Especially when we are young, we feel invincible. We’re healthy, and think we will stay that way. Unfortunately, we’re only one car accident or bad diagnosis away from becoming disabled and unable to work.
This is why disability insurance is one of the cornerstones of financial planning for physicians. In this article, we’ll review the basics of disability insurance.
What is disability insurance?
Disability insurance protects against the loss of your ability to do your job. Depending on the policy’s definition of disability, the insurance policy will pay you a benefit should you become disabled and unable to do your job.
Who should purchase disability insurance?
Disability insurance should be purchased by anyone who is dependent on their current or future income. Even if you are not married or don’t have children, if you were to become disabled, you would still need to support yourself for the rest of your life. So some people who may choose to not purchase life insurance may still purchase disability insurance.
That being said, not everyone needs disability insurance. If you are independently wealthy, you might not need disability insurance. If your spouse makes a similar income as you and together you would be able to live on half of your income should you not be able to work, then it might not be necessary for you to purchase disability insurance. If you have a particularly generous group disability life insurance, then you may not need supplemental private disability insurance.
Like life insurance, you also don’t have to pay the disability insurance premium for the entirety of the contract. If you achieve early financial independence, it is not necessary to continue paying the monthly or annual premium if you don’t need the benefits.
The importance of own-occupation disability insurance
The single most important detail in your disability insurance policy is the definition of disability. When talking with an insurance agent, be certain that you are purchasing own-occupation disability insurance.
Own-occupation disability insurance defines disability as the inability to perform your own specialty. It is critical to get own-occupation insurance, because there are some disabilities that may make you unable to perform your functions as a doctor, but you might still be able to work at non-clinical jobs. For example, if you are a surgeon and you injure your hands in a car accident, you may not be able to perform surgery, but you might be able to still work at a non-medical job that pays significantly less than a typical surgeon salary.
How do you buy disability insurance?
There are currently six major disability insurance providers available to you if you work with an independent agent: Standard, Guardian, Ohio National, Principal, Ameritas, and MassMutual. Unfortunately, unlike homeowner’s or car insurance, you cannot just call each of these insurance companies up and request a quote. To my knowledge, you have to work with an insurance agent who will prepare these quotes for you.
You can select a local insurance agent if you want face-to-face contact, but that is not required. I worked with an insurance agent who worked out-of-state hundreds of miles away from where I worked. All communications were performed by phone, e-mail, or snail mail, and there were no issues at all with the remote interaction.
It is important that you work with an independent agent. If you do not work with an independent agent, then you will likely end up with fewer quotes, and you may potentially get only one disability insurance quote. Disability insurance is more or less a commodity, so you want as many quotes as possible to get the best combination of benefits and price.
When should you purchase disability insurance?
You should purchase disability insurance when you or your family depends on your income. For many, this can be during residency. I personally purchased my term-life insurance and own-occupation disability insurance as an intern. Especially if you have a spouse and kids who depend on your current or future income, you should consider purchasing disability insurance early in your training.
For residents, an important thing to include in your disability insurance policy is a future purchase option rider. This enables you to purchase more disability insurance once you become an attending and your income rises, without having to perform an additional medical exam.
How much does disability insurance cost?
According to Chris Wimberly at The Disability Doc, the average premium for a healthy non-surgical resident in their late 20s is around $110/month for males and $170/month for females for own-occupation disability insurance with a $5,000/month benefit. However, the cost of disability insurance for any individual physician can be very different from this amount.
The cost of insurance depends on many factors, including your age, gender, specialty, medical history, and participation in dangerous activities. It also depends on what options you select for your individual policy, such as the benefit amount and an option to purchase additional disability insurance without a medical exam.
You should always work with an independent agent who can get multiple disability insurance quotes to help you get the best deal.
What about group disability insurance with your employer?
Your employer may provide, or give you the option to purchase, group disability insurance. In some cases, this may be sufficient to meet your financial needs in the case of disability. It is important to read the details of the policy.
However, there are several downsides to only holding group disability insurance. Group disability insurance is generally not own-occupation. The group disability insurance benefit may not high enough to fully meet your financial needs, especially for high-income professionals. In addition, if you leave your employer, you may not be able to carry that policy with you, although you could potentially purchase insurance from your new employer.
What about Social Security disability benefits?
Social Security does offer disability benefits as well, but the standard to claim disability is higher than with commercial disability policies. Social Security is not own-occupation disability insurance, and you won’t be considered disabled if you are able to perform non-clinical jobs. The monthly benefit is also significantly lower than the typical physician income.
Disability insurance is something that every physician should consider. If you decide to purchase private disability insurance, be sure to buy own-occupation disability insurance from an independent agent. Residents should be sure to include an option to increase their benefit following residency without an additional medical exam in their policy.
What do you think? Do you have disability insurance? If so, when did you buy it?