Biggest Impacts on the Cost of Disability Insurance
Residents and Attending Physicians alike have at least one thing in common – both need a solid long-term disability insurance policy in place. Having adequate disability insurance coverage is a must to protect your future income as a physician.
You know you need long-term coverage, but you’re concerned about the cost of the disability insurance policy.
As you begin shopping around for adequate coverage, you may start to wonder what has the biggest impact on the amount you pay for your annual premium. When it comes to disability insurance, there’s not a blanket answer which works for every physician. And as I’m sure you may have guessed already, there are multiple variations within each specific category, which can also have an impact on your cost.
There are several factors which influence the cost of disability insurance for you. These factors range anywhere from the state you live into the specialty you are practicing. Your policy has to be based on your needs both as a physician, as well as your personal circumstances.
Let’s take a look at each of these categories and how it will affect the premiums for your long-term disability policy.
The Cost of Disability Insurance
The first question many people ask when shopping for a policy is how much the annual premium is going to be. Like many types of investment or insurance products, the price really does depend on exactly what you choose to add or delete in your policy.
But as a general rule of thumb and for your planning purposes, male physicians should plan on budgeting around 1%-3% of your gross annual income. For female physicians, you should expect to pay a higher percentage of around 3%-5%. We will explain why there is a disparity between the two later on.
For example, if you’re a male physician earning the national average of $208,000, then your annual premium would range from $2,080 to $6,240. Female physicians with the same parameters could expect to pay $6,240 to $10,400.
Depending on where you are in your career, this can definitely seem like a substantial amount to pay each month. So when your agent calls to give you the quote, you need to understand what specifically is impacting your cost of disability insurance.
Major Impacts on the Cost
What’s important to remember about disability insurance for physicians is that it’s not a “one-size-fits-all” approach. The policy you choose for coverage may not necessarily look like the policy your colleagues choose to purchase. Not only do the attributes of your policy make it unique to you, but it also influences how much your annual premium will be.
According to Michael Relvas of MR Insurance Consultants, “disability insurance can be quite costly, especially when all of the extra bells and whistles are included. In order to keep these policies affordable, it’s important to focus on the benefits and riders that provide the best value for each individual’s situation and optimize the premium dollars a person is able to spend.”
You may be under the assumption that the cost of your premium is mostly based on which insurance company you choose or the agent you’re working with. These might affect it to some degree, but it really comes down to do specific circumstances surrounding your policy.
By far, the area which impacts the cost of your policy the most is your specialty. There are some specialties which are considered more hazardous than others. Specialties are evaluated on their risk level. For instance, if you are an anesthesiologist, you are considered more of a high-risk versus a primary care physician.
Insurance companies also evaluate the number of claims for each specialty and determine which specialties are more prone to claims. Not only are certain specialties which have higher risk of injury, but some of them have higher claims of mental illness and substance abuse. All of these types of claims are factored in the equation.
Remember, each disability insurance policy will payout around 40%-50% of your monthly income. If you are a high-earning specialty, such as a Dermatologist, it may be worth consideration to purchase 2 policies.
This is where working with an experienced agent – one who specializes in working with physicians – can become invaluable. Currently, there are 6 insurance companies which offer individual disability coverage for physicians. Each insurance company has its own classification system for specialties. What is considered a higher risk to one company, may be considered less of a risk to another. You want to work with an agent who has access to as many companies as possible and understands the nuances of your specialty.
Which Riders You Select For Your Policy
Another factor that impacts the cost of disability insurance is the specific riders you choose. Riders simply refer to conditions in your policy. Riders give you room to add additional coverage based on your needs, which will make your policy as comprehensive as possible.
You should choose riders carefully, based on your age and your specialty. Which riders should physicians look to utilize the most? Ultimately the decision is up to you, but in general, there are a few which are considered “standard” for a doctor to have in their policy.
Partial or Residual Disability
A partial or residual disability rider for a physician’s disability insurance policy is very important. This rider will provide coverage for you when your schedule becomes limited. If you are diagnosed with an illness or suffer from an injury which prevents you from working a full schedule, then this rider will payout based on your full-time.
This rider is for physicians who continue to work but can no longer maintain their previous workload. If you are paid based on the number of patients you see, then this is a must-have for your policy.
Cost of Living Adjustment
You will also want to consider adding in the cost of living adjustment rider, or COLA as it’s referred to. Having this rider in your policy will adjust your disability payout for inflation. If you don’t have this rider, then your payout will remain static over the life of your policy.
It may be tempting to forego this rider but consider the age which you’re purchasing your policy. If you initially purchase your policy in your late twenties and then make a claim in your forties, your payout could be significantly impacted by inflation.
Future Increase Option
Adding the Future Increase Option, or FIO, to your policy is also a good idea. This allows you to adjust (and purchase additional) coverage later on without having to go through the underwriting process again. You will not be subject to the medical exam either or disclose a change in your medical history.
The FIO rider is a great way for you to adjust your coverage as your income and family grow over the years.
These 3 aren’t meant to be absolutes, but rather to guide you as you start to ask questions about what should be included in your policy.
Conditions Within Your Disability Policy
Not only do the riders affect the language (and therefore cost) of your coverage, but there are a few other important terms for physicians to understand. Having this language included in your policy can also affect the rate.
