thereof”.

The Pediatrician with a Muscle Sprain

This client consulted with a physician and had an MRI for pain in her neck. It turned out to be cervical radiculopathy at C6. The MRI showed shallow right paracentral disc bulging. She also consulted with a Chiropractor. The records from the chiropractor indicated that she presented with mild upper back discomfort. She was treated for three months for all areas of the spine. They approved the policy with an exclusion rider stating that “We will not pay policy benefits for: Any injury to or disease or disorder of the spine, its muscles, ligaments, discs, or nerve roots (including radiculopathy or sciatica), including any treatment or operation therefor or complication thereof, except for fractures, burns or lacerations”.

The Ophthalmologist Using Propranolol 

This client used Propranolol to steady her hands during difficult surgeries (although I see this used for anxiety during public speaking and interviewing as well).

They issued her policy with an exclusion rider. It stated that “We will not pay policy benefits for: Tremor(s) including any treatment or operation therefor or complication thereof”. 

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Anesthesiologist with Obstructive Sleep Apnea

In this case, the doctor diagnosed with severe sleep apnea in mid-late 2020. The underwriter’s reply was “We need to be 2 years out before we can offer any type of coverage”.

While some of these situations could have been avoided by purchasing disability insurance sooner, other ones could not.

So, how can you avoid some of these underwriting issues?

Solution #1 – Purchase Coverage Early In Your Career

While I hate to sound too much like an Insurance Agent, sometimes we must go back to the basics. One of the biggest objections when it comes to buying disability insurance is that they “cannot afford it”. Really? In my eyes, you cannot afford not to have it. Disability insurance does not have to be expensive. 

What if I told you that you could purchase a very small policy and after you are approved, you could potentially reach up to $20,000 month, regardless of your health, as your income rises?

Currently, Standard Insurance Company1 will allow Residents/Fellows to purchase a policy with a monthly benefit as low as $1,000 month. This policy for a 30 year old Internal Medicine Resident in New York, payable after 90 days, to age 65 with an Enhanced Residual Disability Rider, a 3% Indexed Cost Of Living Adjustment (COLA) Rider, an Automatic Increase Benefit (AIB) Rider and a Benefit Increase Rider (BIR) would cost $23.73 month for a male or $34.71 for a female with a 24 month limitation for claims related to mental/nervous and/or substance abuse disorders. The same policy for a General Surgery Resident would be $25.12 month for a male or $42.10 for a female with a 24 month limitation for claims related to mental/nervous and/or substance abuse disorders. This includes a 15% Resident/Fellow Discount. 

The Benefit Increase Rider (BIR) is a no cost rider. So, the insurance company requires that you “check-in” with them every three years and complete an application to increase your coverage. If you do not qualify for additional coverage, after the application is reviewed, you do not need to do anything else. You preserve your increase option for future use. However, if you do qualify for additional coverage, you must purchase at least 50% of the offered amount. Otherwise, the rider will be removed from your policy permanently. The same is true if you do not apply every three years.

This strategy allows you to lock into the fact you are in good health today, as well as, allows you to increase your coverage substantially in the future. 

This strategy may also work for Principal’s policy using their Benefit Update (BU) Rider. But you must purchase at least 75% of the amount you qualify for financially. As a result, the best way to accomplish this is to use your actual earned income and employer provided group Long-Term Disability (LTD) coverage to calculate the available benefit.

Berkshire (Guardian) requires that Residents/Fellows purchase at least 50% of the amount they qualify for under their “Special Limits for New Professionals Program.” This is not the case for Dental Market or Florida applicants. 

MassMutual requires that you purchase at least 75% of their “New In Practice” Limits in order to have the Benefit Increase Rider (BIR) included in their policy. 

While purchasing this limited amount of coverage is not my recommendation, it is a great way for those that genuinely cannot afford to pay a lot in premium or for a “non believer” (one that truly thinks that their health is not going to change or does not think they need disability insurance but are willing to take a “leap of faith” using what I have deemed the “Lease with the Option to Buy” strategy). 

Solution #2 – A Guaranteed Standard Issue (GSI) Plan

As a Resident or Fellow, in many ways the world is your oyster. Not only are you more likely to have access to discount plans, but you may also have access to a Guaranteed Standard Issue (GSI) Disability Insurance Plan. This is the same policy that you would purchase on an individual basis, from the same companies that require medical underwriting but, due to your hospital affiliation at the time, not only is there a discount but no medical underwriting is required.

How does a GSI Plan Differ from a Fully Underwritten Policy?

These policies have discounts and some of the plan parameters are “pre-packaged”. For example, Standard Insurance Company’s Graduate Medical Education (GME) Plan includes benefits to age 67 (I typically prefer benefits to age 65), has a maximum monthly benefit of $15,000 month (compared to their fully underwritten plan maximum of $20,000 month) and includes a 24 month limitation for claims related to mental/nervous and/or substance abuse disorders. 

Why Would an Insurance Company Offer This?

It is a way for them to put additional business on the books. Since there is no medical underwriting required, they know that some applicants will be unhealthy and/or have pre-existing conditions. Female physicians, however, might be doing it if unisex rates are available.

