What is Disability Insurance and Why Doctors Need It
Disability insurance for doctors is crucial in an unexpected life event deeming you unable to work.
Becoming a doctor is the ultimate personal investment. You grind away for years on a paltry salary, struggling under the weight of student loans and barely scraping by – all the while dreaming of the comfortable salary and benefits you’ll enjoy in the future. Like most investments, you’ll reap the rewards in time.
That is, assuming you’re capable of working.
If you become physically unable to work, either through an accident or unexpected medical condition, your financial obligations won’t just disappear. You’ll still be on the hook for student loan payments, mortgage bills, and lifestyle expenses.
Medical professionals – especially those who specialize in delicate procedures and physically-intensive work – are at a unique risk for this kind of situation.
That’s where disability insurance for doctors comes in. It’s crucial for them to be covered in the event of an unexpected disability, and disability insurance is the only way to be fully protected without stashing away hundreds of thousands in a savings account.
Here’s everything you need to know about disability insurance for doctors: why you need it, what to look for where to buy it.
What is Disability Insurance?
Disability insurance replaces your income when you’re unable to work due to injury or illness. It is there to act as a financial stopgap, preventing you from losing your home or having your car repossessed. Disability coverage is designed to just help you stay afloat, so the payout is only enough to cover the essentials – like your mortgage, utilities, car payment and student loans.
Insurance companies usually pay a certain percentage of your income, between 40-60%, for an agreed-upon period of time. There are two types of disability insurance: short-term and long-term.
Short-term coverage kicks in between one to 14 days after the incident and lasts between nine to 52 weeks, depending on your specific policy.
Long-term disability insurance takes effect after short-term policies end and can last anywhere from several years to whenever the person turns 65. Like short-term coverage, it also pays out a portion of the person’s income, between 50-70%.
The Social Security Administration says that one in four 20 year-olds will become disabled at some point before retirement. In fact, many people end up retiring involuntarily because they become disabled. Even if you’re healthy, active and have no current physical ailments, disability could affect you or your family.
What are the Different Disability Insurance Riders?
Every disability insurance policy comes with its own set of conditions, known as riders. Here are the most common, including the ones you should avoid.
When you start researching disability insurance, you’ll notice two common phrases: own occupation and any occupation. Insurance companies pay out disability benefits based on whether or not you can work, but their definition of work varies based on the type of policy you have.
A policy that pays out for any occupation means you can only receive benefits if you’re unable to do any form of work, including jobs you have no interest or experience in. It’s very difficult to qualify for any occupation benefits because most people who become temporarily disabled can do some form of work. If you’re a surgeon and develop a slight tremor in your hands, the insurance company can easily prove you’re capable of doing other work. They don’t care that working in a grocery store is a massive step down from being head surgeon at a major hospital – if you can work at all, you won’t qualify.
Always avoid buying a policy with an “any occupation definition of total disability”. You’ll just be throwing away your money on a policy that may not support you when the time comes.
Own occupation disability insurance pays out when you are no longer able to perform the job you had before your injury. Even if you get a new job in a related or entirely different field, you’ll still receive disability benefits because you can’t execute your previous responsibilities.
This definition of total disability is a must for a physician as it is much more liberal and truly protects your ability to perform the duties of your medical specialty. Even if you are able to work after becoming disabled, it’s unlikely that your new gig would pay as well as your former position. Own occupation insurance will allow you to maintain your current lifestyle while figuring out the next step.
According to Lawrence B. Keller, CFP®, founder of Physician Financial Services, “Currently, there are only six companies that currently offer this definition of Total Disability to physicians – Berkshire Life (a Guardian Company), Standard Insurance Company, Principal, Ameritas, MassMutual and Ohio National. The availability of this definition may also vary based upon your state of residence and/or your medical specialty”.
Companies now offer a rider specifically designed to pay out enough money to cover your student loans. Sounds perfect for doctors with six-figure loans, right? Wrong. This product preys on the huge debt load that physicians tend to carry and doesn’t carry any extra benefits not available with a regular disability policy.
While the maximum payout on student loan riders can approach $450,000, in my opinion, it doesn’t make sense to have a rider specifically for your student loans as the term of the rider is only 10 or 15 years, which begins the day that your policy is effective. If you become permanently disabled, you can ask to have your student loans discharged. If you’re temporarily disabled, you can apply for deferment or forbearance.
Partial or Residual Disability Benefit
Disability insurance for doctors isn’t a black and white issue. It often results in an injury that can be managed, but still affects a person’s day-to-day life. Some people develop a disease that allows them to work, but cuts their productivity in half. If you have a condition where you can only work for 20 hours a week, disability coverage can help bridge the gap between your new salary and your current expenses.
That’s where this rider kicks in. It pays out when your disability limits your ability to handle your previous workload. Since some doctors are paid based on how many patients they can see, this is an important rider for physicians to consider.
What People Forget About Disability Coverage
Even though a good disability policy will protect you, you still need to have some liquid savings of your own. An emergency fund with three to six months’ worth of expenses will help keep you afloat until the policy pays out. It can take weeks or months for the insurance company to send your first check, so having an easily accessible emergency fund is vital.
You also need to examine your budget and determine if you could afford your expenses while living on disability. The difference might be minimal and easily managed with a few budget changes, but some people could find a big gulf between what they’ll receive and how much they spend. If the latter circumstance applies, your options are to purchase a bigger policy or increase your liquid savings. Remember to factor your spouse or partner’s income into your calculations.
When and Where to Buy Disability Insurance
Employers aren’t required to provide disability insurance, though some do offer long-term insurance as part of the general benefits package. Ask your HR rep what your disability options are and how much it would cost to buy extra coverage through that same company.
Then, contact an insurance broker who can give you a more comprehensive range of quotes. An insurance broker isn’t tied to a specific agency or company so they’re more inclined to help you find the best possible rate.
Mr. Keller also states that “Generally, discounts are available through your hospital affiliation, residency or fellowship program or professional association. For those that are completing their training and have heard that they must purchase their coverage prior to graduation to purchase a discounted policy, this is simply not the case. Discounts tied to a Residency/Fellowship program are typically available for up to 90 days after the completion of training”. Finally, he states that “Ideally, female physicians should purchase a policy with a unisex (gender neutral) rate structure and discount. Generally, this combination can provide them with a savings of 40-50% off of 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, except in Montana where all policies have unisex rates”.
If you leave your job, don’t forget to examine your new employer’s disability policy to see if you need to upgrade your personal coverage. Every company has their own disability coverage, so don’t assume it will be the same as your previous employer’s.
If you liked this article on disability insurance for doctors, we think you’ll love this podcast episode with Larry B. Keller: Winning Tactics For Finding the Right Insurance Policy
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