Own-Occupation is a must for physicians. Fortunately, it is common to find this definition of disability in a personal long-term disability policy. Own-Occupation language is important because it allows you to continue to receive a payout from disability, even if you are able to return to work. The own-occupation refers to your previous duties as a physician, not the duty you are able to perform after you file a claim.
The other option is referred to as Any-Occupation. You will want to make sure your policy does not contain this type of language. Any-Occupation allows the insurance company to deem what type of work you are eligible to work, in case of disability. The insurance company could literally avoid providing a payout because you are able to work an office-type setting, even though you’ve been a surgeon your entire career. Most group insurance policies through your employer are written as Any-Occupation.
With a non-cancelable insurance policy, the insurance company can not change your premium rate as long as you’ve made your payments towards your policy.
Having a guaranteed-renewable policy means the insurance company can never cancel your policy, assuming you have maintained payments on the premiums.
The elimination period is the designated time between when you file a long-term disability claim and when the payout actually occurs. There are multiple options available to you. There are policies with 90 day elimination periods, all the way up through 2 years. The longer the elimination period is in your policy, the more it will impact your premium. It’s less expensive the further out you extend your payout.
How Your State Impacts the Cost of Your Policy
You may (or may not) be surprised to learn where you live greatly affects your premium rates. The two most expensive states in the U.S. are currently California and Florida. If you happen to live in one of these two places but you know you could move, it may be worth your time to purchase your policy in your new state.
Conversely, if you have already purchased your policy in one of the more expensive states but have since moved, it’s worth a phone call to your agent to find out if it’s time to modify your current policy.
Since physicians could find themselves in the position of having to move after completing residency, it’s worth understanding how where you live affects the cost of your disability insurance. Make sure your agent is aware of your plans so the policy can be written where it makes the most sense, financially speaking.
When You Purchase Your Policy
When you purchase your long-term disability policy can also make a difference as to how much you pay for your annual premium.
If You Are a Resident or Fellow
Without a doubt, the best time to purchase your policy is during your residency or fellowship. There’s a reason you receive so many offers from insurance agents during your training. During this time, It’s presumably when you are the healthiest version of yourself. By selecting your policy as a resident or fellow, you’ll receive the most competitive rates on your annual premium.
When you’re a resident, it’s important to begin working with an insurance agent who specializes in working with physicians. Not only does this type of agent understand your unique needs as a doctor, but can also make suggestions based on your budget.
Purchasing during your residency or fellowship is ideal, but what if you’re past this point? The good news is, you can actually receive the same competitive quote up to 90 days after graduation. You may not find this piece of information readily available, but it’s worth confirming with your agent.
If You are an Attending Physician
There are still some of you who choose to wait after this 90 day period. By waiting past this point, you do run the risk of having premiums quoted at a higher rate, compared to when you were in training. But don’t worry, You can still work with an agent to put together a quote for you, no matter where you are in your career. A common reason for putting off purchasing a disability insurance policy is simply the cost. Before becoming an attending physician, your salary is paltry at best. You have student loans, rent or a mortgage, maybe even a credit card payment or a car payment too. All of these expenses make it hard to stomach the thought of adding another payment.
A tight budget is certainly understandable during this time. However, you can rest assured that if you can find room in your budget, you are making a very wise financial decision. Adequate disability coverage is worth making adjustments to your spending habits. There is never a better time than now to put together a monthly budget, and one which incorporates the cost of a comprehensive disability policy.
Other Important Considerations with the Cost of Disability Insurance
You know your specialty, your state of residence, and riders have an impact on your annual premium. But is there anything else you have control over?
Male or Female Physicians
Where women receive a break on premiums for life insurance, it’s the men who pay less in premiums when it involves disability insurance. Women are considered more of a “risk” to making a disability claim. This is due to childbirth and complications from pregnancy.
Insurance companies would say women historically file more disability claims than men. All of these factors drive up the annual premium amount for female physicians.
One way to mitigate the higher costs for female physicians is to look for policies which have a unisex rate. Again, this is where working with an agent who has access to as many companies as possible will be helpful. If a female physician purchases a unisex policy, it could actually end up saving upwards of 50% off the normal premium.
As an FYI, the state of Montana automatically utilizes a unisex rate for their policies. Soon the Commonwealth of Massachusetts will also offer unisex rates only. The bottom line is, if you’re a female physician then it will be very important for you to inquire about the availability of a unisex rate for your policy.
Another option to help with the cost of disability insurance is to purchase a Multi-Life Discount. This is where 3 or more employees from the same practice purchase a disability insurance policy. The 3 (or more) employees do not have to all be physicians, and the policyholders can be either male or female.
One area which you have the most control over is your lifestyle. Not surprising but if you are a non-smoker then your rates will be lower versus a smoker.
You will also be asked about your extra-curricular activities. A physician who is active in rock-climbing or skydiving could pay more than a physician who doesn’t participate in these types of activities. Your agent can help you understand which activities can make a difference in the amount of your premium.
Time to Purchase Your Disability Insurance
As you can see there are several factors they consider when it comes to the cost of disability insurance. But no matter how much you think you can or can’t afford, having a policy with coverage is critically important for physicians. Your higher earnings and the physical demands of your job make it a must-have.
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