Unisex Rates

Ideally, females want to purchase a policy that includes a unisex (gender neutral) rate structure and a discount. This is a blended rate that greatly favors females and can, generally, provide them with a savings of 40-50% off the normal female premium rates.

To qualify, one would normally purchase their policy as part of a Multi-Life Discount program through one’s employer or as part of a Guaranteed Standard Issue (GSI) program, as described above, except in Montana (where all policies have unisex rates) or in the Commonwealth of Massachusetts (where due to Bill H.482, some insurance companies offer unisex rates). Ameritas also provides unisex rates for all policies issued with a discount in the State of Ohio. Unfortunately, this rate structure is now more difficult to find than it was in the past. 

Insurance Companies Need to Balance the Risk and Protect Themselves

If a minimum number of potential insureds that are eligible to purchase their coverage under the GSI plan, do not enroll, the insurance company may discontinue it and no longer make it available to new insured. Unfortunately, as a result, many GSI plans at well-known institutions have been discontinued due to lack of participation. 

Another way the insurance companies protect themselves is to use a pre-existing condition limitation. They exclude coverage for disabilities due to a pre-existing condition. This is for the first 12 months that the policy is in force. After the first 12 months, a pre-existing condition will be covered only if the pre-existing condition is not specifically excluded from coverage by amendment or endorsement. 

A pre-existing condition is any mental or physical condition for which, during the three-month period preceding the policy’s effective date, you have consulted a physician, received medical treatment or services or undergone diagnostic procedures, or for which a reasonably prudent person would have sought medical advice, care or treatment.

Meaning, if you were a Type 1 Diabetic, you would normally not qualify to purchase individual disability insurance from a “traditional” carrier. However, the GSI plan would not only provide you with the ability to secure coverage. After you own the policy for 12 months, even diabetes or complications associated with diabetes would be covered. 

This is a “Home Run” for those that need or want this type of coverage

At the time of writing, the companies that offer these plans may vary from one institution to another. They are available at several institutions that including:

  • Rutgers,
  • Johns Hopkins,
  • University of Maryland Medical Center,
  • the Baylor College of Medicine,
  • the University of Washington,
  • Medical University of South Carolina (MUSC),
  • the University of Arizona,
  • Eastern Virginia Medical School (EVMS),
  • University of Virginia, and many others. 

Agents that specialize in the “medical market” should be familiar with these offerings. Even if they cannot offer them directly, they should be able to refer you to the “Endorsed” agent who can. 

What Doctors Need to Look for in an Individual Disability Insurance Policy

You should make sure that your policy or policies contain a true “Own-Occupation” definition of total disability. A policy with this definition of total disability makes it possible for you to continue working and earn unlimited income so long as your disability renders you unable to perform the “material and substantial” duties of your occupation. 

Currently, there are only six companies that currently offer this definition of Total Disability to physicians including Berkshire Life (a Guardian Company), Standard Insurance Company, Principal, Ameritas, MassMutual and Ohio National. The availability of this definition may also vary based upon state of residence and/or medical specialty.

Additionally, the policy should include a:

  • Residual/Partial Disability Benefit,
  • Cost Of Living Adjustment (COLA) Rider, and
  • The ability to increase your coverage, regardless of your health, as your income rises.

All Agents Are Not Created Equal

There is no shortage of insurance agents and/or financial advisors that work with or want to work with physicians. Medicine has a standardized path for physicians to take.

But the insurance and financial services industry does not. Since the industry is heavily regulated, you will not be paying anything more by purchasing your policy based on experience. The price point buying from an “experienced” agent is the same as from a newly licensed or “inexperienced” one.

Summary

In conclusion, your ability to earn an income is your most valuable asset. It allows you to repay your debt, accumulate wealth and create a lifestyle for yourself and your family. With significant income potential at risk a long-term disability may leave you financially devasted. A properly structured disability insurance policy provides doctors with the protection to maintain their lifestyle. Don’t take the purchase of disability insurance lightly – your entire financial future may one day depend on it.

Lawrence B. Keller, CLU, ChFC, CFP® is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians.  You can reach him at (516) 677-6211 or by email to [email protected] with comments or questions.

What do you think? Do doctors need disability insurance? (Yes!) Did you have any issues getting your policy? Any questions for Larry? Let us know in the comments below!

Larry’s Disclaimer

Firstly, these are the personal views of the author and may not represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof.  Material is for general informational purposes only. It is not tax, legal, or investment advice. Therefore, the information should be relied upon only when coordinated with individual professional advice.  

Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. Optional riders are available for an additional premium.  Some policy benefits and features are not available to all occupations. 

1Certain product limitations apply.  Optional riders may be available for an additional premium.  Some policy benefits and features are not available to all occupations. Talk to your financial representative and refer to your individual disability policy for more information.   

Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Avenue, 9th Floor, New York, NY 10017-6603, 212-541-8800. Securities products and advisory services offered through PAS, 1-516-677-6200. Financial Representative, The Guardian Life Insurance Company of America, New York, NY (Guardian). PAS is a subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian. AR Insurance License #1057229, CA Insurance License #0C37340.

PAS is a member FINRA, SIPC

2021-125759 – Exp. 08/2023

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