Disability Insurance can be a complicated product. But disability insurance is necessary for all physicians.
I was shocked to recently speak with one plastic surgeon 1 year out of training who still had not bought a policy. The reason? It seemed really expensive. And yes, it is! But not nearly as costly as losing your future income potential due to injury or sickness without a policy in place. Just ask Ian Cook…
Regardless, it’s important to take into consideration your life stage when determining the most suitable policy for your needs.
As you navigate throughout your career, it is important to reassess your disability insurance needs. It may make sense to make modifications as your life circumstances change.
To address these considerations, I asked Jamie Fleischner for help. Jamie is President of Set for Life Insurance, a nationally recognized independent insurance broker. Since 1993 she has specialized in helping thousands of physicians with their disability insurance, term life insurance and long term care needs.
The basics of disability insurance for physicians
Here is some important basic information about any disability policy:
- There are six companies that provide individual disability policies to physicians. These are Guardian, Principal, Standard, MassMutual, Ameritas and Ohio National.
- Monthly benefit. Most companies will allow you to purchase up to $25k/month benefit. If your income will exceed $750k/year, you may want to consider purchasing with more than one company. By having 2 or more companies, you may aggregate your monthly benefit up to $35k/month or possible more as the companies increase their limits.
- Definition of Disability. It is important that you have a policy that will cover you if you can’t work in your medical specialty regardless of income earned in another medical specialty or occupation. The top 6 companies listed all have a true own occupation definition of disability.
- Residual/partial disability policy that will cover you if you aren’t totally disabled
- Increase options that allow you to increase benefits in the future without answering medical questions
- Noncancelable, guaranteed renewable language. Once you have a contract, they cannot modify or change your contract or increase your premiums.COLA. Cost of Living Adjustment Rider will increase your benefits each year after you have been on claim for 1 year
- Other. There are other riders that are typically not recommended such as a loan payment rider, CAT catastrophic rider and a retirement rider
Disability insurance for physicians at every career stage
Let’s go from the very start…
Medical school, Medical Residency, Fellowship
This is the time when most people initially purchase a disability policy. There are a lot of reasons to consider purchasing during this time of your career. For one, discounts are typically available when you purchase your policy during medical school, residency or fellowship. Discounts average around 10-15%. Some companies will allow you to purchase up to 6 months after you finish your training and still allow the discounted rate.
Just be careful of severely discounted policies that are not truly own occupation or undercover you.
As a medical student, you may purchase up to $2500/month benefit in your last 2 years of medical school even if you don’t have an income.
During residency, you may purchase between $2000 and $5000/month benefit regardless of income or any group benefits in place.
Graduating residents/fellows and attendings in their first 2 years may purchase up to $7500/month benefit regardless of income or any group benefits in place.
No labs (blood and urine test) are necessary if purchasing a policy while in training.
When you purchase your policy at this stage you are locking in your rate at your current age and health. This is the time when it is likely the least expensive it will ever be. Once you have your policy, you may increase in the future without answering any future medical questions.
Early in your career you will want to stack your policy with most or all of the available riders. This is because you are at the most vulnerable time in your career. You have the most potential income and likely the largest amount of debt you will ever have as well as the least amount of assets.
Attending Physician and career in your 30s (like me!)
During this stage of your career, the amount of available benefit will be based on your income and any group disability benefits in force. If you purchase more than $10,000/month benefit, you will likely need to complete a paramedical exam (blood and urine test).
Discounts are still available with some companies.
You will want to make sure you keep your policy up to date as your income changes and if you have a change in your employee benefits.
As you settle into your career, it is important to continue to review your policy when you have a life change. These include purchasing a house, changing jobs, getting married, having kids, divorce, change in health, moving to a different state or receiving a significant change in income.
In fact I recently just did a holistic review of my policies. Turns out, we are in a good place. We have sufficient term life and disability to cover those catastrophes.
Middle Age (50 is the new 40?)
As you pay down your debt and accumulate assets, it is important to reassess your needs.
Ask yourself the following questions to determine how to maintain your policy:
- How much nontaxable benefit do I need to have to pay my bills?
- Have you paid off debt and no longer have the burden of monthly payments?
- Has your health changed?
- Have you accumulated substantial assets elsewhere?
If so, you may be able to remove the COLA rider, increase the elimination period and/or reduce the monthly benefit depending on your new criteria.
As you approach retirement, it is important to take a look at your financial situation and determine how much longer you need to keep your policy.
If you have had an adverse change in health, you may want to consider keeping the policy since you would likely not be able to go out and purchase the policy again. You may also need to file a claim in the coming years.
If you have had a change in health but have accumulated assets, you may want to consider modifying the policy by reducing the benefit, dropping the COLA rider, increasing the elimination period and/or reducing the benefit period.
If you have accumulated enough assets where you can live off of your own funds, you may not need your policy anymore. First assess what you have through your employer. And make sure there would not be any penalties to tap your assets if you were to become disabled and needed to retrieve the money.
The policy will automatically expire at age 65. If you wish to continue the policy at that time, you need to prove you are working at least 32 hours a week and the benefit period will change to 24 months (depending on the company).
If you decide to drop your policy, you may want to consider a long term care policy. This would help protect your needs during your retirement years.
Disability insurance for physicians is pretty simple
Basically, if you need to work to cover your expenses, you need disability insurance. And you need own occupation disability insurance.
Once you make this simple determination, you can simple review this post to tailor exactly how much you need and which riders you should include.
Point blank – disability insurance is mandatory. And as high income earners, we can easily afford the premiums. So there is no excuse!
Knowing exactly what insurance you actually need as a doctor can be tricky. Especially because too many people are trying to sell you insurance you do not need. Here are some additional resources to help you figure out what is right in your situation:
- What Types of Insurance Do Doctors Actually Need?
- Cover Your Assets: Umbrella Insurance for Physicians
- 9 Step Financial Checklist for the New Year
- Disability Insurance for Doctors: A Tale of Two Policies
- How Insurance Brokers Get Paid & Why It Matters
What do you think? Do you have adequate disability insurance? When did you get it? When will you get rid of it? Let me know in the comments below!